By Randy Brunson,
Centurion Advisory Group
SUWANEE, Ga. | Today let’s take a review of the first half results of the stock market for 2024.
Brunson
For the first half of 2024, the S&P 500 was up 14.5 percent, the Dow Jones Industrial Average was up 3.8 percent, and the NASDAQ Composite was up 18.1 percent. And this after a very solid 2023.
What do the S&P 500 and the NASDAQ Composite have in common, which is missing from the Dow Jones industrial average? The Magnificent Seven. And the primary driver of the Magnificent Seven? Nvidia, up more than 150 percent this year with a market cap slightly above $3 trillion.
By comparison, an equal-weighted S&P 500 is up 5 percent for the first half of 2024.
Magnificent 7? In the late 60’s it was the Nifty Fifty. And the run by these companies reminds me of nothing if not the dotcom boom/bust of the late 90s and early 00s. Spinning Wheel by Blood Sweat and Tears comes to mind as I think of this. It’s worth a listen if it’s been a while since you heard it.
The number of stocks advancing, compared to the number of stocks declining, a measure known as market breadth, peaked in mid-May. Since that time, there have been more stocks declining in price than advancing in price. And any valuation of the stock market leads to the conclusion that the market as a whole is overvalued.
On the bond market front? Bonds were flat to down during the first half. The shorter the length to maturity the better, for bonds. TIPS and High-Yield (Junk) bonds outperformed during H1, with TIPS up ~1 percent and Junk Bonds up ~2.5 percent. Remaining bond sectors were down in the low single digits.
Over the last ten years, 10-Year Treasurys have averaged 1.5 percent annually against inflation of 2.8 percent annually over the same time frame. Given the very difficult 2008 and 2022 for the bond markets, bonds have offered little in the way of return over the last 10 to 20 years and have often been as volatile as stocks. Not a winning solution.
At the start of the year, most prognosticators were expecting six to seven interest rate cuts this year, as inflation was supposed to have been under control. What wouldn’t surprise us? One rate cut, offered at the FOMC meeting in September.
Speaking of inflation and interest rates, what also wouldn’t surprise us is interest rates in the 6-7 percent range over the next 20 to 30 years. Inflating away a $35 trillion federal debt is the only politically palatable solution to Congress’ inability to control itself. Either Congress masters the federal debt or investors around the world will lose the “full faith and credit” currently placed in the U.S. government. If/when this were to happen, the dollar’s reign as the world’s reserve currency, and other quite untoward outcomes, would occur.
What else in the “wouldn’t surprise us” category? A shift in the returns on capital and labor. Peter Turchin in his book End Times does a good job evaluating returns to capital and labor over the last 200+ years. He makes a very good case for employees experiencing real inflation-adjusted wage growth over the next several decades. And concurrent with that, argues for a lower return on capital than has been experienced over the last 40+ years.
What should you do about your holdings? Stay the course, maintain your excellent habits.
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