Market Commentary: 2nd Quarter 2024

Stock market returns were mixed in the second quarter.  The Standard & Poor’s 500, a measure of large domestic companies, was up 3.9%.  Smaller US companies, however, as measured by the Russell 2000, were off 3.6%.  The Nasdaq Composite, heavily weighted in technology companies, gained a solid 8.3%.  Foreign companies, generally speaking, turned in a flat performance with the DJ World Index (ex US) down a slight 0.1%.


Investor enthusiasm for all things artificial intelligence was the driving force for the stock market.  Nvidia, whose products are considered essential to powering AI technology, was up 37% in the second quarter.  The stock hit a $3 trillion market capitalization, and is vying for the largest weighting in the S&P 500, along with Apple and Microsoft.  While the first quarter of this year saw performance evening out between the mega-cap tech stocks and other market segments, the Magnificent Seven took the reins again in Q2.  As it stands for the first half of the year, the Mag 7 (NVDA, AAPL, MSFT, META, TSLA, GOOGL, AMZN) are responsible for 60% of the S&P 500’s 14.5% year-to-date return.  This is a thorny data point for those investors overweighted in value portfolios.


Interest rate expectations, while always important, have been taking a back seat to AI in influencing overall demand for equities.  Investors seem to have come to terms with the Fed’s higher-for-longer posture. While the consensus view is an expectation of one, maybe two cuts in 2024, the realization that acting too rashly in the absence of convincing evidence of abating inflation would be counterproductive for long-term economic health.  The last thing Fed Chairman Powell wants to do is repeat the mistakes of the 1970’s, slashing rates too quickly and having to reverse course in short order.  No sense in risking that kind of damage to the Fed’s credibility, especially in light of the awkward “transitory inflation” gaffe.


So what advice do we have at this point?  We see many investors responding to recent market performance by piling into AI related names.  We would remind these investors that they likely already have significant exposure to these companies, as they are imbedded in most core equity holdings and have been market leaders for some time now.  Chasing performance, at this point, is probably an unwise move.  History demonstrates that long-term investors are rewarded, particularly when measured in terms of risk-adjusted returns, by maintaining a well-diversified portfolio designed to meet the return expectations and volatility characteristics appropriate for their specific financial objectives.  Bottom line – don’t get greedy.


Please know that we welcome your calls, emails, texts, etc.  And, as always, we adhere to our discipline of strategic asset allocation and style diversification; a strategy designed to mitigate overall portfolio volatility and enhance long-term returns.