The market is up 14% in the first half of 2024. What’s driving these returns, and are they sustainable?
We’ve had a very strong first half in the market, but it’s also very concentrated. 60% of the gains come from five stocks, NVIDIA, Microsoft, Amazon, Meta, which is Facebook, and Apple. Notably missing is Tesla. Tesla is actually down 15% as strains of reality are finally beginning to impose their weight on the stock, and that’s despite the recent Tesla rally. In the second quarter of this year, NVIDIA, Apple, and Microsoft made up 90% of the rally.
In the same six month period, an equal weighted S&P 500 index. By equal weighted, we mean the same dollar value of each stock, not cap weighted. And an equal weighted S&P 500 index showed just a four percent gain. We need diversification to protect returns, to protect the portfolio. But if you were properly diversified in the first six months of this year, you didn’t enjoy 14% rallies. The only way you got 14% rally is if you’re in the S&P 500, which is overweighted in those three to five stocks. The challenge, of course, is the downside to this cliff. This is the most concentrated market in 20 years. It’s arguably inherently unstable.
So it doesn’t mean you have to panic and do something if you’re already properly diversified, properly asset allocated. It just means expectations need to be tempered. If you have friends who are making 20, 30, 40% over the last twelve months, one, I would suggest that maybe they’re not reading their statements accurately, and two, I guarantee you that they are highly traded, and when the correction comes along, they’re gonna get spanked, and they’re gonna get spanked badly.
Stay diversified. Stay asset allocation, and standby for potential reallocation opportunities as we enter storm season later this year. We wish you the best of investing success, a very great fourth of July holiday, and please reach out if you have any questions. Thank you.
Sources
- Five stocks power US markets to 14% gain for first half of 2024 (ft.com)
- TSLA – Tesla Inc Chart | Morningstar