2024-Q2 Quarterly Keynote
BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS
The second quarter ended near a new closing high for the S&P 500. For the second time in a row, the index marked a new intraday high on the final trading day of the quarter. Broadly, the economy continued to grow, though the rate of change slowed for some indicators. Bond yields rose then fell on various inflation reports and shifting expectations for Fed rate cuts.
In the first weeks of April, the S&P 500 had a short-lived pullback of over 5%, then rallied in May and June to reach 5,500 for the first time. The second quarter’s 4.3% return was led by some of the largest stocks in the market, as over 20% of the weight in the S&P 500 is in the three largest stocks, while mid cap, small cap, and international stocks lost ground in the quarter. The average stock in the S&P 500 index actually posted a 2.6% decline in Q2, and the average stock in the S&P 500 trails the index return by over 10% this year. The valuations of some Tech stocks look stretched near-term, but the long-term growth opportunity seems large. Corporate earnings reported for Q1 were better than expected, and double-digit earnings growth is in the forecast for calendar years 2024 and 2025. Over the past 40 years, the S&P 500 gained 10% or more in the first half of the year 14 times. In 12 of those years, gains followed in the second half.
Inflation readings continue to generally drift lower, and the jobs picture remains historically strong. Higher interest rates for longer, particularly for mortgages, are slowing the housing market. Consumer confidence and spending have been mixed, but the large services portion of the economy continues to grow.
Bond yields have generally trended higher this year, putting pressure on bond prices. Looking back, the total returns have been muted, but looking forward, if rates stay range-bound, the annual total returns should start to reflect current yields, which are still over 5% for A-rated corporate bonds. Compared to a quarter ago, Fed rate cut expectations are fewer in total and further out on the calendar, with market participants now looking for 0.25% rate cuts in mid-September and mid-December.
Right after Memorial Day, U.S. markets moved to 1-day settlement for trades. Previously, stocks, corporate bonds, and Exchange Traded Funds (ETFs) had 2-day settlement periods, where the cash would become available from a sale or be needed for a purchase. Now, like Treasury bonds and mutual funds, all these assets have next-day settlement.
From our team to you, we thank you for your continued trust and referrals.
Ryan P. Johnson, CFA, CFP®
Managing Director of Investments