In the first half of the year, markets rose—with the S&P 500 and Nasdaq both gaining more than 10%. But it was an incredibly narrow market.
Nvidia (NVDA), the poster child of the artificial intelligence (AI)-led rally, accounted for roughly one-third of the S&P 500’s return. Without NVDA and its AI peers, most stocks aren’t rallying. The S&P 500 Equal Weight Index, which shows how the average stock in the index is doing, is up a modest 4.1% through June.
We know enough market history to not get caught up in the euphoria. From the Nifty-Fifty of the 1970s to the late 1990s Tech Bubble, these cycles have a way of coming undone—often in devastating fashion. The Nasdaq fell -78% when the Tech Bubble popped in 2000 and -60% in 1974 after the Nifty-Fifty peaked.
We invest for the long term
Valuations matter. While the big tech names trade at over 30x earnings, the rest of the market trades at a somewhat reasonable 18x earnings, providing a margin of safety.
We’re comfortable with the long-term prospects and defensiveness of our more conservative, blue chip-focused holdings. Low-volatility strategies like ours have a history of shining during bear markets.
What to watch in the second half
As we head into the back half of the year, a couple of big events are on the horizon:
Interest rates: The Federal Reserve (Fed) is hinting at making at least one rate cut before year-end. Will this dovish step keep the market rally going or cause a second wave of inflation?
The presidential election: The market may see more volatility heading into November’s election. Contrary to popular opinion, historic data says the market impacts politics more than the other way around. People vote their pocketbooks—so as the election approaches, you may want to watch the market instead of the polls.
Contact us with questions
We’re comfortable with the quality and positioning of our portfolios, no matter what the market throws at us. If you have any questions, please call us at 800-998-9773.
Data sources: Koyfin, FRED, Barrons, Yardeni Research, S&P Global Markets, Allied Calculations