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Market Update 6.30.24 Thumbnail

Market Update 6.30.24

Our Investment Perspective

We can sum up the second quarter of 2024 as “Meet the new boss, Same as the old boss.”  Technology stocks with any ties to artificial intelligence (AI) continued to dominate the stock market.  At this point, their weighting in the S&P 500 is much higher than their percentage earnings contribution, making the case that investors have bid them up beyond justifiable valuations.  The YCharts/Bilello chart below compares the weighting of the sector now versus March of 2000, just before the tech crash.  

The good news is that tech stocks today have more established earnings records and are not trading at valuations quite like 2000.  But they are pricing in huge earnings growth, which may take longer to materialize than expected.

The S&P 500 Index grew +4.3% last quarter, even though the average stock in the index was down -2.6%.   Bonds returned +0.3% on average.  Later in the quarter there was some evidence that stocks outside the tech sector were getting a little more attention.  Fund flows into energy, utilities and financial companies began to pick up.  We are watching closely to see if this continues.

Investors have remained focused on inflation data, in hopes that it subsides enough for the Federal Reserve to lower short-term interest rates.  The most recent reports have been encouraging.  We expect a rate cut before the end of the year, likely at the September or December meeting.  A September cut might be criticized as politically-motivated because it is just ahead of the election, so that is only likely if there is very convincing evidence that inflation has moderated.  The recent employment data may have given the Fed that cover.

Several other global central banks have already cut interest rates.  This is providing a boost to the U.S. Dollar.  While not a positive for U.S.-based multinational companies, it is certainly a help for American tourists traveling abroad this summer!  It also helps battle inflation domestically by making imports less expensive.  

Over the next couple months we will be closely focused on jobs data (particularly wage growth), consumer spending, corporate earnings, and, of course, inflation signals.  We are also watching the increased uncertainty around the election, with a focus on which industries benefit from policies of either political party.  From a strategy standpoint, the most important tool at this point is diversification. As one sector outperforms quarter after quarter it is easy to allow those stocks to become concentrated in portfolios.  But remember March 2000… and “Don’t get fooled again”.    


BUFFINGTON MOHR MCNEAL – REGISTERED INVESTMENT ADVISOR 

802 W. BANNOCK STREET, SUITE 100 – BOISE, IDAHO 83702 – 208-338-5551 

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