The U.S. economy has defied all fears of recession and over blown inflation since the Fed tightening cycle that began in March 2022. In fact, Fed Chairman Jerome Powell coyly remarked in response to a “stagflation” comment on May 1 that he has not seen the “stag-“ or the “-flation” that would cause him concern.
The capital markets have agreed with this belief as U.S. markets continue to show pockets of strength and many new all-time highs in Q2, led once again by mega-cap tech stocks in the S&P 500 (IVV) with a robust YTD performance of +15.3%. Though it is tempting to call this “irrational exuberance”, in most cases earnings growth has met/exceeded expectations validating the price strength of the large cap companies in that index.
However, many U.S. capital market sub-indices continue to lag the S&P 500 and produced negative performance during Q2. Per the table below, small and mid caps (SCHA and SCHM) lag the most in Q2 (but still positive YTD) with high-quality dividend (DVY) struggling to stay even.
We are happy to finally see emerging market equities (SCHE) push forward due to some new strength in China and Taiwan and lead the broad capital markets during 2024 Q2 with a return of +5.3%, though still lagging the U.S. on a YTD basis. Lastly, fixed income, in the final throes of the Fed’s tightening cycle, are still seeking a firm ground from which to build. Core bonds (SCHZ) are flat on the year, with shorter bonds (SLQD) and high yield bonds (HYG) a bit better.
My 2024 Q2 blog posts focused on three major themes: investment strategy, portfolio diversification, and economic indicators. Each of these themes is expressed in my role as an investment adviser per my blog post, Portfolio Management Decision-Making:
There are literally an infinite number of combinations of equities and fixed income to create a portfolio with similar levels of risk, so SOMEONE needs to make an investment decision and invest in SOMETHING! That is my job, as an investment adviser, to use my experience and knowledge of the markets to understand client objectives and goals to create an appropriate diversified portfolio with a target level of risk.