Quarterly Market Review 1Q 2024
Patient Capital Management is a Baltimore asset manager founded in 2020 by Samantha McLemore, CFA — Bill Miller's long-time co-manager (working together since 2002, running the flagship Opportunity Equity strategy since 2014). Continuing the Miller-school contrarian tradition, it practices "time arbitrage": exploiting behavioral mispricing to concentrate in controversial growth names (tech, healthcare, Bitcoin-related) at deep discounts to intrinsic value. Its site preserves Bill Miller's complete 1995-2022 market letters, alongside ongoing quarterly letters and webinars.
In plain words
This report breaks down U.S. markets in early 2024: stocks rallied (S&P 500 up 10.6%) despite sticky inflation (core PCE at 2.8%) and rising bond yields. The Magnificent Seven (Apple, Tesla, Nvidia, etc.) started splitting—Nvidia and Meta surged, while Apple and Tesla lagged. Bonds lost ground, but energy, telecoms, gold, and Bitcoin gained. For everyday investors, it’s a nudge to diversify beyond tech giants, watch rate risks, and consider commodities. Worth reading because it flags shifting market dynamics before they trip you up.
Patient Capital Research notes that since the October 2023 low, the market has risen for the fifth consecutive month, with the first quarter of 2024 total return performance ranking as the 15th best start since 1927. The core view is that market breadth has expanded, but the Magnificent 7 have shown
Theme and Background
This chapter reviews the overall performance of the U.S. capital markets in the first quarter of 2024, focusing on the equity market's continued uptrend from the October 2023 lows, and analyzes sticky inflation, rising interest rates, and the divergent performance across asset classes (equities, bonds, commodities, cryptocurrencies). The report notes that market breadth has expanded, but significant divergence has emerged within the Magnificent 7.
Core Thesis
The report's core investment argument is that after the market's 15th-best start since 1927, upward momentum remains strong, but the structure is shifting. Counterintuitive judgments include:
- Despite inflation stickiness exceeding expectations (core PCE at 2.8% year-over-year) and the 10-year Treasury yield rising back to 4.2%, equities recorded 22 new all-time highs with extremely low volatility (a maximum drawdown of only 1.7%).
- The Magnificent 7 is no longer a unified engine of market gains but is beginning to diverge: Nvidia and Meta led the rally, while Apple and Tesla lagged, with Tesla becoming the worst-performing stock in the S&P 500 for the quarter.
Key Arguments and Data
The report supports its views with the following data and comparisons:
- Market Performance: The S&P 500 posted a total return of +10.6% for the quarter, the Nasdaq Composite rose +9.3%, and the Dow Jones Industrial Average gained +6.1%.
- Volatility: The maximum drawdown for the quarter was only 1.7%, marking the most all-time highs (22) achieved in a start to a year since 1998.
- Sector Performance: Ten sectors recorded positive returns, led by Communication Services (+15.8%) and Energy (+13.7%), while Real Estate (-0.6%) was the only sector to decline.
- Size and Style: Large-cap stocks (Russell 1000 +10.3%) outperformed mid-caps (+8.6%) and small-caps (+5.2%); growth stocks (+11.4%) led value stocks (+9.0%).
- Bonds and Commodities: Bonds significantly underperformed equities, with the Bloomberg Aggregate down -0.8% and 20+ Year Treasury bonds down -3.8%. The U.S. Dollar rose +3.2%, Gold gained +6.0%, WTI Crude Oil surged +16.1%, and Bitcoin rallied +68.6% to $70,845.
Comparative Data Table:
| Asset/Index | 2024 Q1 Total Return |
|---|---|
| S&P 500 Index | +10.6% |
| Nasdaq Composite Index | +9.3% |
| Dow Jones Industrial Average | +6.1% |
| Russell 1000 Growth Index | +11.4% |
| Russell 1000 Value Index | +9.0% |
| Russell 2000 Index | +5.2% |
| Bloomberg Aggregate Bond Index | -0.8% |
| 20+ Year U.S. Treasury Bond Index | -3.8% |
| U.S. Dollar Index | +3.2% |
| Gold | +6.0% |
| WTI Crude Oil | +16.1% |
| Bitcoin | +68.6% |
Companies/Assets Mentioned
The report explicitly references the following companies, providing key data and judgments:
- Nvidia (NVDA) and Meta Platforms (META): Identified as leading members of the Magnificent 7, with a bullish outlook.
- Apple (AAPL) and Tesla (TSLA): Identified as lagging members of the Magnificent 7, with Tesla explicitly noted as the worst-performing stock in the S&P 500 for the quarter, carrying a bearish outlook.
- Other Magnificent 7 Members: Alphabet (GOOGL), Microsoft (MSFT), and Amazon.com (AMZN) are mentioned, but no specific performance data or judgments are provided.
Investment Implications
- Focus on Expanding Market Breadth: Although large-cap stocks continue to lead, sector and individual stock performance is diverging. Investors should avoid over-concentration in the Magnificent 7, particularly the underperforming Apple and Tesla.
- Be Wary of Interest Rate and Inflation Risks: Sticky inflation (core PCE at 2.8%) and 15 consecutive months of negative M2 growth suggest that expectations for Fed rate cuts (the market anticipates a start in June) may face challenges. Bonds, especially long-duration Treasuries, have underperformed, and investors should reduce exposure to interest-rate-sensitive assets.
- Diversify Allocations: Cyclical sectors such as Energy (+13.7%) and Communication Services (+15.8%) have performed strongly, while Real Estate (-0.6%) has come under pressure. Commodities (Crude Oil +16.1%) and Bitcoin (+68.6%) offer significant hedging or speculative opportunities, but high volatility warrants caution.