Second Quarter Performance by Asset Class
US Large Growth Stocks 8.79%
US Large Value Stocks -0.88%
US Small Cap Stocks -3.87%
International Stocks -0.57%
Emerging Market Stocks 5.17%
Intermediate Corporate Bonds 0.39%
Long-Term Treasury Bonds -1.61 %
The second quarter was mixed, with winners in US large growth, emerging markets, and to a much lesser degree, corporate bonds. Losers in the second quarter were value stocks, developed market stocks (like Europe and Japan), and treasury bonds.
Market Valuation
Total market valuation is at about the same relative position as it was at the end of March, about 2% overvalued according to Morningstar. Value stocks, however, are between 9% (large companies) and 28% (small companies) undervalued. Large growth stocks are currently seen as 7% overvalued. Those numbers are not very helpful over a short time period – no one can predict when one part of the market will begin to outperform another, but we can see that there is still good value in many parts of the market. We like to maintain exposure to large and small companies, both on the growth side and value side since we do not know which part of equity markets will outperform.
Fewer Interest Rate Cuts Expected
The Federal Reserve has decided, so far, to hold steady on interest rates. Many expected that slowing growth would trigger lower rates, but overall economic growth has remained solid enough to put that on hold. Lower rates do provide opportunities for businesses to borrow money at a lower rate and potentially expand more efficiently. However, they can also trigger inflation.
Important Tax Issues Ahead
In 2025 the current tax law changes are set to expire, including the higher standard deduction, lower tax rates, and the higher child tax credit. Expect discussions to heat up in Congress about how to handle these changes. Tough decisions lie ahead with large deficits set up against the continued desire to support economic growth. These issues could add some volatility to markets over the next 18 months, depending on the course taken.
Election Volatility Possible
The next six months will immerse us in political battle – we will see how this impacts markets. Election years are typically strong years for the market, regardless of who wins. Nevertheless, we remain committed to our belief that when markets will correct is not knowable in advance. Rather, we will take advantage of any selloffs to purchase more stocks when on sale.