Second Quarter 2024 Market Snapshot

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Second Quarter 2024: Artificial Intelligence or Artificial Highs?

The second quarter of 2024 capped a strong first half of the year, with the artificial intelligence (“AI”) frenzy propelling stocks to gains despite a backdrop of tempered expectations for Federal Reserve interest-rate cuts. The S&P 500 climbed over 4% in the quarter and 15% in the first half of the year, marking a stellar performance reminiscent of last year’s standout start to the year for the stock market.

Investors continued to flock to the burgeoning AI sector, confident that the boom is just beginning. Nvidia, a key player in this space, saw its shares soar by 150%, driving its market value above $3 trillion and briefly making it the world’s most valuable company. Nvidia’s meteoric rise has accounted for almost a third of the S&P 500’s gain for the year.

Despite early-year optimism for potential interest rate cuts, persistent inflation readings have tempered those expectations. Initially, investors anticipated up to six rate cuts from the Federal Reserve. However, as inflationary pressures persisted, the Fed has refrained from any cuts and maintained its current rate policy. This shift in expectations has pushed bond yields higher, with the benchmark 10-year U.S. Treasury note yield rising to 4.36%, from 3.88% at the end of last year.

Higher yields typically dampen enthusiasm for the riskier stock market, but the allure of an AI-driven future has sustained investor interest, leading to over 30 record closes for the S&P 500 in the first half of 2024. Outside of mega-cap tech, stocks have been less strong. The median stock in the S&P 500 was down 3% in the quarter and up just 5% for the year, highlighting the significant influence of a few large companies on the market’s overall performance.

Small-cap stocks have lagged their larger counterparts for the year and quarter. Value shares have been thoroughly beaten by growth stocks, continuing the trend of recent years in which investors favor companies with high potential for future earnings over those currently trading cheaply. Developed international shares have been middling compared to their U.S. peers, as global economic conditions, geopolitical factors, and a strengthening US dollar continue to weigh on their performance.