Q2 2024 Market Update

Markets were mixed during the second quarter, though the solid start to the year helped overall first- half returns. Many of the themes that were in focus during the first quarter carried over into the second and remain areas of interest. The biggest of these are the path of monetary policy and the ongoing AI buildout. As we move through the summer and into the fall, the upcoming elections will increasingly factor into market discourse. While we generally refrain from getting too in the weeds on politics, some policy implications will be too important to ignore. The outcome of the elections, and the makeup of Congress in particular, will drive the important policy decisions that need to take place in the coming years. From a market perspective, we maintain a constructive medium-term view towards equities, even as certain areas appear stretched in the short term. On the fixed-income side, we see the likelihood of rate cuts as a positive short-term catalyst for bonds, while longer-term uncertainty has us continuing to favor less risk.

The path of monetary policy is a near-term catalyst we are watching. While inflation has been stubbornly stable for the better part of this year, it finally appears to be cooling. June’s inflation data showed the first monthly decline since 2020. In the background, the other half of the Fed’s dual mandate, employment, has been modestly weakening. Combined, the two factors point toward rate cuts. Neither is slowing so much that it is cause for concern, but the runway towards easing may finally be clear. We believe that the Fed will use the July meeting and the August Jackson Hole Symposium to lay the groundwork for a September rate cut and the path forward from there - possibly quarterly cuts while remaining data-dependent. Easing monetary policy could contribute to a broadening of equity market returns as rate-sensitive areas such as the financial and real estate sectors and small-cap stocks rejoice. On the fixed income side, declining short-term yields should facilitate positive bond returns.

AI continues to be a key investment theme, and we do not expect that to change. The second quarter saw investors starting to think about the bigger picture, with questions around power generation coming to the forefront. ​

While the largest firms continue to build their AI arsenals, some are beginning to wonder how we are going to power all of the new data centers. Utility companies became all the rage, and newer technologies, such as small modular nuclear reactors and renewable (wind & solar) along with battery storage increasingly seem like the solution. Although we are still very early in the AI story, the fact that we are thinking about things more broadly is a good sign and highlights the transformative potential this theme will have on markets.

In the coming weeks and months, focus will shift to the upcoming elections. However, the real fireworks could come after the elections. The new government will have to deal with ballooning deficits, expiring tax cuts (end of 2025), and the long-term funding of Social Security and Medicare. None of these questions have easy answers, and knowing how the government works, any issues will likely get worse before they get better. Investing based on politics is typically a fool’s errand though, and while we these issues are obviously significant and complicated, it is unwise to believe that solutions - or at least improvements - are impossible. A lot is happening in the world, and while various worries keep popping up, the ever-resilient stock market keeps knocking them down. We are always somewhat cautious, it comes with the territory, but to the extent we can be excited about the future, we are. With the amazing technological innovation taking place, we recommend ignoring the short-term noise and keeping your focus on the long game. Enjoy the summer, and please reach out with any questions or concerns.

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Index Descriptions:
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock ex- changes in the United States.
The Russell 2000 Index is a stock market index that tracks roughly 2000 US small companies, and is considered a key benchmark for US small cap stocks.

​The MSCI EAFE Index is a stock market index that measures the performance of large- and midcap companies across 21 Developed Markets countries around the world. Canada and the United States are not included. EAFE is an acronym that stands for Europe, Australasia, and the Far East.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.

The Bloomberg US Aggregate Bond Index, or the Agg, is a broad based, market capitalizationweighted bond market index representing intermediate term invest- ment grade bonds traded in the USA.

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