We hope you had an enjoyable Fourth of July holiday week/weekend. We made the annual trek up to Pennsylvania to spend time with family and we were blessed to have some family from distant parts of the country. It was also a great chance for Channing to see all his cousins (6 in total) and it was a stark realization that time flies, as two of the cousins are in college and two more are heading out to school in the fall. The “time flies” realization is a pretty good precursor to us reviewing the 2nd Quarter of the year, which certainly felt like it flew by.
First Half of 2024 and Second Quarter Review:
The Second Quarter of 2024 was dominated by the same theme we have seen for all of 2024 so far, the continued focus on the looming decision of when the Federal Reserve will begin to reduce/cut interest rates. All eyes stayed locked in on corporate earnings, valuations and economic indicators with the hopes of seeing the telegraphed next move. While many are expecting a rate cut by the end of the year, the Federal Reserve is split and they are continuing the waiting game for further confirmation that U.S. inflation is returning to its target goal. While the Fed waits, many global central banks, like Europe and Canada, have begun to make cuts to reduce or lower interest rates. This slight divergence in timing is explained by the U.S. economy’s on-going strength compared to the rest of the world that we saw throughout the first half of year.
The Stock market experienced ups and down during the 2nd Quarter. In April, stocks traded lower, reversing some of the earlier gains from Q1. In both May and June, stocks rebounded, and the S&P500 finished the quarter by setting multiple new all-time highs. Technology was the top-performer for Quarter, posting a +8.8% gain followed by communication services which ratcheted up a +5.2% gain. In contrast, cyclical sectors like Materials, Industrials, Energy and Financials were the biggest underperformers for the quarter. The one notable theme in the markets this year has been the outperformance of the largest companies. This difference is very visible with companies that include Microsoft, Apple, Nvidia, Google, Facebook and Amazon which were up +34.9% this year while the Russell Small Cap Index (2000 smallest capitalized companies) was only up +1.6%. This clearly shows that investors appear to favor the larger companies as they await clarity on Fed Policy and the economy.
Third Quarter Outlook:
The second half of 2024 will be busy. Investors expect the Federal Reserve to start cutting interest rates before the year-end, but as highlighted above, the projected timing of the first rate cut remains uncertain. The second quarter’s earnings season starts in mid-July, which will provide an opportunity to hear updated commentaries from companies and this will potentially provide some guidance on how the economy is fairing. If you are tired of hearing about the Federal Reserve during these monthly reports, you unfortunately are not in luck, as we expect to see even heavy renewed focus on economic data. The only bright spot, if it could be stated this way, is then we have the presidential election in November to layer in headline news excitement.
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