We’re halfway through 2024, and what a year it has been for the stock market. Every major large-cap stock index rose through the first six months of the year, driven largely by tech gains powered by the artificial intelligence craze.
The S&P 500 gained 15% since January, and hit an impressive 31 all-time highs so far this year, topping out at 5487 in late June. The Nasdaq is up about 18%, and the stodgy, largely tech-free Dow has risen a less-impressive 3.83%.
A few key tech stocks, but mostly one (you know who you are, Nvidia), carried the market on their backs. Nvidia, Microsoft, Apple, Google, and Amazon made up 62% of the equal-weighted S&P 500’s return year to date, according to Goldman Sachs analyst David Kostin.
The utilities sector was a surprise winner in the first half of the year thanks to its ties to the AI trade, propelling the sector up about 9%. Real estate fared the worst, sinking 2% in the first half, according to Kostin.
The best performers of the first half year were Super Micro Computer, which rose 188% on huge AI hype; Nvidia, which surpassed a market cap of $3 billion after rising about 155% since January; and Vistra Corp, which rose 125% year to date thanks to its position as a key electricity supplier to AI datacenters.
The worst performers of the year were Walgreens Boots Alliance, which tanked 52% after a recent terrible earnings report; Lululemon Athletica, which is down 42% thanks in no small part to the resignation of its longtime chief product officer; and Intel, which fell 38% after apparently missing the AI boat.
Flying too close to the sun?
Heading into the year, investors had hoped that the Federal Reserve would deliver up to six rate cuts—but their dreams were crushed by inflation, which remained sticky into the first quarter of the year, pushing bond yields even higher.
Only the most recent PCE readings have shown that inflation is indeed decelerating. Now, most economists predict one rate cut coming in September.
In spite of inflation hanging around, investors are feeling good about the market’s performance at halftime. However, narrowing market breadth throughout the second quarter illustrates that the market’s growth could be dangerously focused on the tech sector. The equal-weight S&P 500, which doesn’t place as much emphasis on the huge market caps of the tech behemoths, is only up 4% this year—a steep underperformance compared to its market cap-weighted cousin.
“The AI story has continued, yet signs of weakening economic activity helped drive down market interest rates in the second quarter,” explained Chief Investment Officer of Comerica Wealth Mangement John Lynch in a recent note. “This propelled stocks higher, leaving investors to ponder the sustainability of valuations.”
What else do investors need to know besides Nvidia is still Nvidia-ing?
- The S&P 500 gained 10.8% in the first quarter, while only gaining 4.6% in the second quarter of the year. The AI momentum dramatically slowed over the second quarter, causing a tech selloff.
- Small caps haven’t performed well. The small-cap Russell 2000 only gained 1.7% over the first half, and was down 3.3% in the second quarter of this year, as smaller stocks lagged behind their bigger peers.
- Crypto is so back. Bitcoin has gained about 47% year to date after novel spot bitcoin exchange traded funds were approved in mid-January. The crypto rally has carried ethereum up with it as well, with the digital asset rising about 50% year to date as it prepares to get its own ETFs.
- Bonds have had a wild ride. “The Bloomberg Aggregate Index had fallen more than 3.5% between the start of the year and mid-April as investors began pricing out the overly optimistic expectations for Fed rate cuts in 2024,” wrote Lynch.
- Oil is up about 14% this year so far as geopolitical instability and supply shortages plague the oil market.
- Silver gets the gold: The commodity is up about 22% this year, outpacing gold and copper, which both gained about 13% through the first six months of the year. All three commodities have benefited from the market’s focus on AI and electrification, but silver has outperformed thanks to strong demand from China.
There hasn’t been a dull moment in 2024 yet, and no doubt the second half will have plenty of excitement in store for us as well. —LB
