In July, investment performance was positive. US small cap stocks increased most, while international stocks, US large cap, and bonds also moved higher. So far this year, all categories have gone up, with large cap stocks performing best.
Time For A Change?
Since the beginning of 2023, the S&P 500 has been the best performing stock index. It has also exhibited lower than usual levels of volatility. In other words, it’s been on an awesome run. The following graph shows the daily range of returns from 2020 through July 17th, 2024:
Each circle represents one day of trading. As you can see, 2020 was a very volatile year, with multiple days up or down in excess of 4%. While 2021 was a calmer market environment, volatility returned in 2022 as high inflation plagued the economy and the Federal Reserve began hiking interest rates substantially.
But for the past year and a half, S&P 500 daily returns have been much less extreme. Driven by the biggest stocks in the world such as Apple, Microsoft, and NVIDIA, it has stayed consistently higher with little interruption.
In fact, according to Bloomberg, the S&P 500 hadn’t declined by 2% in 356 trading days:
This streak came to an end on July 24th. So what does this mean for your investments?
- The volatility of the S&P 500 has been lower than normal, so at some point, it is likely to increase.
- This isn’t necessarily a bad thing.
- In baseball, a lineup consists of 9 hitters. Many times, one or two players get on a hot streak and create a lot of runs quickly. But over the course of the season, good teams get positive contributions across the lineup and are not reliant on a small number of players to do all the work. Over time, investment performance rotates, with different parts of the portfolio leading at different times. We would not be surprised to see other investments take a leadership role while US large cap stocks take a break.
- Volatility is your friend, not an enemy. Intelligent investors discipline themselves and adapt their strategy to accommodate for many different market environments. As markets move, opportunities arise. Sometimes we can rebalance existing funds, and other times we find opportunities to buy or sell a new investment. Predicting the future is impossible and not necessary for investment success. Instead, we want to make sound, logical decisions in response to whatever markets throw at us.
If you would like to discuss how recent volatility affects your personal situation, let us know.
