Stock Talk - Stock Market 1H24-"Everyones a winner?" Not

Starting point is 00:00:00 Investors, the first half of 2024 is almost in the books, and most strategists will be out releasing their recaps and their second half of the year outlooks. I'm going to jump the gun a little bit and recap the first half a little early. Why? Because about a week ago, I penned an internal email to the advisor group here at O'Carvis, outlining what has transpired in the markets year to date, and I got such good feedback. I thought I'd published the info for all our followers. investors. Investors, I've been managing other people's money in the public financial markets for upwards of 35 years now. And I keep running into a list of overused and misused and misunderstood phrases in terms used by the wider financial industry throughout the media networks. One of the most overused phrases I hear on TV and elsewhere is, it's a stock pickers market. In fact, I can't

Starting point is 00:00:46 think of a period in the last 20 years where this phrase was thrown around to start the year more. The data says that term is nonsense. The market's rise. most sectors rise, with sectors of the S&P 500 best performing the S&P 500, most stocks leading the groups, rise as well. Well, for the first half of 2024, much as was the case in 2003, outside of index investing in the SVP 500, investors, it has been a stock pickers market year to date. As of Sunday, June 23rd, the S&P 500, which recall is a market cap-weighted index, is up around 15% in total return. The tech-heavy NASDAQ was up around 17% in price terms. The value-tilted Dow Jones Industrial Index, which is price weighted, was up around 4%, and the small-cap Russell 2000 was spot-on zero-ish.

Starting point is 00:01:34 Investors take a look at the summary of that data in the table below and graphically for those who are more visually inclined. With the S&P 500 up mid-double digits, one might think everything out there has been working in 2024, that everyone's a winner in 2024. Well, that would not be helpful. the year is working out for investors. In fact, only two sectors out of 11, technology, up almost 30 percent, and telecommunications, up 24 percent, have been beating the S&P 500 year-to-date. Here are the top 10 holdings in the S&P 500 by weight and the 11 sector weightings and one nice table from Lance Roberts. As one can see, with the S&P 500 being a market cap-weighted index, very few names account for most of those gains.

Starting point is 00:02:19 Invidia, Microsoft, Google. and video alone contributed almost one-third of the SMP 500 gain year-to-date. Here's a summary table through June 13th from Goldman Sachs highlighting the stocks adding the most to the S&P 500 in the first half at 2024. Only nine stocks in the S&P 500 have accounted for nearly 11 percentage points of the 14.5% year-to-date. That's over 75% of the S&P 500 year-to-date and only 1.8% of the names. Here's a little more detail on the year-to-date returns from the top

Starting point is 00:02:50 eight mega-cap stocks from Yardini research. Here to date, only Tesla is down, around minus 26%. But even Apple's 7.8% return is lagging the S&P 500 by almost 50%. Only 30% of the stocks have outperformed the S&P 500 index year to date. While this is slightly higher than what occurred last year in 2023, it's still quite poor breadth year to date. Since 1990, a streak of two consecutive years with such a low percentage of stocks beating the S&P 500 has happened only once, only one point in time. Guess what two years that was?

Starting point is 00:03:26 You probably know the answer if you've been following my work for the last two years. Yes, it was 1999 through 2000, the dot-com bubble. Now, this isn't just an issue here in the S&P 500 year to date, but even worse the last month if one looks across the broader indexes. The percentage of U.S. stocks beating the market defined by the MSCI U.S. index is under 20 percent. That's a as narrow of a market as it's been for the last 20 years when comparing each stock to the overall market. This data says that year-to-date, it has been a stock pickers market, albeit a very narrow one if you're trying to beat the S&P 500. Now, before you jump on your advisor or manager for not outperforming the S&P 500 this year, I have to remind you that not all financial

Starting point is 00:04:11 plans and financial tools are created with that goal and purpose. And even so, if that is your advisor's goal or your plan's goal, how much risk are you willing to take to do it? Let's go back only three years to the beginning of 2022 when I was hearing about so many 40 and 50-year-olds talking about taking early retirement because their stock portfolios, more specifically, their tech stock portfolios were killing it. Investors, what was happening in 2022? Recall that in 2022, the S&P 500 dropped minus 25 percent, peaked the trough in a bare market. The two sectors, tech and telehealth communications, were down over minus 35 to minus 40%. That was almost 50% worse than the losses in the S&P 500.

