Summer Games and Economic Gains: Market Insights
Summer has arrived, bringing with it the warmer weather and longer days! This year, we also look forward to the summer Olympics starting on July 26th. You might not realize it, but there are many parallels that can be drawn between the Olympic games and the current economy.
Let’s start with the International Olympic Committee (IOC), which essentially has two mandates: 1) promote sport, culture and education and 2) contribute to world peace. The IOC is essentially the guardian of the Olympic games.
In comparison, the Federal Reserve also has two mandates: 1) achieve full employment and 2) maintain stable prices by keeping inflation low. The Federal Reserve is essentially the guardian of the US economy, in that it is responsible for a safe and stable monetary and financial system.
At the start of 2024, the mainstream expectation was that the Fed would cut interest rates seven times throughout 2024. However, inflation heated up throughout the first quarter of the year, and no interest rate cuts have been made as of the most recent FOMC meeting on June 12, 2024. It is now widely expected that we will see only one or two cuts in 2024, likely to occur after the presidential election.
Due to inflationary concerns at the start of the year, the bond market continued to struggle. In the final month of the quarter, as inflationary concerns abated, the bond index made its way back to almost positive territory. The Bloomberg US Aggregate Bond Index lost 0.71% for the first half of 2024. On a positive note, we are seeing very attractive yields on high‐quality fixed income options. (If you are sitting on piles of cash in your bank account, earning very little interest, please call us to discuss some alternatives!)
On the stock side, as we have discussed in previous market commentaries, the “Magnificent 7” stocks (Nvidia, Meta, Tesla, Amazon, Alphabet, Microsoft, Apple) dominated the market in 2023. Although these companies have generally enjoyed excellent gains for the first half of 2024, we are beginning to see much greater participation across the stock market. This is encouraging as value‐style stocks, small and medium‐sized US companies, and foreign companies have all underperformed large, growth oriented domestic companies. Due to this outperformance, diversification has hampered returns over the past 18 months. However, we continue to believe that exposure to dividend‐paying stocks, with modest exposure to small companies, and foreign holdings should enhance portfolios over the long term.
Turning back to the Olympics: We all love the “underdog” story – the sole athlete from a small country that is competing against other athletes with significantly more resources. The market “underdog” has been small company stocks. While returns have been more volatile over the long term, when small companies are on a winning streak, they are so much fun to watch. Small company stocks are more sensitive to interest rates as they are typically more reliant on debt for their operations. We believe as interest rates ease, we will see a continued excitement in the small cap space. Here at Hickok & Boardman Capital Management, we are looking forward to a sustained small company stock rally, while we enthusiastically cheer for the underdog in the Olympics.
While, as always, uncertainties lie ahead, we are currently enjoying a strong economy and we look forward to two weeks of Olympic competition. Our team at HBCM will continue to cheer for the Fed to successfully navigate and balance the many risks in the financial system. We will also cheer for the IOC as it pursues its mission, resulting in a hugely successful 2024 Olympics, with, perhaps, a modest step towards world peace.
2024 Summer Olympics ‐ Fun Facts:
- The Olympics will take place from July 26 to August 11, 2024.
- Paris is the host city. This will be their third time hosting (previously hosted in 1900 and 1924).
- There will be approximately 10,500 athletes competing on the world stage.
- 206 countries will be represented.
- 45 sports will be featured. This includes four new sports in 2024: break dancing, skate boarding, sport climbing, and surfing.
- The motto for the 2024 Paris Olympics is “Games Wide Open” – representing the goal of delivering a more responsible, inclusive, equal, and spectacular games.
Sincerely,
Brigette White, CFP®Registered Representative, RJFS
The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market.
