Things May Not Always Be As They Seem . . .

4 Insights for Long-Term Investors in the Second Half of 2024

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July 3, 2024

John Browning, MBA and CSA? | CEO, Principal

Throughout history, widely held beliefs have been proven incorrect. In the 19th century, for example, Scurvy was believed to have been caused by bad weather, poor hygiene, and a number of other things. The actual cause was later discovered to be a lack of vitamin C found in fresh fruits and vegetables on long voyages. Despite comprehensive data-driven studies indicating this was the case, it still took decades for the British Royal Navy to supply more fruits and vegetables to its crews.?

I believe we still see this in many cases today.? One item in particular is the idea that “the equity market” has performed well during 2024.? Some have declared that “the market” has risen too fast and we are doomed for a great crash.? Yet, when examined more closely, we find that only a few company's shares have made appreciable gains while the bulk of the equity market has languished.? The reasons for this are numerous, but what it means for your portfolio and retirement, in my opinion, follows below.

As we enter the second half of the year, it’s crucial for long-term investors to maintain perspective on the major events that have driven markets.? The rally in artificial intelligence stocks continues. During the first six months of the year, the S&P 500 gained 15.3% with dividends and the Nasdaq 18.6%, driven by very few companies.? Here is where the story of the great performance of "The Market" starts to lose steam.? The Dow Jones Industrial Average has returns of 4.8%, and the equal-weighted S&P500 a touch over 4% (see chart below). The 10-year Treasury bond market has been roughly flat for the year. Meanwhile, International stocks have performed better, with developed markets generating 5.7% and emerging markets 7.7%; however, since the dollar has strengthened over this time period, bringing those gains back home brings those returns back down.

We see this as an opportunity for those who are not faint of heart to continue to invest. We see some signs that inflation, which ran hotter than expected for a few months, may be improving, and the possibility of rate cuts in 2025 may give some of the more indebted smaller companies some room to breathe and perhaps flourish again.

The market sentiment will continue to focus on the short term, and the noise of the election will likely cause some volatility, but in the long term, American ingenuity adapts and prevails.

1. The market continues to reach new all-time highs

This year, artificial intelligence stocks – mainly Nvidia – have contributed greatly to market returns, with the Information Technology and Communication Services sectors gaining 28.2% and 26.7%, respectively.? Our cause for continued optimism is that other sectors have recently begun to benefit, with Energy and Utilities leading what we believe will be a continued rally, albeit not without some bumps in the road.?

One of the hardest things for individuals to do is stay diversified when the rally is currently so clearly weighted towards just a few companies. If we are correct and rates begin to be cut in 2025, this should broaden the rally and potentially cause slight underperformance in some companies that have already experienced their fair share of the glory.?

2. With inflation cooling, the Fed is on track to cut rates later this year

3. Many investors remain on the sidelines in cash

In times of market uncertainty, investors often seek the safety of cash. This has been true over the past several years as markets have swung due to the pandemic, geopolitical events, Fed rate hikes, inflation, gridlock in Washington, technology trends, and more. Additionally, interest rates on cash are at their highest levels in decades, making it appear that there are attractive “risk-free” returns.

While cash can serve an important role, it can become problematic, causing you to underperform and purchasing power to inflation despite what may seem to be "high interest rates" on cash holdings. Cash is not truly risk-free for two important reasons. First, inflation silently erodes the purchasing power of cash over time. So, even if yields appear to be high, the actual value of your money may decline.

Second, the prospects for cash will only worsen if and when the Fed begins to cut rates. Investors may be forced to reinvest their cash at lower interest rates or in stocks and bonds whose prices would likely have already risen.

4. The presidential election is heating up

History shows that markets can perform well under both major political parties. The accompanying chart shows that the economy and stock market have grown over decades regardless of who was in the White House.

Of course, politics can impact taxes, trade, industrial activity, regulations, and more. However, not only do policy changes tend to be incremental, but also the exact timing and effects are often overestimated. Thus, it’s important to focus less on day-to-day election poll results and more on the long-term economic and market trends. Ideally, investors concerned about the impact of specific policies on their financial plans should speak with a trusted financial advisor.

The bottom line? Maintaining a long-term perspective is important to achieving your goals. Working with a qualified financial advisor can help you navigate an uncertain future and prepare for changes in the economy and stock market through the rest of 2024.

If you would like to learn more about how to create your personal paycheck protection program in retirement without relying on traditional fixed income so you are not worrying about running out of money or not being able to live your best life, reach out to us at the “Contact Us” section of Guardianrockwealth.com or by texting the word LIFE to 321-421-5213

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This note is not investment guidance for you; it is information and opinion only.

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Please remember that this note represents our opinion from a broad perspective based on over thirty years of money management experience and is not personal investment advice.

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For more information and a copy of the Amazon Best Selling Book Build A Life Not a Portfolio, text the word LIFE to 321-421-5213

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Talk soon,

John

Phone: (561-) 327-4646

Email: [email protected]

John Browning, MBA, and CSA?