Aug 13, 2024

2024’s Bullish First Half

An impressive start for equities capped by recent turbulence: part one of our two-part mid-year review

In this post, we’ll review the performance of the markets so far in 2024. It’s a subject we cover twice a year to help you better evaluate your portfolio’s performance.

Our review will come in two parts. First, we present our mid-year market check-in. In our next blog post, we’ll take a look at the market turbulence of the first few days of August and our thoughts on steps to help protect your portfolio.

Recent volatility aside, the year 2024 got off to a great start. Equities built on a powerful rally in 2023 that saw the S&P 500 Index return an impressive 15.8% in the last two months of that year.

Rally came despite uncertainties

As we mentioned in our recent podcast, the strong results for 2024 came despite a load of uncertainties. Stubborn inflation meant prolonged high interest rates that impacted the economy. Market pundits speculated about the possibility of a soft landing or even recession.

This has been coupled with instability over Russia’s war with Ukraine, conflict in the Middle East, U.S.-China superpower rivalry and heated election campaigns in major powers, including the U.S.

But despite the headwinds, equity markets have shrugged off the doubts. As the Wall Street saying goes, the bull market has been climbing a wall of worry. As well, gross domestic product growth has remained positive in Canada, the U.S. and the Euro Area, and inflation has started to decline, allowing some central banks (like Canada’s) to start cutting rates.

Short-term bonds outdid longer-term

How did markets do in the first half of 2024? Starting with fixed income, yields in Canada and in the U.S. remain well above the average of the last 20 years.

In Canada the yield on the 10-year Government of Canada bond was 3.5% on June 30, which is 100 basis points above the 20-year average of 2.5%. In the U.S., the yield on the 10-year Treasury note was approximately 4.4% on June 30, or 140 basis points above the 20-year average of 3.0%.

Year to date, Canadian short-term bonds were up 1.6% as of June 30, while the total bond market, which holds longer-dated maturities, was down by 0.4%. (Remember that bond yields and bond prices move in opposite directions.)

Almost all equity indexes hit new highs

Equity markets have done much better. All the main indexes we follow had strong positive returns in the first half of the year, making new all-time highs. U.S. equities have done especially well, with the S&P 500 hitting a remarkable 31 new highs by mid-year.

An exception has been the MSCI Emerging Markets Index, which was impacted by the poor performance of Chinese equities which despite their recent surge remain down close to 42% from their all-time high.

In Canada, the S&P/TSX Composite Index was up by 6.1% in the first half. Large and mid-cap growth stocks led the way with a 7.4% gain compared with 4.7% for large and mid-cap value stocks. Small cap stocks outperformed large and mid-cap stocks with a performance of 9.3%.

S&P 500 had its 13th best yearly start since 1950

South of the border, U.S. equities were also on a tear. The S&P 500 Index had its 13th best yearly start since 1950, while the U.S. total market index had a strong performance of 13.6% in U.S. dollars or 17.2% in Canadian dollars.

Driven largely by soaring tech stocks, U.S. large and mid-cap growth names did especially well. They had an extraordinary 24.6% return as of June 30 in Canadian dollars compared to 10.1% for large and mid-cap value stocks. U.S. small cap stocks, however, underperformed.

International developed-country large and mid-cap stocks also did nicely—up by 11.1% in local currencies. Small cap stocks trailed, however, with a performance of just 3.8%. Emerging markets stocks also performed well, gaining 11.2%; again, value and small-cap stocks trailed growth and large cap.

“Vulnerable to a major correction”

When François and I did our mid-year market review podcast on July 31, we wondered how long the outperformance would persist. “The noise in the financial media, from market analysts, is that valuations levels are stretched and are vulnerable to a major correction,” we said.

Although no one can predict the future and the market is a random walk, the equity markets did correct sharply in the days after our podcast.

In our next blog post, we’ll review what happened and share our advice on how to help protect your portfolio in times of turbulence.

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More detailed market statistics can be found on our Capital Topics’ website. Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website

 

James Parkyn
James Parkyn

James is a founding partner and Portfolio Manager at PWL Capital Inc. in Montreal with over 25 years of experience helping clients achieve their financial goals.

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