Bulletin highlights this quarter: (1) Stocks and bonds continue the 2023-2024 market rally despite a 9% pullback in the S&P 500 in late July and early August. (2) The Federal Reserve rate hiking cycle appears to be over. (3) The Federal Reserve rate hiking cycle appears to be over. Plus our stock market and bond market forward outlook.

The second quarter of 2024 started out with a material decline in stocks during the month of April. The markets declined more than 4% across the board as persistently high inflation worried markets that the Federal Reserve would leave rates higher for longer. However, the slide in stocks was short-lived, and once again it has been technology stocks to the rescue.

The trend of robust gains in the stock market continued for the first quarter of 2024. However, unlike last year, the growth extended to sectors beyond technology.

2023: A Powerful Year of Recovery
The stock and bond markets performed exceptionally well during 2023. Despite a pessimistic tone entering the year, stocks and bonds rallied throughout the year.

The quarter began on a positive note but experienced a downturn in August and September, resulting in the first quarterly decline in 2023. Concurrently with the decline in stocks, there was a notable increase in interest rates, particularly for longer-term bonds.

The recovery in portfolio values continued during the last 3 months as stock gains accelerated during the quarter.

The beginning of 2023 has seen a sharp reversal in leadership in the stock market. All through 2022, growth stock prices declined while value stocks fared significantly better. From the start of the year, the market has been pushed higher by beaten down growth stocks, while at the same time dividend paying stocks and value-oriented stocks have lagged considerably.

2022 began the year on the heels of three historic years of market expansion from 2019-2021. As stock valuations, predominantly driven by Tech, stretched well past their historical norms, supply chain issues indicated that the global scarcity of materials was driving up the prices for common goods. High inflation triggered the Fed to embark rate increases and higher interest rates increase costs of capital for businesses which puts a strain on operations. When you couple this with higher costs of goods and a drop in consumer spending, corporate balance sheets are negatively impacted, and a market repricing unfolds.

The downward trend of stocks continued during the 3rd quarter despite a sizeable mid-summer rally that eventually succumbed to the downward pressures on the market. On June 16th, with a year-to-date decline of approximately 24%, we increased stock allocations as the S&P 500 dipped below 3700. Almost immediately, stocks began to stabilize and move higher. The market wound up increasing 18% over the next two months before once again resuming declines on August 17th.

The experience of going through a bear market is difficult and stirs up significant fear emotions.  However, as we detail in this Bulletin, a lot of the damage to stocks has likely already occurred.  While it is certainly possible that the market could decline further, it is our opinion that the time to be significantly more defensive has passed. 

The first three months of 2022 were not hospitable for long-term investors. Broadly speaking, U.S. stocks, international stocks and bonds all declined during the quarter. A diversified and fully invested portfolio was challenged to find any respite from losses.

For the third year in a row, U.S. stocks achieved significant gains with the Wilshire 5000, an index of the total U.S. stock market, now averaging more than 25% per year since 2019.

U.S. stocks suffered a decline of almost 5% during the month of September. The pressure on stocks increased as investors became more concerned about waning support by the Federal Reserve, higher interest rates and high stock valuations.

U.S. stocks gained strength and momentum during the 2nd quarter of 2021. The Wilshire 5000 index which represents all U.S. stocks increased 8.25% to push 1st half 2021 gains above 15%.

The first three months of 2021 saw continued growth in U.S. equities at a remarkable pace. The Wilshire 5000 index which represents all U.S. stocks increased 6.41%. Continued expansion at that pace would annualize to a gain of more than 25%!

The stock and bond markets in 2020 were crazy just like everything else about 2020! The journey to a significantly positive year for the Wilshire 5000 Total Stock Market was nothing short of remarkable. The wild ride occurred primarily in three extreme phases.

The U.S. stock market achieved significant gains for the 2nd straight quarter following the pandemic induced selloff of February and March 2020. Fixed income also advanced with the overall bond market returning a little less than 1% with municipals and corporates faring better than government bonds.

Almost as quickly as the market deteriorated during February and March of this year, we have experienced a remarkable resurgence during the second quarter. During the past few months, the S&P 500 has erased most of its losses from earlier this year. On the heels of unprecedented Federal Reserve stimulus, the markets are pricing in a return to prosperity….. or at least for technology.

The environment for investing in 2019 proved to be highly accommodating and will likely be remembered as one of the best investing years that many investors have, or will ever participate in. 

The U.S. stock market produced modest growth during the 3rd quarter of 2019, while U.S. bonds powered ahead with a return that was double the stock market return.