Heir Necessities

2nd Quarter Stock Market Review & What Comes Next

July 10, 2024 Katherine Fox, CFP®, CAP® Season 1 Episode 11

An easy-to-digest recap of stock market and economic performance in the second quarter of 2024 and my view on what's coming next.

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the story of the stock market in the second half of 2024 hasn't really changed from everything I talked about in the first quarter. What does that mean? The stock market is still doing pretty well. The S &P 500 is up almost 15 % as we're about halfway through the year. It gained about 4 % in the second quarter. And that index continues to be the story of AI% return is made up of just five stocks, five AI -focused stocks, Microsoft, Apple, Amazon, Nvidia, and Meta. And what does that means that if you don't own those five stocks specifically, if you don't own a broad index, then you missed out on a huge amount of the performance so far in 2024. It also means that the market continues to be really, really excited about artificial intelligence. There are a lot of connections being made to the tech boom of the late 90s, early 2000s, and people saying that it's different because AI companies are liquid, they're profitable, and it's not a tech But I think whenever you have valuations that look how those five companies look, you need to be careful. And you need to avoid just jumping on the train, pouring a lot of money into those companies specifically, because the reality of the situation in the stock market is generally what goes up also comes down. Are these companies overvalued? Maybe, maybe not. It depends on if the hype around them can actually come to fruition in reality. The other big story as we look forward into the rest of 2024 is that it's a presidential election year. A few weeks ago, we had our first presidential debate. We saw a truly disappointingly poor performance from Biden that created a lot of questions about his ability to govern, about his ability to win this election. So what markets have done in the aftermath of that debate is they've basically priced in a Trump victory. And what does that mean for the stock market? What have the markets actually priced in? They've assumed that corporate tax cuts will continue on. So the corporate tax rate will stay lower, which means that the Federal Reserve is going to be more aggressive in terms of trying to keep inflation under control. The reason for that when corporations have more money, there's more money in the money supply and that can have an inflationary effect. So the markets are assuming that if Trump wins, there's gonna be a lesser chance that the feds are gonna cut rates later in 2024. Remember, I've talked about this before, what the market thinks the Federal Reserve is going to do in terms of rate cuts has no relation to what the Federal Reserve is actually gonna do. The markets basically take a piece of data or several data points that they got in given quarter and a given month and a given week whenever, and then they extrapolate out what the Fed, what they think the Fed's gonna do. The problem with that is that then there's new data points that tell a different story and the market has to change course. So I wouldn't put too much stock in predictions about interest rates dropping or staying the same this year. At this point, it feels pretty safe to say they probably aren't gonna continue increasing in 2024. Fingers crossed the Fed has got inflation under control. Are we gonna see a rate drop in 2024? Personally, I would say that's unlikely, but time will tell. Moving back to Trump and the election, talked about corporate tax rates, also talked about the potential that if Trump wins the election, that tariffs will be higher on goods from overseas, especially from China. And the market has also priced in the effect that that is gonna have on the economy. What does this mean for investors? It means that if there is continuing news in the presidential election cycle, I hope there is, I don't know what it could be, if we see another Democrat come to challenge Biden, if Biden has a stunning turnaround and is no longer elderly, then the markets are gonna respond, the markets are gonna be turbulent. But there also tends to be an expectation just among kind of regular people that the markets are going to be more turbulent than they actually are in an election year. And while there are swings, a lot of those swings that we've seen have already been priced in. So if Trump wins, I wouldn't expect there to be a huge swing in the market, because the markets have already kind of priced that in as what's gonna happen. If Biden wins, there probably would be a swing, because the markets aren't thinking that's what's gonna happen. But again, it's not gonna be a huge change. You likely wouldn't see a huge swing or dip in the market. just depending on Biden or Trump winning the presidential election. That could change if you see a third party candidate, if you see a new Democrat come up to challenge Biden. The markets could react more strongly to that. But again, we'll see what happens. If you have any questions, drop me a comment below. Send me an email, katherine at cindybranchwealth .com. Happy to chat markets anytime.