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Happy Bobby Bonilla Day

 

By Morgan Christen
CFA, CFP, CDFA, CEO and CIO

 

We have officially survived the first half of 2024. The market priced in six interest rate cuts at the start of the year, and to date there have been zero. And yet, the market seems giddy. The beginning of July marks the start of the Tour de France, Wimbledon and of course, Bobby Bonilla Day. Baseball fans may know Bobby as an all-star and former New York Mets third baseman who has not played since 2001. Back in 1999, the Mets released Bobby but still owed him $5.9 million for the remaining year of his contract. But his agent negotiated a deferred payment agreement. Starting in 2011 and going until 2035, the Mets would pay Bobby $1.19 million per year. The Mets figured this would give them more flexibility in bringing on new players, and besides, team owner Fred Wilpon was heavily invested with Bernie Madoff. And Bernie would far exceed the 8% interest rate the Mets were paying Bonilla, right? In the end, Bobby did some savvy financial planning and will ultimately end up with around $30 million. Financial planning wins in the end.

 
 
   

The second quarter of 2024 saw impressive market activity, driven by earnings reports, geopolitics and economic data. Despite the positive outcome, performance was a mixed bag as some sectors thrived while others languished. Economic data including job growth and consumer spending supported the positive market sentiment. Central banks remained cautious on interest rates with the Fed hinting inflation may be under control. The war in Ukraine along with trade tensions between the US and China contributed to market volatility and, forgive me for sounding like a broken record, but continued innovation and interest in AI drove market optimism.

 
 
   
 

Stocks

 

As stated previously, the stock market was mixed with large growth stocks (namely technology and communication services) significantly led large value and small cap stocks. Notably, just a few stocks in the technology and communication services sectors outperformed the market overall. The S&P 500 rose a respectable 14.5%, a tad below the 18% from the NASDAQ. The Dow was the under performer, only logging a return of 3.8%. S&P 500 factoid; as we finished the second quarter, more than two-thirds of the gains have come from Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta and Broadcom. Remarkably, Nvidia alone was almost one-third of those gains.

 

Peering at the chart on the S&P performance you will see the wide discrepancy between the regular index and the equal weighted returns. As mentioned earlier, the regular index put up a 14.5% return, with roughly 30% weighted to the stocks listed above. If the index was equally weighted (no bias towards the larger companies) returns would have been dramatically muted. In fact, the average stock in the S&P 500 index was up 4.1%. Six of the eleven sectors in the index declined in the second quarter, including financials, energy and industrials.

 
 
 
   
 

 
 
 
 

 
 
 
 

 
 
 
 

 
  
 
 
       
 
 

Bonds

 

The second quarter saw interest rates increase along the US Treasury yield curve. 1-Year US Treasury Bill yield bumped up 6 bps to 5.09% as the 2-Year moved up 12 bps to 4.71%. Along the mid to longer end of the curve, the 10-Year increased 16 bps to 4.36% while the 30-Year Bond saw a 17 bps increase to 4.51%. All eyes will continue to be focused on inflation and Fed Speak.

 
 
 
 
   
 

 
 
 
   
 

Outlook for the third quarter

 

The Central bank and the decisions they make will be a central focus for the markets. All the ingredients to their decisions will be watched, such as inflation, employment and GDP growth. Should the Fed decide to lower rates, you may see inflation decreasing, unemployment increasing or our GDP slowing. All not great things, so careful what you wish for. On the geopolitical side, markets will be watching for resolutions or escalation of current conflicts, as well as new flare ups.

 

Looking back at market history, stock seasonality favors the bulls in July. In fact, the Nasdaq has closed on the plus side 10 of the past 11 Julys. And that bullishness generally extends to the entire year. Since 1928, there have been 29 years when the market is up 10% or more at the halfway mark, that witnessed the bull market carry throughout the year.

 

Prudent allocation and rebalancing should also be included in your portfolio, as it is not a bad idea to lock in gains and redeploy assets to less loved parts of the market. As stated earlier, the “market” has made gains while many stocks that comprise said market have languished. We thank you for your continued support and look forward to speaking with you.

 
 
 
   
 

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DISCLOSURES: Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Value (Russell 1000 Value Index), Large Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Value (Russell 2000 Value Index), and Small Growth (Russell 2000 Growth Index). Dow Jones US Select REIT Index used as proxy for the US REIT market. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2022, all rights reserved. Stock return Charts from Dimensional Fund Advisors. Inflation is typically defined as the change in the non-seasonally adjusted, all-items Consumer Price Index (CPI) for all urban consumers. CPI data are available from the US Bureau of Labor Statistics. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government’s full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.