First Half Recap - A Tale of Two Markets

Equities

The biggest story for equities in the second quarter was an acceleration in the narrowing out that began in the first quarter. In other words, fewer stocks went up and more went down than earlier in the rally that began last October. By the end of the second quarter, the S&P 500 had hit a number of new all-time highs, yet only about half of stocks on the New York Stock Exchange were even above their 50-day moving averages, a measure of being in an uptrend. Contrast this with the end of 2023 when as many as 87% of NYSE stocks were above their 50-day moving average. What’s more, the Value Line Geometric Index, which better approximates the “median” stock in the market than the other major averages, actually finished the second quarter down on the year versus an almost 15% gain in the S&P 500. The disparity between the performance of the “typical” stock in the market and the S&P 500 is historically wide. This poor breadth has made it almost necessary to be as concentrated in the top stocks as the averages are or risk underperforming. As a result, investors continue to pile into an ever-narrowing number of companies, which may increase the market risk if these stocks experience their own period of underperformance.

Bonds

The bond market has su ered from the sharp turnabout in expectations for imminent rates cuts from the Federal Reserve. The benchmark 10-Year U.S. Treasury yield plummeted from around 5% last October to 3.78% by the end of 2023 as the market priced in those six potential cuts. This drop in rates sent bond prices skyward as a result, though since then the 10-Year has chopped back and forth, topping out around 4.75% in late April before retreating back lower. The uncertainty of the Fed’s future path resulted in rangebound, flattish action in the bond market in the second quarter. If inflation and economic measures continue to moderate, it is widely expected that rate cuts will still happen this year, though how aggressive the Fed chooses to be with said cuts over the coming year will likely have a large impact on both rates and bond prices.

Commodities

Commodity indices were also largely rangebound in the second quarter, yet, as usual, there were di erences among individual commodities. A combination of a slowing global economy and a higher U.S. Dollar Index has put some downward pressure on areas like Crude Oil. The price of West Texas Intermediate Crude (the primary measure of U.S. prices) began the quarter around $83/barrel but fell as much as $10 below there in early June before rallying back up toward its origin. Meanwhile, Gold prices finished slightly up on the quarter, but basically traded sideways near alltime highs after initially jumping higher in early April. Commodities, overall, appear to be getting pulled in two di erent directions – inflation expectations remain comparatively high relative to recent history, though a slowing economy may continue to put downward pressure on the more growth-oriented commodities like Oil. Should Oil prices surprise the market, however, by going significantly higher, that may help to keep inflation higher for longer and prevent the Fed from being aggressive with their rate cuts.

Conclusion

Investor focus remains on inflation measures and whether they will allow the Federal Reserve to cut interest rates later this year. And then, of course, we are getting closer to the U.S. presidential election in November and market attention will likely shift toward the polls as the summer continues. Historically, the stock market has experienced a seasonally rougher patch, on average, in the months leading into a presidential election. We can never rely solely upon seasonality, though it is something to keep in mind as a narrowing and still historically overvalued stock market nears election day. Investors tend to overweight the importance of elections and politics in the market, yet the combination of uncertainty from the Federal Reserve, geopolitical risks, and a highprofile election could produce more volatility in the months to come than the financial markets have experienced so far in 2024. A rotation out of the largely overvalued and over-owned leaders and into the beaten-down laggards is certainly a possibility too.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of the author, and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will a ect actual investment performance. Individual investor's results will vary.

This article was written by Gus Vega, CERTIFIED FINANCIAL PLANNER professional, Total View Advisors and Branch

Manager with RJFS and Danny Brea, CERTIFIED FINANCIAL PLANNER professional, Total View Advisors and Financial

Advisor with RJFS. They can be reached at 786.264.4954, 9155 S. Dadeland Blvd. # 1404, Miami, FL 33156. Total View Advisors is not a registered broker dealer and is independent of Raymond James Financial Services, Inc. Securities o ered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services o ered through Raymond James Financial Services Advisors, Inc.

There is an inverse relationship between interest rates and bond prices. Generally, when interest rates rise, bond prices fall, and vice versa. There are special risks associated with investing in bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk reinvestment risk, and unique tax consequences.

Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.