We are just about at the halfway point of 2024, and so far, there is a surprisingly large rift between what is working and what is not. It should be of no surprise that any index that has included Nvidia (NVDA) stock has done well this year. And if not, then not so much.
While both the S&P 500 (SPY) and NASDAQ 100 (QQQ) are showing returns in the positive mid-teens this year, other indices aren’t seeing the same progress. International indices – both Developed (EFA) and Emerging Markets (EEM) – are hovering at just over 6% so far this year. And Small Cap (IWM) stocks are up less than 1% (FastTrack Data).
But how about the bond market? It isn’t doing as well as any of the stock indices. The Aggregate Bond Index (AGG) is just above even so far this year, while the 10-year Treasury ETF (IEF) is just below even this year (FastTrack Data). Ouch.
I have two takeaways from this information. First, it confirms the split in the market between indices holding the small handful of high-flying technology stocks, and everything else. Second, it shows that so far, 2024 has not been a good year for traditional “diversification.” Making progress in the current environment not only involves leaning into the right indices, but also avoiding the lagging ones.
We’ll see how this plays out, of course. Historically, we are now heading into a seasonally strong part of the year – July and August. After that we head into the seasonally weakest part of the year – September and October.
Our Shadowridge Long-Term Trend indicator is still holding onto its positive reading which it has held through the entire month of May and now for all of June. The market pullback in April appears to have been just a short correction while the strong indices have continued with strength.
Our Mid-Term Cycle went negative on the 23rd of May and has remained negative for the entire month of June. Weird, right? Since this stat looks at stocks going up vs going down, as well as how many are hitting new highs or new lows, this supports our view that the majority of stocks are not participating in this month’s move upwards.
As of Wednesday night (June 26th, 2024), our Shadowridge Dashboard showed Positive to Negative market sectors as 7 to 4. The four weak sectors are Basic Materials, Industrials, Consumer Discretionary, and Utilities. Interesting that Utilities is back on the weak side of the ledger, since the sector had such a strong May. But that run up seems to have stalled.
All 10 RGB Bond Indices are currently trending positive, above their 50-day Moving Averages. However, some bond sectors are showing much more strength (and resilience) than others.
I personally like visuals, so charts are my go-to for understanding the market environment. This month’s chart is a Year-to-Date comparison of the indices I listed above: Red (SPY), Green (EFA), Yellow (EEM), Magenta (IWM), Cyan (AGG), and Blue (IEF). The Red S&P 500 is the obvious winner in 2024. The Green and Yellow International markets aren’t bad, just not great. And Small Cap and Bonds just aren’t helping, all hovering close to even for the first half of this year.
2024 Year-to-Date through June 25th comparison of: SPY, EFA, EEM, IWM, AGG, and IEF (Source: Investors FastTrack)
As I mentioned earlier, the Bond Indices (the Aggregate and the 10-year Treasury) remain close to flat Year-to-Date in 2024. But it is important to note that while the traditional bond indices aren’t doing great, there are a handful of bright spots in the bond market. Largely Floating Rate (Bank Loan) and Short Duration High Yield – which are what we’ve owned through most of the year to stay ahead of the lagging primary indices.
Bottom Line: we are still largely invested and focused on Large Cap Growth and the S&P 500 (both containing Nvidia) as well as the strong parts of the bond market. We are very much aware that this environment can change, and change quickly. We’re optimistic going into July and August (as these also tend to be positive in Election Years). Then we’ll be very quick to get defensive once we get into the fall months of September and October.
Stay safe out there!
1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.
2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.