Market Update June 2024
As we look to the future, it is imperative that we see how the economy, interest rates and the stock market are positioned.
A bull market in stocks
Let’s cut to the chase. We have been in a bull market for nearly a year and a half. Bottoming in late 2022, the stock market has shown all the historical traits of a new bull run. It may be hard to believe, but stocks are up about 50% off their lows. By any interpretation, this should be viewed as a bull market. I’d like to give a quick reminder that bull markets tend to be front-end loaded, giving about half their returns to investors in the first year of the run. While we expect returns to moderate, we remain constructive on the domestic stock market and would use any pullback to add to exposure for our clients who may be underweight the asset class. We would also recommend an overweight to US stocks over international, and would urge clients to have an overweight to large cap stocks relative to small cap. Investing in private equity and venture is also recommended at this point in the economic cycle.
Interest rates remain elevated: Bonds, and even cash, offer competition to stocks, although inflation seems to be contained
It seems as though the days of zero interest rates are gone, maybe for good. For the seventh straight meeting, the Federal reserve has left rates unchanged, with a Fed funds rate now at 5.25% - 5.50%, a twodecade high. This pause has been a welcome change for risk assets of all types. History teaches that risk assets tend to perform well between the Fed’s last interest rate hike and their first (eventual) cut. This current time period has been no different, as it has led to rallies in global stocks, corporate bonds and high yield debt. While we continue to favor equities overfixed income (we recommend a slight underweight to the fixed income asset class), we realize that fixed income offers clients some very acceptable yields, and advise that clients have exposure to a broad array of fixed income assets, including Treasuries, MBS, corporates and high yield.
What time is it?
For those of you that have followed my work through the years, you know that I have communicated my views based upon a clock. The time on the clock has always been derived from a combination of both economic and market cycle variables.
Looked at through this methodology, we are between an early and mid-cycle bull market (8:00). The stock market, and most risk assets for that matter, have continued to behave in a manner consistent with a bull market that started in early 2023. This bull market has changed personalities subtly as it has aged and continues to make impressive moves upward. As of this writing, both the NASDAQ and S&P 500 are at all-time record highs, moves very consistent with other bull markets historically. We will continue to monitor the “time” closely but would continue to advise clients to make sure they have ample exposure to risk assets at this point in the market and economic cycle.
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