All data and commentary as of July 9, 2024.
As we move into the latter half of the year and look back at the second quarter, the market environment was a bifurcated tale of two halves. In April, nerves around persistent inflation resulted in a slight pullback in equity markets as the Fed telegraphed that rate cuts would not be in the cards until later this year. Despite this downward revision to rate cut estimates, markets shrugged off the news and rallied through May and June to end the quarter firmly in the green. The market seems to have been able to stomach these more pessimistic adjustments to economic expectations, but in the second half of the year we will be paying close attention to a few important themes:
- Fixed income and the interest rate environment
- Broad equity market performance and the AI/Growth sector
- Political forces
Looking at the bond and interest rate environment, the market has significantly adjusted their expectations from projections made earlier this year. Many analysts were expecting at least 5 rate cuts throughout 2024 back in January, but the economy has not slowed down as quickly as expected under our current higher-rate environment. Recent statements from the Fed have indicated that rates may need to stay at higher levels for a while longer, and expectations on Wall Street are that we will see 1 rate cut at most before year end. Bonds seem to have weathered the quarter just fine given this negative news, and finished the quarter basically flat performance wise.
The stock market showed quite a bit of optimism in the second half of the quarter, managing to dig itself out of an interest rate/inflation prompted drawdown that occurred in the month of April. While the market as a whole is holding up well in our current environment, the real standouts of the year have been stocks in the AI/Tech sector. This growth trend continued throughout the second quarter, led by “Magnificent 7” names like Nvidia, Apple, and Alphabet. While AI related stocks are already richly valued and may continue to exhibit higher levels of volatility, we feel that the current AI led tech revolution is still in its early stages – and there is still significant growth and adoption yet to be realized in the space. We have done extensive due diligence on the tech-centric funds available in this sector over the past few months, and will have some exciting updates to our model allocations to provide to you soon. Be on the lookout for another email from us in the near future with all of the details!
Finally, we would be remiss to send our quarterly investment update without mentioning the political environment in the US and the upcoming election. While the recent Trump/Biden debate was “interesting to watch” regardless of your political affiliation and served as great fodder for news stories and headlines across media platforms, it is important to keep in mind that historically the market is politically agnostic and there is very little difference in market performance based on who or what party controls the Oval Office. While short-term volatility is to be expected as both candidates speak about their policies and plans as election day approaches – the market tends to weather election cycles consistently well. It is important to keep a long term view and avoid making any emotionally/politically driven changes to your portfolio based on the outcome (or expected outcome) of the election. See our recent election update (HERE) for more commentary on this topic.
Overall, despite a rough start to the quarter – the market has proven very resilient in spite of the timeline for interest rate cuts being pushed back significantly since the beginning of the year. Our team is committed to conducting extensive research on a continuous basis to make sure portfolios are properly aligned with relevant market dynamics. Please don’t hesitate to reach out if you have any questions about your portfolio or would like to discuss anything in this newsletter!
Jake Fromm | Lead Investment Analyst, CFS® | It is our mission to help you think differently about your wealth so you can LIVE WELLthy™ today and tomorrow.