Market Update: Q2 2024
Market Update: Q2 2024
A Tale of Two Markets
The total U.S. stock market is up about 13.6% this year. What’s wild is that the majority of the return can be attributed to just a handful of stocks.
Here’s the Wall Street Journal’s Jason Zweig on the performance dispersion:
The rest of the market looks like the polar opposite of those few giant technology stocks. In the second quarter of 2024, as big tech drove the S&P 500 up 4.28%, the Russell 2500 index—which tracks small and midsize stocks—was down 4.27%.
Nvidia alone accounted for nearly one-third of the S&P 500’s total return in the first half, according to the S&P Dow Jones Indices. Throw in Microsoft, Amazon.com, Meta Platforms and Eli Lilly, and 55% of the market’s return came from just those 5 stocks.
-Jason Sweig, Wall Street Journal
If you didn’t have meaningful exposure to the handful of top performers, your returns are probably mediocre.
Small company stocks are up only 1.6% year to date, while sectors like real estate and materials have lagged significantly.
International stocks are trailing U.S. stocks once again. Though market strategists continue to pound the table about the cheapness of foreign stocks…for the 15th year in a row!
Bonds continue plaguing asset allocators. Since 2021, the total U.S. bond market has returned -10.4% cumulatively including interest payments. Ouch.
Global Indices
Outlook & Positioning
Traders should brace for a significant pullback in the stock market as uncertainty swirls around the US presidential campaign, corporate earnings and Federal Reserve policy, according to Morgan Stanley’s Mike Wilson.
“I think the chance of a 10% correction is highly likely sometime between now and the election,” Wilson said in an interview with Bloomberg Television Monday. The third quarter is “going to be choppy.”
-Alexandra Semenova, Bloomberg
Sure. I certainly agree with the point about the odds being high for a 10% correction. Though the odds of a 10% correction in any given year are already high, so I don’t know that it’s an actionable prediction.
What about the election? Do you think that the election is going to be the catalyst for a sell-off? Like, after ignoring it all year, market participants are suddenly going to remember that there’s an election in November and panic.
Seems that if the election were a real concern, the panic would have already begun. I mean, anyone who panicked as a reaction to the last two elections ended up looking like idiots. I have a hard time believing they will make the same mistake, but I guess we’ll see.
I’m of the mindset that we’ll see a pullback because traders have had a really good year so far, and they will want to protect their bonuses by taking some chips off the table.
If big tech fails to deliver in the upcoming earnings season, that’s all it will take for traders to hit the panic button.
I could also point to a number of metrics that indicate cracks are starting to appear: delinquency rates are rising, commercial real estate is in trouble, spreads on CCC rated bonds are widening, etc.
So what can you do? Well, for long-term investors, the answer is “nothing.”
Don’t overthink it. The trend is still your friend and credit conditions are fine. When those things change, so should your outlook and positioning.
Absent that, a 10% market correction is a blip and something that most investors should easily be able to overcome.
For us, we remain fully invested. We are overweight U.S. stocks with our only foreign exposure coming via Indian stocks. We also continue to shun long-term government bonds, keeping interest rate risk at a minimum for now.
Enjoy the rest of your summer!
Steven
Steven Neeley, CFP® is an investment advisor representative of and offers investment advisory services through Fortress Capital Advisors LLC, a registered investment advisor offering advisory services in the State of Indiana and other jurisdictions where registered or exempted.
This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.
Sources
The return data for the indexes in the table comes from PortfolioVisualizer.com, an online software platform for portfolio and investment analytics
https://www.bloomberg.com/news/articles/2024-07-08/morgan-stanley-s-wilson-says-a-10-correction-is-highly-likely?sref=3JcgtpER
