Presenters: Andy Pratt, CFA, CAIA, and Adam Newman, CFA, CFP®, MT, RICP®
Here is the webinar recording from July 10th, 2024. You can browse topics discussed and main takeaways using the sections and time stamps below:
Click the time-stamp in each section title, and you will jump right to that part of the video in a new screen!
The second quarter of 2024 was relatively quiet compared to the exciting start of the year, with major asset classes posting fairly average returns.
Emerging markets were the leading pocket of global equity markets, up about 5%, while the US market was second, up just over 3%.
The bond market was relatively flat for the quarter.
The S&P 500 has hit 36 new all-time highs so far in 2024, which if continued, would result in over 70 all-time highs for the year - close to the record of 77 set in 1995.
The past few quarters have shown slightly above-average equity returns for the US over the previous 10 years, while returns for the rest of the world have been well below average.
The bond market has experienced challenges in recent years due to interest rate changes.
Burney recently released a piece on their asset allocation model, explaining how they approach portfolio diversification and why their approach differs from traditional retirement portfolios.
Adam emphasizes that periods of good market performance are ideal times to reassess portfolio risk levels and make adjustments if necessary.
A JPMorgan survey of institutional money managers showed only 17% were looking to add to equity exposure, indicating a lack of frothiness or over-exuberance among institutional investors.
Both institutional and retail investor sentiment indicators are reading around neutral, suggesting there hasn't been a mad dash towards stocks that is typically expected in the later stages of a bull market.
The current bull market hasn't caught on with either institutional or retail investors, which may have helped sustain the upward movement in equities as people gradually file in to participate.
It has been 345 days since the S&P 500 experienced a 2% daily drop, which is an unusually long period of low volatility.
There have been periods in the past with much longer stretches without a 2% drop, as well as periods of much higher volatility (such as 2020 through the end of 2022).
Since the bottom of the last bear market, there has been a slow climb in the market with overall fairly muted volatility, coupled with muted investor sentiment.
Over the past 100 years, the market has been in an uptrend more often than in bear markets (defined as a top-to-bottom drop of 20% or more).
Approximately 75% of the time, the market is in an upward trend, while the other 25% experiences normal volatility expected for higher returns.
The current bull market is not overstretched by historical standards, despite ongoing for nearly two years.
The market has weathered various headlines and global geopolitical events, especially considering it's an election year.
A 10-15% pullback or correction would be considered normal and healthy in any given year, even when overall returns are strongly positive.
Andy & Adam's expectation is that the general economic backdrop is still strong, with inflation coming down and both corporations and consumers doing well.
Election years and post-election years typically show strong, if not average, returns for stocks, regardless of which party wins or whether it's a re-election.
Adam & Andy emphasize that elections themselves, while important to discuss, are not typically intermediate or long-term market movers.
Burney plans to do a dedicated "election special" presentation at the end of August (August 28th) to discuss investing and the economic climate during an election year in more depth.
The presenters stress that markets and the economy are incredibly resilient, and it's very difficult for a single person, even a president, to significantly sway the economic machine.
The majority of stock market returns in the first half of 2024 have come from the "Magnificent 7" stocks, similar to the trend in 2023.
There's an extreme 13 percentage point differential between the market cap weighted version of the S&P 500 and the equal weight version over the last six months. NVIDIA alone accounts for one-third of the 15% return in the S&P 500 year-to-date.
While the Magnificent 7 are dominating, growth stocks are outperforming value stocks across all size levels (large, mid, and small). Mid-growth stocks have performed particularly well, outperforming large value stocks and being the second-best performing area of the market over recent time frames.
The mega-cap outperformance trend has been consistent throughout the 2020s, with the exception of 2022.
The current level of market concentration is not unusual when compared to historical data, particularly from the 1950s and 1960s.
Unlike previous periods of high market concentration (such as the dot-com era), the current mega-cap stocks have strong market fundamentals driving their performance, with impressive earnings growth supporting their valuations.