Q3 2024 Investment Update
The 2nd quarter of 2024 continued the positive trend for stocks on the year. Many were looking for weakness in 2024 however we were looking for continued gains (albeit more modest) and even increased our stock exposure.1
Additionally, our thinking was rate cuts might not materialize until later in the year and the market are seemingly brushing aside “delayed cuts”. It might be more important to the markets that it’s no longer “fighting the Fed” (with rate hikes) and timing of cuts not as important (so long as they are on the way).
Rate cuts generally impact the dollar and we would look for this to translate into positive performance for international. It could also be positive for the broader market (smaller and value oriented companies not just tech) a trend we are looking for and would be a welcome trend. The market might “need” this broadening to keep the rally going (how much more can tech and AI keep going up to drive the market alone?).
The other key trend (another big story) we are watching and seeking to take advantage of is the Artificial Intelligence (AI) boom. We have been tracking this trend all year and is providing a boost to the markets.2
Quarterly Changes
Same as last quarter, we are favoring larger companies over smaller companies. Last quarter we advised small companies may be more sensitive to rate changes and thus struggle until rate cuts, or expectation therein, become clearer. Avoiding additional exposure to small companies (although we do maintain a core small amount) ending up being a good move as small companies were the worst performers in our universe.
Last quarter we added larger “growth” companies (and vis a vis tech and AI) which ended up being the best performers in our universe. Many of these companies like Microsoft, Broadcom, and Nvidia are among the biggest beneficiaries of the AI trend boosting the markets. In fact Large Growth is a primary driver of stock performance this year.
We are becoming more positive on international for the upcoming quarter. We added Emerging Markets equities in place of Japan and replaced the Large Value companies with Developed Markets international equities. Perhaps the market is beginning to sniff out a trend towards other areas (not just tech) based on potential rate cuts.
Maintaining a “risk on” with high yield bonds after another positive quarter and first half of the year.
1https://www.retirement-professionals.com/2023-investment-review