The first half of 2024 wrapped up on Friday with total returns looking a lot like they have for the past 18 months – the Magnificent 7 outperforming the broader stock market, and with inflation (and therefore interest rates) higher for longer, bonds remain mostly in the red.
Here is a quick snapshot of the main stock and bond categories:
Stocks:
S&P 500: 14%
Nasdaq: 18.5%
Russell 2000: 0.5%
International Developed: 3.25%
Emerging Markets: 6%
Bonds:
Aggregate Bond Index: -3%
Long Term Treasuries: -9%
Short Term Aggregate: -1%
An interesting thing to point out about stocks this year is the lack of volatility, which is typically measured through the VIX.
As you can see there was a small spike of volatility in April, but the index touched the 20 level only once all year. If we zoom out 5 years, you can see how rare this low volatility environment is historically.
It is likely the next 6 months will look a bit different with a contentious political environment and continued Quantitative Tightening by the Federal Reserve. To put it in perspective the following image shows the frequency and type of S&P 500 declines going back to 1942.
With this history in mind, it’s likely we will see a pullback this year, but believe we are still firmly in a bull market. We are 1.5 years into the current market after the lows in October of 2022 and now pushing all time highs with more accommodative policy from the Fed still on the horizon.
Our equity portfolios remain positioned to do well if the Magnificent 7 continue to outperform, but we also keep defensive stock holdings, private equity and credit, alternatives, and bonds as uncorrelated assets for when the volatility returns.
While equities have led the way for the first half of the year, we remain optimistic that bonds will also be a compelling story in the latter half when interest rates eventually fall. We continue to be paid monthly interest on the bond holdings, and the price appreciation will come when rates fall, with the likelihood of this going up following last weeks inflation print.
Our bond portfolios remain positioned to take advantage of this dynamic where we overweight high-quality corporates in the middle of the yield curve, but also have diversification in some long-term treasuries and low-duration bonds.
Thank you for the continued trust you place in us and we look forward always to further conversations and collaboration with each of you.