May 2024 Market Update

Time for a change?

Craig McAvinue By Craig McAvinue – 3 June, 2024

“Democracy is the worst form of Government except of all those other forms that have been tried”

Stock and currency markets performance

After a pull back in April, most were back on track in May with positive numbers across most markets…

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Data table is from Google Finance

On foreign exchange, the USD, lost a little ground against some of the other developed currencies, though nothing too drastic

Mar 2024 Currency

The S&P 500 looks on the face of it to be performing very well so far in 2024, though a deeper dive reveals that gains within the market are not as easy to find.

Data table is from Google Finance

"Magnificent Seven" Hoard Market Gains

There has been a lot of talk of the lack of breadth.. As I have written about before, the heavy weightings of the “Magnificent Seven” have such influence over the overall market performance. The market value of these businesses currently makes up 31% of the overall market capitalisation. The top five values combined sit at over 27%, the highest since 1980.

Especially significant is the performance on one single stock (which based on an even playing field should represent 0.2% of the market), Nvidia. This company’s market value has increased by a staggering US$1.5 trillion this year. Overall the market capital of the S&P 500 has grown by US$4.5 trillion, so one component has been accountable for one third of the overall gains.

Nvidia stock

This certainly illustrates a lack of breadth.

Passive vs. Active Investing

Though only 60% of companies that trade on the S&P 500 are up in 2024. This will certainly add momentum to those who think passive investing is the way to go.. “Just buy an S&P tracker and all would have been good!”. It also illustrates that finding shares that perform well is difficult if 40% are down in a raging bull market. But those managers who do find the big winners like Nvidia will likely outperform in these markets. A nod in favour of “Team Active”

Sector investing is also a way to invest passively but with a bit more of an active element. Although many think that the Magnificent 7 (perhaps with the exception of Tesla) are Tech companies, actually only Microsoft, Apple and Nvidia sit in this sector. Meta and Alphabet are Telecommunications, with Amazon and Tesla Consumer Discretionary.

active and passive

Interestingly enough the year to date results show the Tech sector as just the third best performing, with Consumer Discretionary a lowly third from bottom (out of eleven). This once again illustrates the intricacies of getting the components of your portfolio right. One thing is for sure, the stock markets are not a democracy.

Will Politics Spook the Markets?

Speaking of democracy, much has been made of 2024 and the unprecedented number of elections which are taking place. In the next few days alone, India, Mexico and South African elections will be concluded, countries with a combined population of over 1.6 billion. In total 64 countries will go to the polls this year, most significantly for most of you: the UK next month and the US in November. 

Voting

According to the polls, it seems the UK is looking at a shift to the left as Labour look firm favourites (a quick check at the odds shows the conservatives at 18/1…I hadn’t realised it was looking that one sided) and the US to the right as the republicans ae favourite, albeit not as widely.

Despite popular belief, government policies dictated by the ruling parties have not historically been a major contributing factor to how markets perform under each stewardship. Stats show that the performance under Conservative and Democrat governments edge out Labour and Republican. Whilst this may not sound optimistic given we look to be heading in the opposite direction, there are many factors that have a more significant impact on the performance of companies than which political party is in charge.

Owning good businesses in good sectors managed by good managers and keeping out noise such as politics is the way to grow your hard earned cash…

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