QUARTERLY NEWSLETTER | Q1 2024 | ISSUE 17
A Note From the President
The first quarter of 2024 picked right up where 2023 left off – with strong growth in the equity markets. All three major indexes reached new highs as the rally broadened beyond just a few tech stocks.
 
Here at Penobscot, we are growing as well. I’m pleased to introduce Jonathan Parrott who recently joined us as Director of Investment Operations. Jon has over 20 years of operational experience beginning here in Boston at State Street, Bank of America and JPMorgan Chase and most recently at Dividend Assets Capital, LLC.
 
He brings extensive expertise in all the processes and procedures which keep Penobscot running on a daily basis from opening and closing accounts, trading, downloading and reconciling all activity, producing statements as well as a variety of reports we use to manage all the assets entrusted to us. I know you will enjoy meeting him either on the phone or when you are next in the office. Below is an announcement that we shared on LinkedIn.
 
As the days lengthen (and at the moment, hopefully the last winter storm is blowing in), we look forward to warmer weather and hope you will reach out with any questions. We value the trust you have placed in us.
 
Warm Regards,
Dan
2024-First Quarter Review

As we entered 2024, concerns of a possible recession, global wars, slowing growth and escalating international trade tensions had many financial pundits projecting relatively benign equity markets for the coming year. The bond market was also projecting several more interest rate cuts than the three being telegraphed by the Federal Reserve (“the Fed”). But during the quarter the economy continued to grow, employment remained strong and inflation remained elevated, and therefore the Fed did not cut rates at all.

After the mid-March Federal Reserve Open Market Committee meeting, Chairman Jerome Powell said: “We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.” He remained cautious, adding: “But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.” The Fed Governors are now projecting a 2.1% growth in GDP, up from 1.4% at the end of 2023, and unemployment slightly lower at 4.0% vs. 4.1%. They see core inflation as measured by the Personal Consumption Expenditure Index (PCE) to remain a little more elevated at 2.6%. 

With this positive backdrop, equity markets have continued to rally with all the major US large cap indexes hitting all-time highs in March. The S&P 500 appreciated by 10.2% while the Dow Jones Industrial Average rose by 5.6%. In 2023, the strong equity gains were largely concentrated in the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla). This past quarter two of those stocks were less than magnificent, with price declines, yet the combined return of Nvidia, Meta, Microsoft and Amazon accounted for nearly 50% of the S&P’s performance. 

A positive reflection of our resilient economy is the widening breadth of performance among sectors versus last year’s technology led rally. While technology related companies continue to do well, the communications, energy, financial and industrial sectors are all outperforming the S&P index. Corporate spending appears robust as industrial capacity utilization at 78.3% is in line with the 50-year average of 79.6% and reflects a growing economy. 
 
We are cautious as the S&P 500 is trading at a price to forward earnings ratio of nearly 22 times. This compares to the 25-year average of 17 times. Also, the higher interest rate environment is impacting consumer spending, particularly on large ticket items that require financing. The exception is housing, where demand and pricing appear firm due to a lack of supply. The price of food remains elevated and retailers on earnings calls are seeing reduced discretionary spending and consumers trading down to lower cost goods.

With this backdrop, we continue to focus on constructing a portfolio of companies with growing earnings, strong market positions, and management teams with demonstrated results.

We hope you have a wonderful spring and please reach out to us with any questions or comments.

Sources: FactSet, US Federal Reserve
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