The S&P 500 experienced its first real dose of volatility early in the second quarter, but expectations for interest rate cuts by the Federal Reserve, solid economic growth, and continued strong financial performance from artificial intelligencerelated tech companies ultimately pushed the S&P 500 to new all-time highs and the index finished the quarter with strong gains.
While the S&P 500 hit new highs in the second quarter, the month of April was decidedly negative for markets as fears of no rate cuts in 2024 (or even a rate hike) pressured stocks. The catalyst for these concerns was the March Consumer Price Index (CPI), which rose 3.5% year over year, higher than inflation estimates. That hotter-than-expected reading reversed several months of declines in inflation and ignited fears that inflation could be “sticky” and, if so, delay expected Fed rate cuts. Those higher rate concerns were then compounded by comments by New York Fed President John Williams, who stated rate hikes (which investors assumed were over) were possible if inflation showed signs of re-accelerating. The practical impact of the higher-than-expected inflation report and Williams’ commentary was to push rate cut expectations out from June to September, which caused the 10-year Treasury yield to rise sharply, from 4.20% at the start of the quarter to a high of 4.72%. Those higher yields pressured the S&P 500 in April, which fell 4.08% and completed its worst month since September.