Market Commentary June 30, 2024
Index | 2Q 2024 | 2024 YTD |
S&P 500 | 3.9% | 14.5% |
S&P 500 Equal Weight | -3.1% | 4.1% |
MSCI EAFE | -1.5% | 3.5% |
Bloomberg US Int. Term Corporate Bond | 0.7% | 1.0% |
The temperature is rising here in Montana and as we roll into summer financial markets have generally been good for investors in 2024.
The S&P 500 increased 3.9% in the second quarter (Q2) bringing the year-to-date (YTD) total up 14.5%. The S&P 500 Equal Weighted (S&P EW) once again lagged its market cap weighted sibling, the S&P 500, ending the quarter down 3.1%, bringing the YTD performance up 4.1%. International stocks were down as the MSCI EAFE Index declined 1.5% for the quarter, with YTD performance up 3.5%. In bonds, the Bloomberg US Intermediate Term Corporate Bond Index was up 0.7% for the quarter, and up 1.0% YTD.
Narrowing breadth in equity performance continues to drive overall S&P 500 Index returns. By our estimates, only 25% of current S&P 500 constituents have outperformed the market so far in 2024. Additionally, the Index appears to be getting more concentrated at the top with the 50 largest stocks representing nearly 61% of the market capitalization of the total index. This compares to 57% at the start of the year and an average of 52% over the last 20 years.
The concentration of strong performance by the largest companies in the index led to one of the widest spreads of quarterly performance between the market cap weighted S&P 500 and the S&P EW. For the quarter the S&P 500 outperformed the S&P EW by roughly 7%, the second largest quarterly outperformance for the S&P 500 in the last 20 years, with the first quarter of 2020 (1Q20) being only slightly wider. We’ll point out that the largest spread in the last 20 years was when the S&P EW outperformed its market cap weighted peer by over 9% in the second quarter of 2009 (2Q09).
Divining the implications from such technical market data is usually a fool’s errand, but it is worth highlighting that recent market dynamics are out of the ordinary. Extremes in over and underperformance based on index composition (equal vs market cap weight) doesn’t appear to have an impact on short term returns as quarterly performance for both the market cap and equal weight indexes immediately following 2Q09 and 1Q20 were positive.
Looking at the breakdown of sector performance for the S&P 500, information technology (companies like Microsoft and NVIDIA) and communication services (think internet companies like Google and Meta) are the only two sectors out of 11 total that have outperformed the market as a whole YTD. This isn’t surprising as four of the “Fab Five” we mentioned last quarter (Amazon, Google, Meta, Microsoft, Nvidia) are classified in the tech and communications sectors.
One interesting shift in trends during the quarter was the strong performance of the utilities sector, which narrowly outperformed the index for the quarter. This may seem like an outlier at first glance, but much of the strong performance for utilities was attributed to expectations of increasing demand for electricity to power the large data centers being built out to run large artificial intelligence models (like ChatGPT). Once again, another example of AI driving the market narrative.
Bonds were broadly in a holding pattern through Q2 2024. Responding primarily to economic data and the implications of potential Federal Reserve policy shifts, major bond indexes were broadly flat through the quarter. After an April where rates moved slightly higher (which equates to lower prices/index levels), yields trended lower through the last 2 months of the quarter. Bonds remain highly sensitive to expectations around when or if the Federal Reserve may cut short terms rates.
As always, if you have questions regarding your portfolio, please consult your financial advisor. We appreciate your continued trust in SG Long Financial and look forward to working with you in the future.
Rob Richardson, CFA
Chief Investment Officer
Important Disclosures
Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal. The S&P 500 Index is a recognized benchmark used by investors and the investment industry for the equity market. Indexes are not a managed portfolio and are not subject to advisory fees or trading costs. Investors cannot invest directly in the S&P 500. Indexes and/or market benchmarks references used throughout this report remain the copyrighted property of their respective owners. Before investing, please carefully consider your investment objectives, risks, charges, and expenses. Views expressed do not necessarily represent the views of S.G. Long Financial Service Corp. (“SGLFS”) and are subject to change at any time based upon market or other conditions. The information provided is for general informational purposes only and should not be considered individualized or personalized investment advice.
SGLFS is the parent company of S.G. Long & Company and SGL Investment Advisors, Inc. S.G. Long & Company is a broker-dealer registered with the SEC, a FINRA member firm and a state-registered investment advisor. SGL Investment Advisors, Inc is a SEC registered investment advisory. Clients and employees of SGLFS may maintain positions discussed herein.