Stocks surged across the board in the second quarter. Large domestic companies, measured by the Standard & Poor’s 500, gained 14.9% while smaller US firms, reflected in the Russell 2000, climbed 21.2%. The Nasdaq Composite, heavily weighted in technology stocks, rose 21.4%. Foreign companies, generally speaking, advanced as well with the Dow Jones World Index (ex US) gaining 13.0%.
The Q2 market rebound was impressive especially in light of significant headwinds. While some progress was made on the Iran conflict, oil is still not flowing freely through the Strait of Hormuz. Yes, oil prices have returned nearly to pre-war levels, but the effect on inflation measures has yet to abate. As such, interest rate expectations lean toward a possible rate hike by year end. Indeed, our new Federal Reserve Chairman Kevin Warsh surprised many in his debut comments by signaling a more hawkish than dovish stance. Also, many investors question if the massive AI capex spending will translate into commensurate future profits. Still, robust corporate earnings growth, particularly in chip stocks, drove investor optimism and a demand for equities, resulting in the best quarterly market performance since 2020.
So what do we see going forward? Short-term market direction is anybody’s guess. But for the medium-term, and certainly for the long-term, we are extremely optimistic. As we draft this commentary on the morning of our nation’s 250th birthday, we can’t help but marvel at just how far we, and the world, have come in such a short period of time. The long list includes: industrial revolution, flight, moon landing, computers, internet, mobile phones, and now the age of intelligence (AI). Could anyone have imagined any of this 250 years ago? And while there’s no telling what discoveries and innovations the future may hold, we definitely want to participate. The stock market provides that opportunity. As history shows us, we believe stocks (ownership in companies) will continue to provide the greatest opportunity for financial growth versus other major asset classes over the long-term. Most portfolios need some allocation of bonds and cash to meet unique client stability and liquidity requirements. But for the long-term investor, the lion’s share of portfolio gains will be attributable to the weighting of stocks in one’s portfolio.
While optimistic for the long-term, we do expect random short-term volatility. When faced with unsettling market declines, many investors feel the temptation to make wholesale changes to their thoughtfully constructed portfolios. We encourage investors to resist this temptation, thereby avoiding almost certain damage to their long-term performance. Staying in close contact with one’s trusted fiduciary advisor can be helpful. As such, 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.