Quarterly Review and Outlook - April 2024

Dear Clients and Friends,

Spring is the time of plans and projects.

– Leo Tolstoy, from the novel Anna Karenina


College basketball’s March Madness tournaments are now behind us, and we send hearty congratulations to both the men’s and women’s teams for setting new television viewership records this year. It does seem a bit old-fashioned to be talking about TV viewership in the age of TikTok, virtual-reality headsets and artificial intelligence (AI), but we suspect the growing national acceptance of mobile sports betting and increased participation in workplace “brackets” may have been contributing factors in getting more people to watch the games.

Fun fact: the odds of achieving a “perfect bracket” – successfully predicting the outcome of all 64 tournament games – are astonishingly low, about 120 billion to 1 even for informed participants, according to NCAA.com.  One might think sports betting is an area in which a well-trained AI would have an edge over mere mortals, given AI’s ability to crunch huge amounts of data such as each player’s scoring percentages and defensive statistics. Indeed, the data science platform Kaggle launched its own bracket for the men’s tournament, and accurately foretold that UConn would beat Purdue in the final game. However, the AI-enabled bracket didn’t make it past the first round before failing in the quest for perfection, completely missing NC State’s run to the Final Four.

This is not to say that AI doesn’t hold great promise. For instance, in the field of biomedicine, a handful of recent breakthroughs have been made possible by the latest enhancements to AI models, according to a JP Morgan report[1].  Examples cited include Google’s AlphaFold program, which helps identify the shape of enzymes and other proteins so that scientists can determine whether to develop or destroy them (e.g.,SARS-Cov-2 spike protein.) Also, researchers at MIT and Harvard used AI to discover the first new class of antibiotics in several years, and AI-enabled diagnostic techniques have been shown to detect early signs of diabetic retinopathy, a leading cause of adult blindness.

Much has been written about AI in the context of recent stock market performance. In the same write-up mentioned above, JP Morgan explains that investors are rewarding AI suppliers (e.g., certain chip manufacturers) with higher valuations than AI beneficiaries (e.g., companies incorporating AI into existing software services.) In their view, while there may be pockets of excessive valuation, the equity market has not yet priced in the full potential impact of commercial AI implementation. And while tech stock valuations are indeed near all-time highs on a price/earnings basis, it’s important to note that free cash flow margins among technology and certain media companies are nearly three times higher than the rest of the stock market.

The S&P 500, driven in part by the so-called "Magnificent 7" group of companies[2] that includes both AI suppliers and AI beneficiaries, among others, turned in banner performance in the first quarter of 2024, rising over 10% during the three-month period to new all-time highs[3]. Another factor behind the market's strength is the continuing expectations that the Federal Reserve will begin to lower interest rates in 2024, possibly as soon as the current quarter, though robust growth in the labor market may delay the Fed's hand. Total nonfarm payrolls rose by 303,000 in the most recent month and the unemployment rate was unchanged at 3.8%, with solid gains in health care, government, and construction employment, according to the Bureau of Labor Statistics[4]. The ongoing labor market strength did cause some Wall Street firms to slash their rate-cut forecasts, though most still anticipate at least two reductions in the Fed Funds rate this year[5].

With equity market valuations somewhat elevated compared to historical norms, and with short-term bond yields still attractive, a little spring cleaning may be in order. Specifically, where taxes and other considerations allow, you may see modest portfolio rebalancing to ensure asset allocations are in line with the long-term target ranges for your portfolio.  We already do this throughout the year as part of the portfolio management process here at Evermay but wanted to highlight the current opportunity given the stock market’s recent rally and what may be higher financial market volatility as the US presidential election nears.

Here are some additional considerations for broader financial spring cleaning:

  • Review your financial goals with your Evermay Wealth Advisor. Take a moment to examine your financial aspirations and objectives. Are they still in line with your current circumstances?
  • Update your estate plan: Review your estate planning documents, including wills, trusts, and beneficiary designations. Ensure they accurately reflect your wishes and account for any changes in family dynamics or asset accumulation.
  • Review insurance coverage: Evaluate your insurance policies to confirm they provide adequate protection for you and your loved ones. Adjust coverage as necessary to address any significant life changes.
  • Consider family milestones such as upcoming college enrollment before your child heads off to school. We posted a list of documents you might need on our website last year – see the link in the footnotes below[6].

While Evermay does not provide tax, legal or insurance-related services, we would be more than happy to review your personal situation with you and help you connect with a trusted professional if needed.  As always, we encourage you to reach out at any time to discuss your portfolio to ensure your mix of assets is appropriate and aligned with your financial goals.

With best wishes for the season,

Mitch Schlesinger
Chief Investment Strategist






[1] JP Morgan, "Eye on the Market: The good, the bad and the ugly." April 2, 2024

[2] The so-called Magnificent 7 companies are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla. Source: Kiplinger.com, "What Are the Magnificent 7 Stocks?" January 7, 2024

[3]SPGlobal.com, S&P 500 Fact Sheet, March 28, 2024

[4] US Bureau of Labor Statistics, "Employment Situation Summary," APril 5, 2024

[5] Reuters, "PIMCO trims 2024 Fed rate cut expectations to 2 after jobs report," April 5, 2024

[6] https://www.evermaywealth.com/newsroom/college-prep-101-complete-these-documents-before-your-child-heads-off-to-school

Important Disclosure Information

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evermay Wealth Management, LLC [“Evermay]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Evermay. No amount of prior experience or success should not be construed that a certain level of results or satisfaction if Evermay is engaged, or continues to be engaged, to provide investment advisory services. Evermay is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Evermay’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.evermaywealth.com. 

Please Remember:

If you are an Evermay client, please contact Evermay, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.

Please also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.