A Mid-Year Outlook on 2024 Interest Rates, Market Performance and More
Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer
This has been a record-breaking year in the stock markets. The Dow Jones Industrial Average crossed the 40,000 milestone in mid-May continuing this amazingly strong bull market rally. The S&P 500 and Nasdaq have also risen to new record levels—not the eye-catching, round-number variety, but records nonetheless.
The stock markets’ latest push higher was fueled by increased conviction that the Federal Reserve has engineered a soft landing. Earnings seem reasonably strong, most everyone who wants a job has one, and wages are rising. It’s widely believed that the Fed’s interest rate hiking cycle has concluded and it will begin a rate cutting cycle some time over the next year.
From the start of the year through May 22, Nasdaq has jumped 11.9%, the S&P 500 has gained 11.3%, and the Dow Jones Industrial Average has added 5.3%.
As we enter the second half of 2024, it seems likely that large cap growth stocks will continue to outperform and bonds will offer both income and diversification. That said, investors should take a moment to rebalance portfolios because future returns are never guaranteed.
Large Growth Still Dominates.
Large capitalization growth stocks have continued to vastly outperform other styles of equity investments. The iShares S&P 500 Growth ETF has risen 26.5% over the past year through May 23, far exceeding 17.9% one-year gain in the iShares S&P 500 Value ETF.
Large companies have benefitted from trends like artificial intelligence, which require substantial amounts of capital to build out the necessary technology. Small companies may not have the same financial resources that their larger counterparts enjoy and often pay higher interest rates on borrowings. Consider that 41% of small-cap companies were unprofitable in the first quarter, while only 7% of large-cap companies were unprofitable during that period, JPMorgan Asset Management reports.
As large-cap growth stocks have outperformed, their representation in the broader indexes has grown. Over the past decade, the percentage of large-cap stocks in the Russell 3000 Index has risen from 50% up to 73% as of March 31. Conversely, small-capitalization stocks have shrunk from 12% of the index 10 years ago to 4.5% at the end of last quarter, the folks at Commonwealth Financial Network® report.
Investing at Home.
Most international equity markets have underperformed the US stock markets and we expect that they will continue to do so going forward. Many of the international markets face geopolitical risks. Wars between Russia and Ukraine, Israel and Hamas and hostile barbs traded between the US and China makes us more comfortable investing closer to home.
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Don’t Forget to Rebalance.
As we all know, the past performance of stock markets is not a guaranty that they enjoy positive future returns. So, it’s always important to rebalance portfolios, trimming investments that have had the best performance and using the proceeds to increase exposure to areas that have underperformed. Doing so once or twice a year is often a good practice to ensure a portfolio doesn’t become over-exposed to any one area.
Given the sharp outperformance in equities and the losses in the bond market last year, now might be an opportune time to increase a portfolio’s exposure to the bond market. If interest rates fall modestly in the months to come, as we expect will occur, bonds should once again provide investors with income and the benefit of diversification.
Talking with an investment advisor about rebalancing strategies can be vitally important to your investment portfolio’s performance today and in the future. That’s why at Weiss, Hale & Zahansky our team considers the entire financial picture for each client as part of our strategic Plan Well, Invest Well, Live Well™ process. If you’d like help planning your financial strategy, request a complimentary consultation on our website or call us at (860) 928-2341, and experience what we strive to provide to each of our clients: Absolute Confidence. Unwavering Partnership. For Life.
Authored by Principal/Managing Partner Laurence Hale AAMS, CRPS®. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.
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