Read More

Markets In Focus: Job Market Stays Hot, Inflation Moderates

The U.S. economy showed continued strength in Q1 2024, despite some moderation in growth, a resilient labor market, and controlled inflation

GDP growth accelerated last year, indicating that the economy is growing despite tightening monetary policy. Even though it was lower slightly in Q4 2023 at 3.2%[1], the composition of real GDP was stronger than previously thought, including consumer spending and the expansion of the supply side of the economy.

Key Points

  • Gross Domestic Product (GDP) growth slowed slightly in Q4 2023 but remained positive (3.2%).
  • Consumer spending and supply-side expansion contributed to a stronger economic picture than initially thought.
  • The stock market continued to rise in Q1 2024, fueled by strong earnings and investor interest in artificial intelligence-related stocks.
  • Concerns about high valuations and limited market participation
  • Interest rate decisions by the Federal Reserve and future inflation are key factors to watch for the rest of 2024.


Overall, the U.S. economy remained strong in the first quarter of 2024.

The labor market continues to be resilient, and inflation is under control, regardless of some small upward revision because of seasonal problems. The favorable bull market rolled on in the first quarter, steadied by strong earnings and investors who continue to buy large stocks that may benefit from the artificial intelligence boom.

The market rallied, even as some worried about high stock prices and the concentration of returns from a limited number of stocks.

As 2024 unfolds, two big uncertainties are hanging over the U.S. equity market: the anticipation of the Fed rate cuts and the expected trajectory of inflation. Let’s dig into the U.S. economy, election year considerations, geopolitical risks, and market performance.

The Economy

Slower GDP growth is expected in 2024, but it should remain above 2%. Inflation is still elevated but moderating. The labor market remains strong.

We expect GDP growth to slow over the new few quarters and anticipate it to pick up later this year, especially if the monetary policy pivots to an easing cycle. As of April 10, the Atlanta Fed’s GDPNow estimate for Q1 2024 GDP growth is around 2.4%. This may change as we await the official first reading on April 25, but it’s safe to say that the first quarter saw continued but slower growth than in the second half of 2023. Overall, expectations are that GDP growth for 2024 will be around 2.2[2]%.

Inflation continues to be stubbornly high, thanks to firm consumer demand, but the upward trajectory remained milder than early last year.

The good news is that the March’s Core Personal Consumption Expenditures (PCE) inflation–the Fed’s preferred inflation gauge—appears to be less alarming and is expected to register a modest 0.25% increase (vs. 0.26% prior). We expect the core PCE inflation to moderate to 2.6% YoY by June.

Coming into the year, expectations were that the Fed would begin to lower the Fed Funds rate at the March 20 meeting. However, it became clear over the beginning of the year that inflation wasn’t coming down as quickly as the Fed wanted and economic growth was continuing to exceed expectations.

Chairman Jerome Powell still anticipates three rate cuts this year, even after the March meeting passed without a cut. However, expectations for the timing of the first cut are being pushed out even further. As of April 10, the market anticipates that the first rate cut won’t happen until September and it is now pricing fewer than two cuts for the whole year.

With all that, we still anticipate that the U.S. economy will be able to achieve a “relatively soft” landing. We remain upbeat about the economy and agree with expectations that GDP growth should remain above 2% for the year.

The labor market remains strong, as shown by the strength in the March job numbers.

We anticipate that the unemployment rate will remain below 4% throughout the year. While the supply-side surge in productivity growth appears to be mostly a cyclical response to tight labor market conditions, we anticipate that cyclical effect to be compounded by an AI-driven boom, which should help accelerate GDP growth in the next several years.

Election Season Inches Closer

The 2024 election is shaping up to be a rematch between Biden and Trump, with both candidates having low approval ratings. Historically, election years have been positive for stocks.

The first quarter settled the question of which candidates would represent the major political parties in the 2024 presidential election. The presumptive nominees are the incumbent President Joe Biden for the Democratic Party and former President Donald Trump for the Republican Party, setting up a rematch of the 2020 election.

Based on current favorability ratings, this election is on pace to have one of the most unpopular matchups in modern history. As of April 1, Biden’s net favorability is -15%, and -10% for Trump. If this remains, it would be only the second time that both candidates had net unfavorable ratings since 1980. The only other time was in 2016, with Hillary Clinton and Trump, according to ABC News.

