black and silver laptop computer by Yorgos Ntrahas courtesy of Unsplash.

Market Update for July 17, 2024

Jeffrey B. Snyder, CFP® |
Categories
Fed

We have been very productive this year at First Financial Associates, but in that activity I have been remiss to provide enough blog posts, and I intend to remedy that in the coming months.  

Here are some current thoughts:

1. I denounce the attempt on Trump’s life.  Our political divisiveness is enough, the country doesn’t need to resort to violence, and I hope that is the last evidence of such.

2. Going back a few weeks, that debate was a debacle on both sides- I just cannot believe the degree to which our leadership options have fallen since I started voting.  My first election voting was Bob Dole and Bill Clinton.  They were respectful of each other- they outlined different thoughts and policies- there was a stark difference in their visions for the future, but in terms of their political thoughts, not in terms of personal attacks, slander, lies, and complete discord.  I yearn for the previous POTUS candidates I did NOT vote for in the 1996-2012 elections!

  • …and yet the stock market hums along.  Markets neither sold off markedly the day after that debate, the week after that debate, nor today- the first trading day after the Trump assassination attempt. “Whistling past the graveyard” is a phrase that comes to mind.  Inflation is persistent but legions lower than a year or two ago, the employment market remains strong, and economic growth, while not robust, is positive.  

3. The biggest concern for stock markets both locally and globally is the “technology vs. everything else” trade.  Essentially, tech is the biggest sector in most broader stock market indices, and it is technology stocks’ advances that have dragged the broader indices along for the ride since about October 2022.  Does this end in a broadening out of the advances to other areas of the market (positive), or with a tech crash that takes the broader market down with it (negative)?  That is the most important question of the day, and I am wrestling with the answer, even as we have seen no evidence of a substantial slowdown coming.

  • The top 5 companies in the NASDAQ-100 comprise 35.11% of the index.  Just FIVE!  Three of them are very famous stalwarts: Microsoft, Apple, and Amazon - and two others are massive but perhaps less famous tech names - NVIDIA and Broadcom.
  • That’s a tech-heavy index, though, so what about the broader S&P 500?  Well, it’s almost as bad/concentrated.  The names are slightly different: Microsoft, Nividia, Apple, Google, Amazon, in descending order - but those 5 total 28.57% of the index.  Given that the 8th biggest constituent, Berkshire Hathaway, is just under 50% Apple stock ITSELF, only the 9th biggest constituent of the S&P500 Eli Lilly is non-tech within the top-10 holdings of the S&P 500.  Former companies in this mix have been ExxonMobil, Walmart, JP Morgan, and others, but the current market sees none of those companies with even a 1.5% weighting in the index.
  • So, both indices are VERY tech-heavy and tech companies tend to rise and fall with a high level of correlation, so that is the concern.  A major problem at one of the top tech companies could result in a major problem for other tech companies, which by definition would be at lest a moderate problem for the indices themselves.  In short, investing in the broad indices is MORE RISKY than it has historically been, because the indices themselves are far less diversified than they once were.


4. I’ve said before the stock market is usually either cheap and going nowhere or expensive and full of momentum.   We are certainly in the latter camp today.  The full downtick from the bear market that commenced January 3, 2022, was a historically average 23% peak to trough, and the comeback took just over 2 full years, about 6 months less than the average comeback in past market dislocations.  We closed today, July 16th, about 18% above the previous January 2022  high.  Time will tell if this is mid-ascent or about as much as we will get out of these bullish times, and of course that is a very difficult call indeed.

5. The Federal Reserve is now expected to hold rates steady in July 2024, but to decrease their overnight loan rate 25 bps in the September, November, and December 2024 meetings for a total rate reduction of 0.75%.  This will likely affect future CD’s, money markets, savings/checking rates, loan rates, mortgages, and fixed annuity rates, if it comes to pass.  There is some evidence in financial literature to suggest that by the time the Fed lowers rates the stock market is closer to a correction than it is to an expansion, but of course this is not a hard and fast rule.  The question is basically do we need the rate reductions to continue the recent advance - or do we need them to justify how far we’ve ALREADY come.  Companies’ quarterly earnings will tell the answer in the coming quarters.  

6.  And one social note: I am performing two different shows this summer, July 27th and 28th in the evening at Lost Acres Vineyards in North Granby, CT, as a singing-only performance, and then August 30th at Cheney Hall in Manchester in a full production of the musical “Heathers,” based on the 1989 cult-classic film with Christian Slater and Winona Ryder.  At Lost Acres I will be singing a song from Lion King and another from Sweeney Todd.  At Cheney Hall I am filling in for “Ram’s dad” and I get the lead part in one memorably funny song.  If you want tickets to either reach out to me or Sandy directly (Sandy is our receptionist so you can call the office and hit zero for operator, or you can email her at sandra.sullivan@jwcemail.com) and I’ll be in touch!