The S&P 500 Index® gained 15% in the first half of 2024. However, this gain was not as healthy as it appeared on the surface. The top 10 stocks represent more of the S&P than they have at any time in the last 25 years. Without the top 10 stocks, the remaining 490 names were up only 4%. We’ve written about performance disparities in several of our quarterly commentaries – large vs. small companies, growth vs. value, domestic vs. international. These types of disparities can’t last forever – either the rest of the market catches up or the top of the market cools down. We were happy to see some of the former this month, but we still find ourselves in a very concentrated market.
How Should Career Builders Think About Investing Today?
Many newer investors begin with index funds, such as those tracking the S&P 500. The S&P 500 is market-cap weighted, which means the largest companies in the index determine most of its performance. Today, the stock prices of these largest companies tend to move together – they are driven by similar factors such as enthusiasm over AI. So, a decline in one big name often drags the others down. Career Builders should think about broadening their investments (beyond the largest U.S. companies) to gain exposure to additional factors that tend to reward investors over time. Career Builders have the power of time on their side. Investing early in your career is always a good idea.
How Should Established Professionals Think About Investing Today?
In addition to the issue of market concentration, there are beginning signs of a cooling economy. We can’t say that a recession is around the corner. U.S. economic growth continues, inflation is crawling lower, and consumer spending on services (travel, etc.) is strong. However, unemployment claims are rising. Broad consumer spending and housing sales are both slowing. Disinflationary forces are beginning to be felt and the earnings growth needed to support stock prices could become challenged. We advise Established Professionals to keep safer investments for money needed in the shorter term. But it is important to keep a long-term perspective for your retirement savings. Fear of the short-term and the emotional investment responses it can cause can be a major detriment to meeting your goal.
I’m Retirement Minded, How Should I Think About Investing Today?
In a market trading at 24x earnings, some healthy caution is in order, but we’re not reducing stock exposure at this point. Despite the market’s concentration risks, overall corporate earnings should strengthen the remainder of this year and beyond. Over long periods, markets trend higher, even with downturns and corrections along the way. Our portfolios are structured to withstand these downturns, with money needed in earlier retirement years invested most conservatively.
There is still the question of how long interest rates will remain elevated. We expect to see inflation moderate, and the Fed lowering interest rates as early as September. This should allow capital-intensive businesses and commercial real estate borrowers to refinance at lower rates – feeding economic activity and supporting those smaller-cap stocks that have underperformed the largest companies.
Learn more about Integras Partners’ investment strategies.
