By Craig McAvinue – 1 July, 2024
“The worst form of inequality is trying to make unequal things equal”
A bit of a mixed month, with a slight pull back in the UK FTSE and China, though the S&P 500 and Nikkei continue a fantastic year to date, hitting record highs again in June
Data from Google Finance
The USD edged higher against most currencies, the decreasing value of the Japanese Yen being most notable. JPY is at its lowest point in 35 years…
Data from Google Finance
Following on from last month’s theme around market performances not necessarily being correlated with the performance of a large number of stocks, the first half of 2024 has seen the levels of dispersion be at the highest ever.
At first glance, volatility seems to be very low at a holistic market level. In fact in 2024 trading on the S&P 500 only moved more than 2% in a day once so far (that was up).
However a deeper dive into this illusion of calm reveals that there is indeed volatility at share price level, just the large gains being made in some areas counter the losses being made in others. 40% of companies on the S&P 500 are now 10% lower than their year high. This could be why your own portfolio seems a bit behind the overall market.
Definitely a selling point for “camp passive”.
Many AI related companies are enjoying huge gains and the S&P 500 is home to many of these businesses. These gains are somewhat masking the overall picture. Although this sector is getting a lot of positive news and many still believe there is unlimited growth potential, a sell off in this sector could see a market adjustment.
On the other side, a look at a snippet of companies in the consumer discretionary sector and all we see is red. Industry leaders and solid businesses like Diageo and LVMH all in negative territory in 2024. So does that mean they are undervalued?
Macro economic factors such as the slowing of inflation in the US are an element as to whether markets go up or down. Other aspects such as trends and emotion also play their part, often more so than is pragmatic.
Historically, there has been a tendency for positive momentum to carry through. If the first half of the year is positive, there is a higher probability that the second half will also be positive, though this is not guaranteed.
When the S&P 500 has a positive first half, the second half is also positive 75% of the time.
Exceptions in the last 20 years have been 2007, 2010, 2011, 2015 & 2018
So whilst the trend and historical data point towards a positive second half, locking in gains and looking for some non-stock market correlation with some of your assets would be a sound strategy. No one ever got hurt by taking a profit.
Commodities, property, private equity and even currency fall into this category of non correlation. As mentioned earlier the Japanese Yen being at a 35 year low could be seen as a great buying opportunity.
There is still plenty of uncertainty on the geopolitical front with global elections and there’s nothing markets fear more than uncertainty.
Though when looking for growth over the long term, buying good companies and holding works and so the current market levels / share prices are irrelevant. To paraphrase Warren Buffet, It’s “time in” not “timing” the markets that works.
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