Many Americans will be tuning in to tonight’s first presidential debate not just for the entertainment but to gauge what policies the candidates lay out and how they could affect their portfolios. But the truth is that nearly half the world’s population will face national elections this year, with several already concluded. It’s important to keep in mind that these elections will impact those portfolios with significant international exposure and those with U.S. exposure. 

So far in 2024, the U.S. economy has traveled a winding road. As we began the year, expectations were for turbulence ahead, given stubbornly high inflation and interest rates, restrictive monetary policy from the Fed, and a slowdown in consumer and business spending. Instead, strength in hiring fueled consumer spending despite rising rates. Still, GDP growth slowed to 1.3 percent in the first quarter (from 3.4 percent in the fourth quarter of 2023), leading to more uncertainty on where the economy will go in the second half of the year. 

As the fears about Y2K dissipated and the dot-com boom entered its last few months, the world’s equity investment opportunity set was split roughly 50 percent in the U.S. and 50 percent in the rest of the world. Fast-forward to today, and approximately 64 percent of global market capitalization is in the U.S. This shift has resulted from the U.S. equity market’s outperformance since the end of the great financial crisis more than a decade ago.

The Federal Open Market Committee (FOMC) met this week and voted unanimously to hold rates steady for the seventh consecutive meeting, leaving its policy range at 5.25 percent to 5.5 percent. This decision was widely anticipated, with futures markets pricing in a near-zero percent chance of a rate cut in the days and weeks leading up to the meeting.

Markets rallied in May, with U.S. stocks up mid-single digits for the month. This was an encouraging rebound following the declines we saw in April, and both the S&P 500 and Nasdaq Composite rose to new record highs during the month. International markets were also positive in May, with developed and emerging markets ending the month with gains. Even fixed income did well, as falling interest rates supported bond prices in May.

When a Cinderella story comes out of nowhere to win a championship, fans are ecstatic (just like I was watching Tom Brady win his first Super Bowl against the heavily favored Rams). But once teams have experienced success, the bar will continue to rise—and teams must also rise to meet the next challenge.

With nearly half the world’s population set to face national elections this year, including here in the U.S., it’s a time of questioning for many. People want to know who their next leader will be, how changing policies may affect them, what the economic implications will be, and what place their country or region will have in the world.

In our team meetings, we often discuss the shifting sands of the market. Not only is it an interesting topic, but it poses a challenge for asset allocators. We are in the midst of a multi-year outperformance cycle for large-cap growth. The companies that have driven this outperformance have all become household names: Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Nvidia, and Tesla. The top 10 names in the S&P 500 account for roughly 32 percent of the index compared to the average since 1990 of 20 percent. During the dot-com boom, the top 10 weightings peaked at 25 percent.

Markets pulled back in April, as high inflation and rising interest rates led to mid-single-digit declines for stocks during the month.

This result marked the first monthly decline for U.S. equities this year following a strong first quarter. International markets came in mixed, as developed markets were down in April while emerging markets saw a modest gain. Fixed income was also down for the month.

The Federal Open Market Committee (FOMC) met this week and voted unanimously to hold rates steady for the sixth consecutive meeting, leaving its policy range at 5.25 percent to 5.5 percent. Futures markets had this expectation confidently priced in since mid-February, so the official decision comes as no surprise. This view is in stark contrast to market expectations at the start of 2024, when a second rate cut was fully priced in for this point in time. Yet even the first rate cut still eludes us.