BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS
The S&P 500 reached a new all-time high on a total return basis, the Dow Jones Industrial Average topped 37,000 for the first time, and interest rates have retreated quickly as the Fed just changed its focus to potential rate cuts in 2024.
The positive momentum continued from November into December; many stocks reached new all-time highs. Earnings growth, lower inflation, lower bond yields, and moderating oil prices all supported higher stock prices. Mentions of a recession in company conference calls hit a multi-quarter low in Q3 and jobs have been strong, helping the economy stay on a growth trajectory. Stock volatility hit multi-year lows just after Thanksgiving and went even lower in mid-December.
Three of the eleven sectors in the S&P 500 have driven performance this year: Technology, Communication Services, and Consumer Discretionary. These sectors, that collectively make up just under half of the weight in index, each had returns of 44% to 58% year-to-date through December 19th. The remaining sectors had returns from -6.8% to 17.4%. Most years, there is at least a 30% difference between the top and bottom performing sectors in the S&P 500; this year, the gap was much wider than usual. While the S&P 500 had a total return of 26.2%, the median stock in the index gained 13.4%, highlighting how a handful of mega-cap stocks drove returns.
199,000 jobs were added in November, and the national unemployment rate fell to 3.7%. This year’s U.S. Cyber Monday sales were a one-day record of $12.4 billion, and consumer confidence just reached multi-month highs. Inflation continues to decelerate, with a recent consumer inflation reading (Core PCE) of 3.2%. Average prices do not typically decline, which would be deflation, but the rate of increases is slowing. Unlike other times in the past year when interest rates have fallen, the price of oil declined at the same time recently, which will also help keep short-term inflation lower.
Bonds & Fed:
Yields fell, as bond prices rallied, after the Fed “pivoted” to a focus on rate cuts next year. While many expect rate cuts to begin in March and total over 1%, the Fed is currently forecasting three 0.25% cuts later in the year. After yielding nearly 5% in October, the yields on 5-year and 10-year Treasury bonds were recently below 3.9%. Mortgage rates have fallen to 6-month lows: around 6.6% for a 30-year fixed mortgage.
Clients sometime ask about gold, which recently hit a multi-year high around $2,150 per ounce. So far, we have viewed gold as something to trade, at best, and not something for long-term investment. Gold is a negative cash flow asset: it does not generate earnings, dividends, or yields while it does have carrying costs like storage and insurance. A small piece can be fun to own, but for the potential risk/reward, we feel there are better investments. In the recent time of higher inflation like 2021 and 2022, gold had a slightly negative return over that 2-year span, and it has underperformed the S&P 500 over the past 1-, 3-, and 5-year periods, and longer. The exception would have been to time your stock selling perfectly at the beginning of 2022. From that moment, gold has outperformed the S&P 500 by about 10% total. Conversely, from the pandemic lows in stocks, the S&P 500 has outperformed gold by about 95%.
Winter began on 12/21/23 and ends on 3/19/24. Daylight on the winter solstice (9 hours and 22 minutes) in Ohio is over 5.5 hours less daylight than on the summer solstice in June (just shy of 15 hours).
Buckingham is here for you:
Buckingham Advisors continues to welcome new households and small businesses to our Family of Clients! Thank you to our clients for your referrals and continued support. Our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please send this issue on to others. To get in touch directly, please use the following link: https://mybuckingham.com/contact.
Thank you for your continued trust and support.
Ryan P. Johnson, CFA, CFP®
Managing Director of Investments
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.