July was a mixed month for markets, as investors rotated away from larger technology companies and took a more diversified approach during the month. The S&P 500 and Dow Jones Industrial Average both posted positive returns in July, but the Nasdaq Composite declined modestly. International markets were up for the month, while falling interest rates led to positive returns for bonds.

It has been quite a couple of days in the financial markets. Today marks the latest in a sharp drawdown around the world. Japan has been hit particularly hard, but the pullback is global. Here in the U.S., for example, the S&P 500 is down about 3 percent for the day (as of this writing) and just shy of 8 percent off its all-time highs. The Nasdaq is doing even worse, down almost 4 percent for the day and 14 percent off its all-time highs.

The Federal Open Market Committee (FOMC) met this week and voted unanimously to hold rates steady for the eighth consecutive meeting, leaving its policy range at 5.25 percent to 5.5 percent. This decision came as no surprise, with the futures markets pricing in a near-zero percent chance of a rate cut leading up to the meeting.

“Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.”
— Ferris Bueller

When we began 2024, six interest rate cuts were expected. But with stickier-than-expected inflation and strong job growth, markets significantly lowered those expectations. As a result, rising interest rates created headwinds for rate-sensitive assets, although a resilient economy helped lower-credit-quality parts of the fixed income market (e.g., high-yield and bank loans) outperform their higher-credit-quality counterparts.

Anyone familiar with the movie Jerry Maguire knows the phrase, “Show me the money!” Well, after several quarters of beating low expectations, it’s time for companies in the S&P 500 to show us the money and put up solid earnings growth. Analysts expect earnings growth of 8.8 percent as of July 3, 2024, which would be the highest growth rate since Q1 2022 when it was 9.4 percent.

The story of 2023 was the recession that never was and the end of the interest rate hiking cycle. Corporate earnings growth beat expectations, and the S&P 500 saw a 26 percent return. And in the first half of 2024, that upward trajectory largely continued. Large-cap stocks have led the way, while mid- and small-caps have lagged. Value stocks have underperformed growth stocks, with higher earnings growth for growth stocks keeping them in the lead. 

In my last blog post written just over three months ago, I discussed the S&P 500’s notable Q1 return and its historic five-month return. Historically, both indicated that a strong Q2 return was likely. Fast-forward three months and the S&P 500 posted a Q2 return of 3.92 percent.

June was a good month for markets, with most indices up in the low- to mid-single digits. The S&P 500 and Nasdaq hit new highs during the month, and bond returns were positive due to falling interest rates. International markets were more mixed in June, as developed markets fell on rising political uncertainty while emerging markets were up for the month. Solid fundamentals and an improving economic backdrop helped support returns in June.

Recently, inflation and interest rates have dominated the headlines. And for good reason—they are known market and economic risks. But as we look toward the second half of 2024, investors must also be prepared to navigate the geopolitical risks, whose twists and turns can often lead into uncharted territory.