As we move beyond the middle of 2024, global stock markets have shown impressive performance, aligning with our expectations. The S&P 500 gained another 4.4% and the MSCI World Index recorded a 2.6% gain for the second quarter, bringing the first half of the year to an overall increase of 16.15% and 11.7%, respectively. Sectors like Technology, Utilities, and Consumer Defensives have done the best, with the largest market cap weighted stocks leading their industries (200bln and more). In our view, this serves as a great start toward what's anticipated to be an important election year.
Although the first half of 2024 has seen mostly stability and significant returns, many anticipate that this calm period might precede increased market volatility. Historical patterns suggest that short-term market corrections (between 10% and 20%) are always a possibility, driven by sentiment or other factors. However, volatility is an intrinsic part of the market landscape, and trying to predict its exact timing is often unwise. Instead, we interpret current market conditions as a signal to stay composed, with a broader market uptrend likely to continue throughout the year.
While some headlines suggest the market is reaching a peak, we would like to offer a different perspective. "Average returns" are rare, and during bull markets, stock prices often hit extremes. Historically, election years with strong first-half returns have typically yielded positive second-half results—specifically, 15 out of 16 election years saw second-half gains.
It is important to remember that we don't align ourselves with any political figure or party, focusing instead on how political developments might impact market trends. Recent polling has seen sharp swings, with President Biden’s late-June debate performance and the shocking assassination attempt on former President Trump driving volatility. Additionally, potential Electoral College outcomes have caused some shifts in sentiment, with Trump's chances seeming to improve just before Biden’s announcement that he will step aside in favor of Vice President Kamala Harris. As of now, it's difficult to predict how this situation will evolve, though it's clear that opinions on Trump remain highly polarized.
Despite these uncertainties, market sentiment typically stabilizes once election outcomes become clearer. Investors often respond more positively as uncertainty fades, and election results—regardless of the winner—tend to create a more defined outlook for markets.
Another common concern we often hear is about the rising national debt. While it's true that the U.S. debt is high, the cost of servicing this debt remains quite manageable when viewed as a percentage of the overall GDP. Historically, we've seen much higher debt-servicing costs, and the country was able to navigate those periods successfully. Given this context, we don't foresee the national debt posing any significant issues now or in the near future. The current economic structure supports these debt levels without causing major disruptions.
Meanwhile, economic fundamentals continue to move forward. Inflation appears to be slowing more rapidly in Europe than in the U.S., but wage increases are helping restore consumer spending power globally. After years of conservative cost management, many corporations are shifting to a growth-focused strategy, supported by strong balance sheets, increased earnings, high profit margins, and low default rates. We anticipate that, with these factors in place, Corporate America will be well-positioned for future investment.
Note: Interlaken Advisors does not offer investment or portfolio management services.
Nothing herein is intended to be investment advice. All investments involve the risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.