For the third quarter in a row, US stocks posted gains with the S&P 500 Index rising 4.3% for the second quarter of 2024. Similar to the start of the year, the market was helped by economic and earnings data that exceeded expectations. Other contributing factors included a steady but slow decline in inflation, a quick adoption of AI (artificial intelligence) and toned-down remarks from the Fed about “sticky inflation.” Large cap growth stocks were the primary beneficiary of the aforementioned, while other benchmarks were flat or negative.
As a result, the market breadth continues to remain narrow, focused on large cap technology and communication services companies. We believe this narrow market has created opportunities for investors in the mid and small cap space as those valuations are much more attractive today. If, and when, the Fed begins to reduce Fed Fund rates, these sectors should perform much better, particularly if we avoid a recession.
Fixed Income markets were a mixed bag with shorter maturity bonds posting positive returns and longer bonds posting negative returns as yields rose during the quarter. We continue to favor the shorter end of the yield curve for the time being.
In general, inflation continues to abate, the Fed is likely to cut rates later this year, the global economy is growing and opportunities in stocks and bonds remain. The risks to this scenario include higher and longer inflation, an escalation in the Middle East war and the upcoming U.S. Presidential Election outcome. We delve deeper in each of the above segments in our attached commentary.
We close with a quote from Benjamin Franklin:
“An investment in knowledge pays the best interest.”
As always, we thank you for your confidence in Pointe Capital Management. For more information, please click on the links below or contact us with any questions.