Midyear Market Recap

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The first two quarters of 2024 have continued to generate positive results in our domestic equity market. While the second quarter did not display the exuberant growth of the first quarter, Q2 generally added to the leap start from the beginning of the year. Foreign markets had more tempered growth, and the bond market, while still inverted, seems stable.

The Wilshire 5000 Total Market Index, which is the broadest measure of U.S. stocks, posted a second quarter gain of approximately 3.6% and was up 13.6% cumulative year to date (YTD).[i] Large Cap stocks, as measured by the S&P 500 Index, gained about 3.9% in Q2 and had an impressive gain of 15.5% for the year.[ii] Small Cap stocks, or companies with a market capitalization of $250 million to $2 billion, posted a 1.73% gain year to date, as measured by the Russell 2000 Small-Cap Index.[iii] The tech-heavy Nasdaq Composite Index gained approximately 18.1% so far this year.[iv]

International investments had positive gains to report in 2024 also. The broad-based EAFE Index which measures developed foreign economies posted a gain of 3.5% in the first half of 2024.  Emerging Market stocks of less developed countries, as represented by the EAFE EM Index, gained 6.1% in dollars, during the same six-month window.[v]

Real estate, commodities and utilities represent some of the alternative components of a diversified portfolio. These sectors performed interestingly. The Wilshire U.S. REIT Index, which broadly represents the real estate market, was down 0.25% for the quarter and down 0.26% at the mid-year mark for 2024.  According to the Beige Book published by the Federal Reserve, residential housing demand is up, but commercial real estate has softened, partially due to tighter credit conditions and higher interest rates.[vi]

Further, commodities, as measured by the S&P GSCI Index posted a loss of 0.70% in Q2, but is still holding on to a 2024 YTD gain of 7.98%.[vii] Gold prices are up an impressive 12.8% in Q2, recording $2,327 an ounce. Finally, utilities, as measured by the S&P 500 Utilities Index, were up 3.85% in the second quarter, with a total gain of 7.58% for the year.[viii]

Currently, the bond yield curve is inverted, which is historically an indicative sign of future economic trouble. When the yield curve is inverted, shorter term bonds are paying a higher return than longer term bonds. Intuitively, if you are committing your money to a longer investment term, you expect to be paid more for your longer commitment. However, when investors expect the economy to decline causing the Fed to lower short-term interest rates, long-term investors may be willing to buy lower yielding long-term bonds as protection from possible future market disruption. That being said, not every inverted yield curve has led to a market downturn.  The two-year and 10-year Treasury yield curves have been inverted since July 2022, and despite pundits predicting a recession in 2023, the market had a pretty stellar year.[ix] In that sense, while the yield curve is inverted, the bond market has remained stable.

In 2024, the yields on 10-year Treasury bonds rose from 4.32% at the start of the quarter to 4.40% by the end of Q2. Additionally, 30-year government bond yields also rose from 4.46% at the beginning of the quarter to 4.56% today. In our current inverted yield curve environment, investors can get higher returns on shorter term bonds. Treasury bonds are paying 5.11% on six-month government bonds and 5.35% on three-month Treasury Bills.

The stock market seems to report new all-time highs every couple of weeks, but it’s refreshing to see Q2 growth at a more relaxed and reasonable pace.  In retrospect, some feel Q1’s market growth may have been led by over exuberance about the possibilities of Artificial Intelligence (AI) and the potential growth of corporate profits and consumer spending due to numerous anticipated interest rate cuts by the Federal Reserve.  Focused growth in a few AI companies is worth noting for concentration risk. The stock prices of companies like Nvidia, Apple, Amazon and Microsoft are sky rocketing. Nvidia, for example has increased in share price by 149% in just the first two quarters of 2024 and has returned nearly 600% since the start of 2023.[x] Other companies such as Vertiv Holdings, which provides liquid cooling products for AI servers, which tend to run very hot, have also had record-breaking stock growth. Likewise, Powell Industries and IES Holdings which provide the power and infrastructure to data centers have done extremely well since 2023.[xi]

While AI may be the catalyst for a new Industrial Revolution, it is also important to diversify to avoid over concentration in a few stocks that can lead to steep losses in an unforeseen market correction. The benefits of Artificial Intelligence will likely spread beyond just the few companies gaining attention today, as businesses in every industry examine how they can integrate AI to create efficiencies and drive scalability in their processes. AI could spread like the internet, where technological tools benefit all trades in some way, and we can’t remember a day without that tool. With that consideration, investors should not look to invest in a narrow sector of the market, but keep a long-term view and construct a broadly diversified portfolio that will capture growth today and in the years to come. Ask a Certified Financial Planner™ to give your portfolio a second look if you feel your investment portfolio could use a review.

[i] https://www.wilshire.com/solutions/indexes
[ii] https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
[iii] http://www.ftse.com/products/indices/russell-us 
[iv] https://www.nasdaq.com/market-activity/indexes
[v] https://www.msci.com/real-time-index-data-search
[vi] www.federalreserve.gov/monetarypolicy/files/BeigeBook_20240529.pdf
[vii] https://www.spglobal.com/spdji/en/index-family/commodities/broad/#overview
[viii] https://www.spglobal.com/spdji/en/indices/equity/sp-500-utilities-sector/#overview
[ix] https://www.reuters.com/markets/rates-bonds/us-treasury-key-yield-curve-inversion-becomes-longest-record-2024-03-21/#:~:text=The%20part%20of%20the%20Treasury,in%20a%20note%20on%20Thursday.
[x] Bob Veres Insider Information
[xi] https://my.dimensional.com/ai-tide-may-lift-all-boats?

The commentary on this website reflects the personal opinions, viewpoints and analyses of Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.