Fortunately, despite the unpopularity of the candidates, equity markets tend to perform well during election years. Since 1950, U.S. stocks have averaged returns of 9.1% in election years.

And, over the past 23 elections since the S&P 500 index began, 19 election years (83%) have provided positive performance. While that’s not a guarantee that this year will be positive for stocks, it points to the fact that an election year shouldn’t cause investors to panic about their portfolios.

Geopolitical Risk

The ongoing conflicts in Israel and Palestine, Russia and Ukraine, and the potential for escalation between China and Taiwan, are major risks.

As we stated in our 2024 Outlook, one of the greatest risks that markets (and global citizens) face is expanding geopolitical risk. There seems to be further escalation in the Israel and Palestine conflict, even as the world calls for a ceasefire. Plus, the Russian and Ukrainian war seems to have reached a dangerous stalemate.

Still, an even greater geopolitical risk is the potential for escalation in tensions between China and Taiwan. China continues to state that its goal is to have a unified China, including Taiwan. Taiwan maintains that it is an independent country.

If China decides to use military force, it is unlikely that Taiwan would have the capabilities to defend itself. It remains to be seen how committed the U.S. would be to help defend Taiwan. If it did, it would put us in direct conflict with China.

Market Performance

The market performed well in Q1, but some of the high-flying tech stocks have cooled off. Generative AI is seen as a major driver of future growth.

The stock market continued its exuberance after a slow start to January. Stocks initially fell to start the year, but continued positive economic data led to higher performance.

Through March:

  • The Standard & Poor’s 500 Index returned 10.5%.
  • The Nasdaq Composite gained 9.3%.
  • The Dow Jones Industrial Average rose 6.1%.

International stocks also started the year out positive, with the MSCI ACWI ex-US up 4.5%.

One of the major themes of 2023 was the performance of the “Magnificent 7”, which drove most of the positive performance of the S&P 500.

  • The Magnificent 7 refers to Nvidia (NVDA), Meta (META), Tesla (TSLA), Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL).
  • Those seven names[3] returned a combined 107% last year, while the S&P 500 returned 26.3%.

So far in Q1, 2024, some of the Magnificent 7 stocks seemed to have lost their luster. TSLA has seen its stock decline 29.2%, while AAPL has pulled back 10.8%. Of the Magnificent 7, only four have had returns that have outpaced the S&P 500 (NVDA, META, AMZN, and MSFT).

Still, we don’t believe that we are reaching a point where these stocks are overvalued. They are capitalizing on one of the most disruptive technologies we’ve seen in our lifetime – generative AI.

A recent Bloomberg Intelligence report shows generative artificial intelligence is poised to produce $1.3 trillion in revenue by 2032, up from $64 billion in 2023. Importantly, this technology has the potential to lead to massive increases in overall productivity throughout the economy.

In summary, the U.S. economy is growing steadily even while slowing down.

We expect inflation could continue to fall and unemployment should stay low, potentially avoiding a recession. However, the stock market may be bumpy at times because of high stock prices and future interest rate changes. We’re keeping an eye on the election and global issues that have the potential to add uncertainty to the overall economic picture.

Want to read more about the markets and economy? Visit our Markets In Focus: What A Difference A Year Makes post with more about our economic footing for 2024, plus details on interest rates, the economy, and jobs.


[1] BEA second estimate released on Feb. 28, 2024
[2] Bloomberg Median Estimate as of April 12, 2024
[3] Bloomberg Magnificent 7 Total Returns Index – equal dollar-weighted. The UBS Magnificent 7 with S&P pro rata weight reported a return of 75.9% for 2023.

Investment advice offered through OneDigital Investment Advisors LLC. The materials and the information provided are not designed or intended to be applicable to any person's individual circumstances. These statements do not constitute an offer or solicitation in any jurisdiction. Any reference to a specific company is not a recommendation to buy, sell, or hold any security. Any economic forecasts in this commentary are merely opinion, and any referenced performance data is historical. Past performance is no guarantee of future results. All investment involved risk of loss. Some information has been obtained by sources we believe to be reliable. OneDigital Investment Advisors LLC makes no representations as to the accuracy or validity of this information. Additionally, OneDigital Investment Advisors doe snot have any obligation to provide revised investments in the event of changed circumstances. Views and Opinions expressed herein are provided as of April 19, 2024.