Stock Market 1H24-“Everyones a winner?” Not

The 1h24 is almost in the books and most strategists will be releasing their recaps and 2h24 outlooks.  I’m going to jump the gun and recap the 1h a little early. Why? Because about a week ago, I penned an internal email to the advisor group here at OHFG, outlining what has transpired YTD, and I got such good feedback I figured I would publish the info for all of our followers.

Investors, I’ve been managing other people’s money in the public financial markets for upwards of 35 years now. I keep a running list of overused and misused or misunderstood phrases and terms used by the wider financial industry throughout media networks.  One of the most over used phrases I hear on TV and elsewhere is, “it’s a stock pickers market” In fact, I can’t think of a period the last 20 years where this phrase was thrown around to start the year. Most of the time, the data says that that erm is nonsense.  The markets rise, most sectors rise, with sectors of the 11 S&P 500 groups best the overall S&P500, and most stocks within the leading groups rise as well.

Well, for the 1h24, much as was the case in 2023, outside of index investing in the S&P 500, investors, it has been a “stock pickers market year to date.

As of Sunday June 23^rd, The SP500, which recall is a market cap weighted index, is up around 15% total return, The tech heavy Nasdaq was up about 17% in price terms. The value tilted Dow Jones industrial index, which is price weighted, was up about 4% and the small cap Russell 2000 index was, flat, spot-on zeroish year to date.  Here’s a summary of that data in table and graphically for those more visually inclined.

However, with the S&P 500 up mid double digits, one might think everything out there has been working in 2024.  That everyone’s a winner in 2024? https://www.youtube.com/watch?v=gHTcQB_4AFw

Well, that would not be how 2024 is working investors. In fact, only two sectors out of 11, technology +29.6% and telecommunications +24.1% were beating the S&P500 year to date. Here are the top 10 holdings in the S&P500 by weight and the 11 sector weightings in one nice table from Lance Roberts.

As one can see, with the S&P500 being a market cap weighted index, very few names account for most of those gains (NVDA, MSFT, GOOGL). NVDA alone contributed almost 1/3^rd of the S&P 500 gain YTD.  Here’s a summary table through June 13^th from Goldman Sachs highlighting the stocks adding the most to the S&P 500 in the first half of 2024.

Only 9 stocks in the S&P 500 have accounted for nearly 11% points of the 14.56% YTD price return, that’s over 75% of the S&P 500 YTD return in only 1.8% of the names.

Here’s a little more detail on the the YTD returns from the top 8 mega cap stocks from Yardeni Research. YTD only Tesla is down, at -26% but even Apples +7.8% return is lagging the S&P 500 by almost 50%.

Only 30% of stocks have outperformed the S&P 500 index year-to-date. While this is slightly higher than what occurred in 2023, it’s still quite poor breadth YTD.  Since 1990, a streak of 2 consecutive years with such a low percentage of stocks beating the S&P500 has happened during only one point in time? Any guesses to when that period was? If you have been following my work for the last 2 years you probably know the answer. Yes, the 1999-2000 Dot-com bubble.

Now this isn’t just an issue here in the S&P 500 year to date, but even worse the last month if one looks across the broader indexes.  The % of US Stocks beating the market defined by the MSCI US indexes is under 20%.  That as narrow of a market as its been for 20 years when comparing each stock vs the overall market.

This data says, that year to date, it has been a “stock pickers market”, albeit a very narrow one if you are trying to beat the S&P 500.

Now before you jump on your advisor or manager for not outperforming the S&P 500 this year, I have to remind you not all financial plans and financial tools are created with that goal as their purpose.   And even so, if that is your advisor’s goal or your plans goal, how much risk are you willing to take to do it?

Let’s go back only 3 years ago to the beginning of 2022 when I was hearing about so many 40- and 50-year-olds talking about taking early retirement because their stock portfolios or more specifically their tech stock portfolios were killing it.  What happening in 2022? Recall in 2022, in the -25% S&P500 peak to trough bear market, these two sectors (tech and telecommunications) were down over -35-40%+.

That was almost 50% worse than the losses in the S&P 500. Investors, many individual mega cap tech names, that are today’s leadership performers year to date, like NVDA were down over -70% peak to trough In less than 9 months.  Here’s the same 4 indexes returns in 2022 just to jog everyone’s memory.

The S&P 500 finished 2022 down almost -20%.  The tech heavy Nasdaq was down over -33%, 50% worse than the S&P 500. The best performing index in 2022 was the value biased Dow jones down -9%.

Here’s some really interesting data from JC Parets. While underperforming the S&P 500 year to date, the sector with the best breadth, meaning the most names up and to the right?  That’s utilities! Up a bit over 11% in a very “boring”, broad, and utilitarian way.