Starting point is 00:04:57 Investors, many individual mega-cap tech names that are today's leading performers year-to-date, like Nvidia, were down over minus 70% peak to trough in less than nine months. Here are those same four indexes in 2022 just to jog everyone's memory. The S&P 500 finished 2020 down almost minus 20%. The tech-heavy NASDAQ was down over 33%, 50% worse than the S&P 500. The best-performing index in 2022 was the value-biased Dow Jones Index down minus 9%. Here's some really interesting data from J.C. Parrots. While underperforming the S&P 500 year-to-date, the sector with the best breadth,

Starting point is 00:05:37 meaning the most names up and to the right, that's utilities, up a bit over 11%. in a very boring, broad, and utilitarian way. I know most everyone wants to own only equity names that are green every day or green every week, but that's not how running a diversified portfolio of stocks or other assets works near retirement or in retirement. A portfolio that is less likely to be subjected to a minus 30 to minus 50% drawdown in less than nine months,

Starting point is 00:06:06 as was the case in 2022. The Dow Jones Index is price weighted, value biased, and lagging in 2024, It outperformed the S&P 500 in 2022 in the down market. The Russell 2000 index is a small cap bias and continues to struggle in 2024. It's loaded with small banks that are under yield curve pressure, energy names that have lagged as the U.S. economy has slowed, and hundreds of highly leveraged companies with stretch balance sheets that are hurting due to a slower consumer demand and a hawkish federal reserve. These types of stocks tend to soar early in an economic cycle, whereas the Fed begins to cut rates,

Starting point is 00:06:42 to cut rates if they haven't pushed us into a recession timeline. While volatility at the SMP 500 index level remains near historic low bounds X 2017, single stock volatility in the first half of 2024 was much higher than I can recall. Investors, you have large-cap tech stocks like Adobe trading up 15% in one day, or stocks like Dell trading up or down 15% over a two to three-month period. Nvidia piled back over minus 10% from its high in less than two trading days. For the first half at 2024, the broad S&P 500 continues to follow the presidential election cycle almost to a T. But below the index level lies a chasm in a dispersion between the two sectors outperforming the S&P 500 year-to-date, technology and communication services, and the other nine sectors lagging the

Starting point is 00:07:33 S&P 500 for 2024. Yes, investors, the first half at 2000, has been a stock pickers market and quite a difficult one at that, given the broad dispersion or returns of sectors, as well as single names within those sectors. J.C. Parrots of All-Starts puts this one into perspective. On June 14th, the S&P 500 and the NASDAQ 100 both hit new all-time highs. However, the broader NYSC Index hit a new six-week low. Moreover, the advanced decline line of the NASDAQ 100 also hit a new six-week low. That's what what market technicians call bad or deteriorating breadth. Longer-term nominal interest rates fell in the second quarter of 2024,

Starting point is 00:08:16 fueled by lower inflation fears. This in tune helped the higher growth, low-debt-leverage, large-cap megatech secular leaders like Microsoft, Nvidia, and Apple stocks, as well as utilities, which have historically high debt loads and low growth rates. It hasn't done a thing to help many other sectors, though. Why? Because sectors like industrials, consumer discretion, and energy are generally shorter cycle areas that move with higher leverage to overall economic swings, both good and bad.

Starting point is 00:08:48 And indexes like the Small Cap Russell 2000 carry more value-tilted names, names with higher debt loads, and more overall cyclicality in their businesses. However, investors, remember, time and time again, investors are told to keep broader, more diversified ownership within their asset allocations as diversification has historically statistically been the only free lunch in the stock markets. Investors, year-to-date, everyone is not a winner. Investors are not winning at the sector or single-stock level everywhere you look, even though the broad index may appear they should be. So if you're a retiree or near-retirees still watching this video with volatility in the markets subdued at low levels and stock returns

Starting point is 00:09:31 high for the last 10 years, if over the years you found yourself reacting emotionally in your portfolio when the markets are down or volatility is high, like into Christmas Eve, December 2018, or COVID March 2020, or worse yet when markets were down for years, post.com bubble or great financial crisis. Now is the time to talk to your advisor to walk through your financial plan. Do it well in advance of other investors' concerns of what will likely be a third quarter 2004, soft-landing pullback that refreshes, or the beginning of a much more painful economic and market downturn. Investors discuss how much risk is in your overall allocation plan under downside market scenarios just in case. Investors, historically, there is a third-quarter

Starting point is 00:10:17 sell-off in the markets during election years, just as there is almost every other year. And while most of these sell-offs are just cyclical corrections and short-term pullbacks and otherwise long-term bowl markets and economic expansions, it is virtually impossible to tell if the sell-off is a mild correction in economic soft landing, or if it's the beginning of something more dire like it was in 2000 and 2008. Investors, if you're going to make reallocation decisions to shift money out of stocks and equities into less volatile assets, it's best to do it when indexes are up and volatility is low, not the other way around. For investors or retirees who feel fearful, that the markets might experience a 1970s lost decade,

Starting point is 00:11:01 a repeat of the lost decade after the dot-com buildout, or who feel anxiety over the coming presidential election, now is a great time to give O'Carvis a call. Set up a meeting, let's talk. If you're uncomfortable with a wider range of possible equity outcomes, our team here at O'Carvis has launched a new strategy that retains the ability to go long stocks, short stocks, as well as buy partial hedges and shock absorbers for a stock portfolio.

Starting point is 00:11:27 information on this new strategy can be found at oak harvest funds.com. From myself, from Eric behind the camera, Charles, Troy, everyone here at Oak Harvest, have a blessed weekend. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein,

Starting point is 00:11:57 may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios.

Starting point is 00:12:27 Investing involves the risk of loss and past performance is not indicative of future results.

Stock Talk - Stock Market 1H24-"Everyones a winner?" Not

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