Summary
- Large U.S. growth companies, specifically the Magnificent 7 and Nvidia, dominated in the second quarter (though have notably underperformed at the start of the third quarter)
- Emerging markets thrived, beating its developed counterparts and the S&P 500
- Aggregate U.S. bonds remained largely unchanged
- Mixed economic indicators, with decreasing inflation along and economic growth concerns
Second Quarter Market Commentary
Falling treasury yields and AI-driven market optimism powered the S&P 500 to yet more all-time highs. U.S. growth companies maintained dominance, as every other style and size of U.S. stocks logged quarterly losses. Inflation indicators improved, reducing fears of additional rate hikes and giving investors more optimism for one or two rate cuts later in 2024.
*All data as of 6/30/2024, courtesy of Avantis Investors®
April began with concern surrounding resurgent inflation and the potential for rates to be higher and longer than anticipated. The S&P dropped 5% at its lowest during April, finishing the month just over 4% down, and treasury yields rose sharply. Beginning in May, however, the Magnificent 7 and its side kick Nvidia picked up where they left off. Tesla, the major laggard this year, enjoyed a remarkable comeback, as it climbed almost 50% from its low on April 22nd through the end of June. Technology (AAPL, MSFT, NVDA) and Communication Services (META, GOOGL) dominated U.S. markets. The Utilities sector also shined, claiming third place. Consumer staples trailed in fourth at a modest 1.1%.
Outside of large cap companies, particularly those in the dominating sectors, U.S. markets struggled. The seven remaining sectors of the U.S. economy all ended the quarter in the red, with value companies both large and small and smaller growth companies also struggling. Economic growth concerns weighed more heavily on any stocks outside of the AI heavyweights, with the exception to the positive performance of Utilities companies, where investors find the higher yields and more resilient business models attractive during troubling times.
Developed international markets didn’t enjoy the same large growth boom as the U.S., experiencing a flat to slightly down quarter. Concerns about the timing and degree of Bank of England and European Central Bank rate cuts, along with French and German political concerns, gave investors pause. However, Emerging markets, buoyed by a rebound in Chinese economic growth and global bond yields decreasing, outperformed both developed markets and the S&P 500 over the quarter.
Broad fixed income investments remained largely flat to slightly positive over the quarter, a welcome respite from 2022’s and 2023’s volatility.
Financial Planning Applications
The end of summer typically means the return to more normal routines. Kids go back to school. Family vacations are over. It becomes time to stop ignoring the mountains of stacked Amazon boxes occupying the garage. And, it’s a great time to become recentered financially.
We will be reaching out to clients to both offer annual reviews but even more importantly do a health check on your retirement plan. Our portfolios, which are broadly diversified across the world, play one part in helping you maintain your lifestyle and achieve your goals, but it’s really your plan that drives that portfolio. Our expertise, combined with cutting edge technology like RightCapital, are here to help you navigate long-term goals, immediate decisions, and understand the impact financial markets will have.
Looking Forward
Stocks begin the third quarter of 2024 riding a wave of optimism and positive news as inflation is declining in earnest, the Fed may deliver the first rate cut in over four years this September, economic growth remains generally solid, and optimism (warranted or not) abounds for potentially strong continued earnings growth from AI-linked tech companies. The S&P 500 has delivered more than 30 new highs so far in 2024, trading at eyebrow raising valuations.
While the overall outlook for stocks remains generally positive and the rally could continue, we must remember that nothing is guaranteed. Slowing economic growth, disappointment if the Fed doesn’t cut rates in September, underwhelming Q2 earnings results (coming out now and throughout July), a rebound in inflation and geopolitical surprises (including the looming U.S. elections) are several among many potential negatives. The optimism driven, high valuation stock market concentrations could experience steep pullbacks should headwinds mount.
We continue to firmly believe the best defense and offense against the perpetually clouded future of investments is disciplined rebalancing and a diversified portfolio that aligns with your goals and tolerance for risk.
We hope this review has been helpful and of interest to you. Please contact us with any questions.
Warm regards,
The Alpha Principle Investment Committee
This report was prepared by Alpha Principle, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information please visit: and search for our firm name. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report.
- Standard & Poor’s 500 (S&P 500) – a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
- Russell 2000 – The index measures the performance of the small-cap segment of the US equity universe. It is a subset of the Russell 3000 and includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
- MSCI World ex USA – The index measures the performance of the large and mid-cap segments of world, excluding US equity securities. It is free float-adjusted market-capitalization weighted.
- MSCI Emerging Markets Index – a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of 23 emerging markets country indexes.
- Bloomberg Barclays US Aggregate Index – a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS (agency and non-agency).
- Bloomberg Barclays Global Aggregate Bond (unhedged to USD) – The index measures the performance of global investment grade fixed-rate debt markets, including the U.S. Aggregate, the Pan-European Aggregate, the Asian-Pacific Aggregate, Global Treasury, Eurodollar, Euro-Yen, Canadian, and Investment Grade 144A index-eligible securities.
- Bloomberg Barclays US Treasury Bills Index – The Bloomberg Barclays U.S. Treasury Bond Index includes public obligations of the US Treasury, ie US government bonds. Certain Treasury bills are excluded by a maturity constraint. In addition, certain special issues, such as state and local government series bonds (SLGs), as well as U.S .Treasury TIPS, are excluded.
