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Market Commentary – July 2024

Bigger Has Been Better

U.S. stock market performance has been notably “narrow” so far in 2024. The S&P 500 Index of large capitalization stocks has been buoyed by strong business results from a small cohort of leading technology, communications, and consumer companies.  In contrast, small company stocks have been comparatively sluggish, reflecting more negative fallout for small businesses from higher borrowing costs and increased labor and material expenses. Most foreign stock markets have posted positive returns, with progress in Europe, Japan, and India. Overall, the first half was rewarding for diversified equity investors.

Fundamental, Not Fanciful

We find it interesting that many investment commentaries lament the dominance of U.S. stocks, especially large companies, over the last decade. Our research finds a fundamental explanation; business performance has been better for U.S. companies. When we consider the transformative business achievements of recent times – digital commerce, mobile communication, cloud computing, artificial intelligence, health care – we usually find large American companies at the forefront of innovation and growth. Stock prices parallel business results over the long haul.

Relief for Savers

“Past performance is not a guarantee of future results” is a familiar industry disclaimer, commonly used to temper expectations. Today it offers a reassuring perspective about conservative investments. In the years following the global financial crisis of 2008-2009, low-risk investors experienced a famine. Cash returns hovered just above zero and bond yields were exceptionally low. This modest past performance does not guarantee ongoing disappointment, because higher interest rates make future returns more promising. Moreover, less volatile securities can be important components of a successful financial plan.

Industry statistics indicate many investors are now “cash heavy” in their conservative holdings, satisfied with higher money market rates and suspicious of bonds given the low returns of the last decade. Bartlett practices a more balanced approach, for we are mindful cash yields can decline, sometimes rapidly, when the Federal Reserve begins reducing its policy interest rates.

Politics and Policy

We are intrigued by the disconnect between stock market prosperity and a widespread sense of discontent, the latter manifested in recent political shifts. A UK election on July 4 produced a decisive left turn, with a sizable parliamentary shift from Conservatives to Labour. By contrast, across the English Channel, voters in France turned right, and then left a week later, with uncertain political leadership as of this writing. Notably, even in recent elections featuring winning incumbents, such as in India, results reflected aspects of dissatisfaction.  Thus far, U.S. market conditions suggest apparent insouciance about the November election. We will return to this topic in our October letter.

Managing Risk

The late economist Hyman Minsky memorably argued that stability is ultimately destabilizing, making business and market cycles inevitable. Long periods of stability engender assurance and complacency. As investors and businessmen become more confident, overinvestment ensues, and optimistic markets become vulnerable to slight changes in perceived risk (a “Minsky moment”). This is worth considering now as we enjoy a remarkably resilient U.S. economy, one that recovered quickly from the 2020 pandemic and kept growing in the last year despite higher interest rates. In fact, the U.S. has not experienced a significant recession in fifteen years. This is a time when Minsky would advise circumspection and restraint.

As noted earlier, U.S. stock market performance has been notably “narrow” so far in 2024. This is important because concentrated performance has historically been a cautious signal for investors. Market historians never forget the setbacks that occurred after the “Nifty Fifty” darlings peaked in 1973, technology stocks overheated in 1999, or when commodity and financial favorites topped out in 2006. As of today, technology has swelled to almost 33% of the S&P 500 Index, the highest weighting since 1999. Moreover, this weighting would be even higher had a few very large companies (Amazon and Alphabet) not been reclassified by S&P into other economic sectors. We also note an overall market price/earnings ratio above 20, with the technology sector well above 30. While these valuations are well below the extreme levels of 1999, they are nevertheless above-average by historical standards.

Bartlett does not practice “risk on” or “risk off” investing, instead preferring a more reliable and sustainable “risk managed” approach. This manifests most significantly in how we calibrate asset allocation and how we factor “growth” and “value” considerations into our stock selections. Today we think investors should be grateful for progress but not complacent. Rebalancing closer to investment policy targets makes sense. This recognizes the risks in higher stock valuations and the improved prospects for more conservative investments, such as bonds and cash. Maintaining appropriate equity diversification is an additional safeguard. We all aspire to be great investors, but very few achieve such exalted status. Happily, meaningful success is possible if we can be disciplined investors.

Concluding Comments

Bartlett is halfway through another successful year, highlighted by a growing team, a client retention rate of 98%, and several nice new business wins. We are pleased to announce that our in-house Fixed Income team, responsible for our firm’s bond strategy, has welcomed Jonathan G. Finkler. The addition of Jon, who brings 19 years of experience,  signifies Bartlett’s commitment to building continuity and depth, which is vital in serving clients. As always, the growth of our firm is not possible without the confidence and loyalty of our clients. We will work hard to maintain your trust.


This material provided by Bartlett Wealth Management (“Bartlett”) is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Past performance is not a guarantee of future results. Opinions expressed by Bartlett are based on economic or market conditions at the time this material was written; actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from sources believed to be reliable.  Bartlett, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Any reference to an index is included for illustrative purposes only.  Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products.

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