July 2024 Investylitics

Horizon Advisor Network Investment Committee July 8, 2024

The members of the Horizon Advisor Network Investylitics Committee met on the afternoon of Monday, July 8th. Over the last month, markets continued their march toward new all-time highs, continuing to surpass record levels reached earlier this year. As a matter of fact, the market, as measured by the S&P 500, has reached more than two dozen record highs in the first six months of 2024, one of its best showings since 1950. All our committee members were present and anxious to discuss and debate perspectives from the various economists and market strategists we follow.

The recent run-up in stock prices has had a couple of interesting features. The first thing you will notice is that there has been very little historical volatility during this market advance. As you can see from our first chart below, since the turn of the century, there have only been two other timeframes when the market went through a similar period of growth without experiencing a single-day pullback of 2% or more.

A second distinguishing factor of this upturn in stock prices is that it is being driven by a relatively small number of large-cap, tech, and AI-oriented companies. These stocks have significantly outperformed their mid-cap and small-cap brethren by margins that we have not seen in more than two decades, as you can see in our next chart below, which compares the performance of the equal-weighted S&P 500 index to the market cap-weighted version we are all familiar with.

Through late June, the S&P 500 equal weight index is trailing the S&P 500 market cap index by 9.9% this year (total return), after lagging by 12.4% last year. The last time the S&P 500 market cap index outperformed by this magnitude in back-to-back years was 1998-99 during the dot.com bubble. As we begin the second-quarter earnings season, there is optimism that more companies will report stronger growth and that the market will begin to broaden out. This is something the committee will continue to watch closely.

After being primarily focused on persistent inflation pressures over the last two years, members of the Federal Reserve Bank are increasingly addressing potential cracks in the labor market as a potential reason to begin cutting interest rates sometime before the end of the year. This comes as weekly unemployment claims have drifted higher over the last few months.

The most recent unemployment report also showed significant downward revisions to job growth. The unemployment rate also tipped higher to 4.1%, representing a .7% increase from the recent lows. As you can see in our final chart below, when unemployment starts to turn up, a recession typically follows shortly thereafter. We will continue to watch the economic data to see if other indicators point toward an economic slowdown or recession in the coming months.

Unemployment drifting higher

Source: Charles Schwab, Bloomberg, Bureau of Labor Statistics, as of 6/30/2024

A slowdown in the economy or a higher unemployment rate may allow the Fed to finally begin cutting interest rates. This would be welcome news to the bond market, which continues to pay interest rates higher than we have seen in many years. In addition, we would expect there will be appreciation potential for these fixed-income assets as interest rates start coming down. This, in turn, could help offset any episodes of volatility in the stock market.

Finally, we are heading into the more seasonally challenging late summertime frame, along with the upcoming political conventions and election tensions. We would not be surprised to see volatility pick up and the markets experience some pullback from their recent highs. To that end, we would like to caution against getting too caught up in the emotions of the upcoming political season. Day-to-day headlines may briefly move markets, but they generally should not influence your long-term investment plans or asset allocation strategies.

We hope you are enjoying your summer months and not spending too much time worrying about what is going on with politics and the economy. That is what the committee is here to do for you. As always, if you have questions about your or your family's financial situation, please do not hesitate to reach out to your advisor. We are here and stand ready to help at any time.

© 2024 Jesse Hurst

Senior Wealth Manager and CEO

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results.

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.

Sincerely,

Jesse W. Hurst, CFP®, AIF®
CERTIFIED FINANCIAL PLANNERTM
Financial Advisor

*Award Recipient Jesse Hurst 

*The 2021 ranking of the Forbes’ Best–in–State Wealth Advisors¹ list was developed by SHOOK Research and is based on in–person and telephone due–diligence meetings to evaluate each advisor qualitatively and on a ranking algorithm that includes client retention, industry experience, review of compliance records, firm nominations, and quantitative criteria (including assets under management and revenue generated for their firms). Overall, approximately 32,725 advisors were considered, and 5,000 (approximately 15.3 percent of candidates) were recognized. The full methodology² that Forbes developed in partnership with SHOOK Research is available at www.forbes.com. 

¹ This recognition and the due–diligence process conducted are not indicative of the advisor's future performance. Your experience may vary. Winners are organized and ranked by state. Some states may have more advisors than others. You are encouraged to conduct your own research to determine if the advisor is right for you. 

² Portfolio performance is not a criterion due to varying client objectives and lack of audited data. SHOOK does not receive a fee in exchange for rankings.