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‍Q2 Market Performance

As has been the case for the past year, the main drivers for stock performance were concerns about inflation and optimism for growth stocks. Markets entered April nervous about the inflation outlook, having already pared back expectations to three Fed cuts from five. Persistent inflation readings sent stocks and bonds lower in April. However, with inflation easing in May, both benefited from a more benevolent rate outlook. Even as the Fed signaled that they only expect one rate cut this year, domestic markets regained their footing and rallied to end the quarter in positive territory.

Companies exposed to artificial intelligence continued to outperform other areas of the market. A strong earnings season for US tech companies meant growth stocks were once again the top performing asset class. Large cap growth was up 4.7% for the last three months and 15% on the year. Size and style dictated winners. Large caps are up 18% while small caps are up less than 2%. Growth is up 11%, while value is trailing by 4%.

Fixed income markets also had a solid June to cap off a positive quarter. Returns were supported by falling long-term interest rates as the US10-year Treasury yields ended essentially flat after spiking intra-quarter. On the year, the 10-year has risen from 4% to 4.36%, but the long-term outlook has rounded the corner to the benefit of bond investors.

Overall, inflation improvements caused interest rates to fall in June, which supported stocks and bonds.

What to Watch Out For

While the markets are painting an optimistic picture, there remain concerns. From a market perspective, inflation continues to be the most pressing. We saw this in April when the previous month’s inflation report caused a sell-off. While inflation pressures are improving somewhat, the latent anxiety of price pressure remains.

Additionally, election-related uncertainty is ever increasing. Snap elections in France and the UK saw incumbent parties face strong challenges. Domestically, every day sees a new ripple in the US Elections. November is a long way away, and the markets don’t like uncertainty. Under these circumstances, volatility is to be expected and is normal, especially during general election years which are typically 50% more volatile than other years.

Given the lack of clarity in the elections, it’s important to remember that the best inoculation for political uncertainty is to have a diversified portfolio, rather than to make trades based on potential outcomes that may or may not come to fruition.

As always, don’t hesitate to reach out if you have any questions. Enjoy the rest of your summer!

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Chad & the Longtide team

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Q1 Market Performance

Across all sectors, sizes, and styles, US stocks benefited from stronger-than-expected economic growth at the end of last year and the start of this year. GDP growth came in above estimates, and we experienced solid job growth and consumer spending to kick off 2024. The S&P 500 was up 10.5% led by communication services (16%), energy (14%) and information technology (13%), with real estate the only negative sector at -0.5%. While large-cap outperformed other sizes at 11%, it wasn’t the disparity of last year with mid-cap up 9% and small-cap up 6%. Both growth and value advanced by 8% but lagged the blend style by 3%.

On the back of rising rates, the bond market struggled throughout the quarter. The Bloomberg Aggregate Index was down 0.8% while the municipal equivalent was down 0.4%.

Economic growth was largely positive; however, this caused inflation to remain stubbornly high. While there were modest improvements in getting year-over-year inflation down in 2024, both headline and core remained above the Fed’s 2% target. As a result, investors reassessed their expectations for monetary policy going forward, leading to rising interest rates throughout the past quarter.

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What to Watch Out For

With the economic resilience and persistent inflation, markets have adjusted their Fed expectations. The year started with futures markets pricing in six interest rate cuts by the end of 2024; we ended March down to just three. This realignment put upward pressure on rates but may lower the risk of Fed-driven volatility for the rest of the year.

Healthy earnings growth for U.S. companies came in well above analyst estimates and helped guide the stock market to rally at the start the year. Further earnings growth is expected ahead, with analysts calling for expansion in all four quarters this year. Over the long run, fundamentals drive market performance, so this anticipated return to consistent earnings growth could be a positive sign for investors in 2024.

Despite the solid start to the year for markets and the economy, some risks remain for investors. The continued conflicts in Ukraine and the Middle East could spark further uncertainty in these regions and pressure the shaky global supply chains. The November election will also be worth watching, as we’ll likely see further political uncertainty as we approach the end of the year. Ultimately, while these risks are real and should be acknowledged, they’re not necessarily pressing at this time.

Ultimately, the market and economy remain in a good place. The economic backdrop remains supportive, and with earnings growth improving, the market continues to be on solid footing. The most likely path forward is a strong economy and market appreciation, but we’ll likely face short-term setbacks along the way.

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As always, should you have questions or concerns, don’t hesitate to reach out. We’re here to help.

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Chad & the Longtide team

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