I know most everyone wants to only own equity names that are green everyday or every week, but that’s not how running a diversified portfolio of stocks and other assets works near retirement or in retirement. A portfolio that is less likely to be subjected to a -35% to -50% drawdown in less than 9 months as in 2022.

The Dow Jones index (INDU) is price weighted, value biased and is lagging in 2024, it outperformed the S&P 500 in 2022 in a down market.

The Russell 2000 index (RTY) is small cap biased and continues to struggle in 2024.  It is loaded with small banks that are under yield curve pressure, energy names that have lagged as the economy slows, and hundreds of highly leveraged companies with stretched balance sheets that are hurting due to 1- slower consumer demand and 2-a hawkish Federal Reserve.  These types out stocks tend to soar early in an economic cycle or as the Fed begins to cut rates, if they haven’t pushed us into a recession timeline.

While volatility at the S&P500 Index level remains near historically low bounds, ex 2007, single stock volatility in the 1h24 was much higher than I can recall.  You have large cap tech stocks like Adobe trading up 15% on a day or up and down +/-15% in the case of Dell within a 2-to-3-month period.  NVDA pulled back over -10% from its highs in less than 2 trading days.

For the 1h 2024, the broad S&P 500 continues to follow the Presidential election cycle almost to a T, but below the index level lies a chasm in the dispersion between the two sectors outperforming the S&P 500 year to date, technology and communication services and the other 9 sectors lagging the S&P 500 year to date.  Yes, investors, the 1h2024 has been a “stock pickers market”, and quite a difficult one at that given the broad dispersion in returns of sectors as well as single names within those sectors.

J.C Parets of All-star charts puts this in perspective.  On June 14^th, the S&P 500 and the Nasdaq 100 both hit new all-time highs. However, a fresh 6-week in the broader NYSE index hit a new 6-week low.  Moreover, the Advance-Decline line of the Nasdaq 100 also hit new 6-week lows. That’s what market technicians call “bad or deteriorating

Longer-term nominal interest rates fell in the 2q of 2024 fueled by lower inflation fears.  This in tune helped the higher growth, low debt leverages large cap mega tech secular leaders like MFST, NVDA, and AAPL stocks as well as utilities which have historically high debt loads and low growth rates, it hasn’t done a thing to help most other sectors.

Why?  Because sectors like industrials, consumer discretionary and energy are generally shorter cycle areas that move with higher leverage to overall economic swings, both good and bad. And indexes like the small cap, Russell 2000 carry more “value tilted” names, names with higher debt loads, and more overall more cyclicality in their business.  However, time and time again, investors are told to keep broader more diversified ownership with their asset allocations as “diversification” has historically statistically been the only “free lunch” in the stock markets.  Investors, year to date?  Everyone is not a winner, investors are not winning at the sector or single stock level everywhere you look even though the broad index may appear they should be.

So, if you’re a retiree or near retirees still watching this video, with volatility in the markets subdued at low levels, and stock returns high for the last 10+years, if over the years you have found yourself reacting emotionally in your portfolio when the markets are down or volatility is high, like into Xmas eve December 2018, or Covid March 2020, or worse yet when markets were down for years post Dot.com bubble or GFC, now is the time to talk to your advisor to walk through your plan.  Well in advance of other investors concerns of will the 3q24 be a soft-landing pullback that refreshes, or the beginning of a much more painful economic and market downturn

Discuss how much risk is in your allocation plan under downside market scenarios just in case.  Investors, historically there is a 3^rd quarter selloff in the markets during election years, just as there is in most every other year.  And while most of these selloffs are just cyclical corrections and short-term pullbacks in otherwise long-term bull markets and economic expansions, it is virtually impossible to tell if that selloff is a mild correction in an economic soft landing, or if it’s the beginning of something more dire like it was in 2000 and 2008.

Investors, if you are going to make reallocation decisions to shift money out of stocks and equities into less volatile assets, its best to do it when indexes are up, and volatility is low. Not the other way around.

For investors or retirees who have been fearful that the markets might experience a 1970’s lost decade, a repeat of the lost decade after the Dot.com buildout, or who feel anxiety over the coming election, now is a great time to give Oak Harvest a call. Set up a meeting.  Let’s talk.

If you are uncomfortable with wider range of possible equity outcomes, the Oak Harvest team has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorber for a stock portfolio.  Information on this exciting new strategy of ours can be found at www.OakHarvestFunds.com.

From the whole team here, thank you and have a great weekend.

Do you need a retirement plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at 877-896-0040 or fill out this form for a free consultation: https://click2retire.com/Connect

Important disclosures: Content of Oak Harvest podcasts expresses the views of the speaker and is for informational purposes only. Oak Harvest believes that any data, articles, or information cited are reliable at the time of creation, but does not warrant any information contained herein to be correct, complete, accurate, or timely. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you — and nothing in this podcast constitutes personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment and your investment results may differ when compared to an index. Any specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.