2024 Mid Year Update
We hope you had a fun and safe 4th holiday weekend! Time seems to fly by, as we are already halfway through 2024! That means it is time for us to provide our semi-annual review of financial markets and the economy. As usual, we will make observations rather than predictions in this market update. To review our market update from January, see here:
We will follow similar themes in this update. We’ve also put together a 20-minute video in which we quickly review some of this data and dive into a few more nuanced financial market discussions!
Overview
The first half of 2024 saw a very similar market environment to the one we ended 2023 with. Stock market gains, primarily led by U.S. technology stocks, continue to dominate stock market commentary as the emergence of artificial intelligence technology brings high hopes of increased productivity and profitability. At the same time, interest rates remain elevated, as the Federal Reserve still believes that current inflation levels need to be brought down further. The Fed continues to walk a tightrope of slowing inflation without high interest rates putting too much of a burden on economic growth.
Stock Market Performance
The U.S. stock market, represented by the S&P 500 index, was off to a strong start of just over 15% on a total return basis (total return: price appreciation + dividend income). Similar to 2023, U.S. technology stocks led the way. Nvidia, Microsoft, Apple, Amazon, Meta, and Google were the top contributors to the S&P 500 performance in the first half of 2024.
These YTD index returns have certainly beaten the expectations of the major Wall Street banks, who are in the business of making predictions. As of July 1st, the S&P 500 index level was 5,475, exceeding the 2024 year-end targets of all these WS research teams. The index can give back its gains to get back to these year-end target levels, but it has been another “expectation-beating” year in the U.S. stock market thus far.
Most of our Mirus clients have global stock market exposure, so we will also review global market performance. International developed markets (Europe, Pacific, Canada), as represented by the FTSE Developed All Cap ex US Index, were up a much more modest 4.5% YTD 2024. The MSCI Emerging Markets index, with exposure to companies in countries such as China, Taiwan, India, Korea, and Brazil, was up just over 6.5% YTD. So, it has been a good start for stock market investors, with the US and its large technology companies leading the charge for now. Watch our market update video for a look into how specific sectors and segments of the market outperform others, including one negative area of the market in the first six months of 2024!
Interest Rate & Bond Market Update
After multiple interest rate hikes in early 2023, the Federal Reserve has kept the Federal Funds Rate the same since July 2023, as the graph below shows. The Fed Funds rate, which impacts various economic factors such as the interest rate on loans/bonds, is expected to be at or near its peak level, as indicated by the Federal Reserve's recent commentary about future moves.
The question in recent months is when the Federal Reserve will start cutting interest rates, which is largely going to be influenced by the ongoing inflation situation in the US. Inflation remains a bit more stubborn than the Fed had hoped, and the Fed does not want to cut rates too soon risking additional flare up in inflation. At the same time, high interest rates can inhibit economic growth, so it is a delicate line where economic data is deeply analyzed on a monthly basis. The next Fed meeting is July 31st, and the market expects a 95% probability that there will be no change to the rate. However, if we look further, the market expects two interest rate cuts by the end of 2024.
In our 2023 Year In Review letter, we shared an interesting research piece from the JPMorgan Asset Management research team, suggesting that while higher-than-normal yields on cash are quite appealing for investors, that typically has been a good indicator for both stock and bond market performance in the subsequent 12 months once CDs rates hit their peak interest rates. Interest rates on CDs peaked in September of 2023, so we have updated JPMorgan data showing that this phenomenon happened again. Since CD rates peaked last Fall, the S&P 500 is up 29%, and a 60/40 portfolio is up around 20%.
Source: JPMorgan Asset Management, Guide to The Markets Q3 2024
Interest rates on bonds and CDs remain at appealing levels, however, which has been welcome news for more conservative-oriented investors. It remains important to make sure you are locking in these opportune rates on cash, especially if the market expectations regarding upcoming Fed rate cuts later in 2024 are correct.
Inflation Update
After substantial progress on abnormally high inflation levels in 2022 and early 2023, inflation has been more stubborn in recent months as the Federal Reserve wants to see inflation closer to its 2% long-term target. There is good news, however: “core inflation,” which excludes more volatile categories such as good & energy prices, is at its lowest since early 2021. It would be delightful news to the Federal Reserve and consumers if inflation continues to trend below that 3% annual number.
Closing Remarks
After 2023, a year largely recuperating from a very tough 2022 investing year, 2024 is off to a good start for investors of all risk tolerances. Interest rates on cash and bonds are beating inflation for the first time in many years, a much more welcome market environment for conservative investors. While we suspect a decline in interest rates over the next 6-12 months, it will likely be a modest decline, barring any significant changes to the inflation scenario or economic growth. On the stock market side, most investors have also been treated with modest gains and low downside volatility, especially those exposed to large U.S. technology stocks.
As always, we are ready for the good, the bad, and the ugly and are here to ensure our clients successfully navigate all market environments. Our Mirus Team wishes you and your loved ones a tremendous 2nd half of 2024. Let us know how we can help with your financial planning and wealth management needs!
Best regards,
Kyle Temple
CFP®, CPWA®
