The first half of 2024 was another upside surprise for the stock market. It traded to all-time highs even as the hyped and hoped for Federal Reserve rate cuts failed to materialize. Tech stocks once again led the way but this time it was hardware, (chips and gear) rather than the software mega-platforms, that turbocharged the rally. The best hardware performers were NVidia +156%, Micron Technology +59%, Applied Materials +53%, NetApp +52% and Arista Networks +51.4%. The driver was Artificial Intelligence (AI) which still dominates the “Next Big Thing” narrative for U.S. stocks. For all the AI excitement, it is still not clear how the hyper-scale data-centers that are the big buyers of AI chips and gear will turn sales and profits on these billions and billions in investments. As a cautionary note, the top 10 stocks in the S&P 500 now account for 35% of the index weighting.
The S&P 500’s 14% gain for the first half of 2024 was great but the previous two calendar years provide some important and sobering context. 2022 was a terrible year for stocks (-19.4%) but 2023’s recovery of +24.2% effectively canceled out those losses for a two-year annualized return of a meager .1%. For the 30 months between 12/31/21 and 6/30/24 the annualized return was a modest +6%. OK, but not very good when you consider what inflation did to one’s buying power over those same 30 months. For those without big nest-eggs of stocks it has been a very tough slog. Bonds were down for the first half of 2024 and are down for the past three and five years as well. The Feds’ fight against inflation has left the bond market battered and bruised. Those in the home buying market will point out to the Fed that jacking up mortgage rates from 3% to 7% is a painful way to stabilize prices. For those who finance at today’s mortgage rates the cost of home ownership will be significantly higher for many years to come. This is no way to tame inflation. Go figure.
Commodities enjoyed a robust first half of 2024 with gold up $268 or 13%, oil gained 13.5%, and natural gas was up +10.6%. More broadly, the Commodity Research Bureau Index of 19 commodities across four sectors was up 13% for the six months and is up 82% for the past five years. That is serious inflation that is hitting folks’ pocketbooks at the grocery stores and gas stations.
2024 is a mega year for politics. Almost half (49%) of the world’s population in 64 countries get to vote for their national leaders, and incumbents are on a very hot seat. Argentina threw out the bums and Europe is confronting seismic shifts in power in the UK and now France. Such political turmoil creates an atmosphere for dramatic policy changes with plenty of consequences, both intended and unintended for economies and the financial markets.
But the biggest challenges confronting politicians, both new and old, is the rapidly emerging ‘Great Power Competition’ between the U.S. and its old allies in Europe and the Pacific Rim versus China, Russia and potential allies they are wooing such as India. This could portend a new cold war or worst case a hot war. The current kinetic conflicts in Ukraine and Gaza are warning signs of what may lie ahead. It all has the makings of a paradigm shift from the unipolar status the U.S. has enjoyed going way back to the collapse of the Soviet Union in the early 1990’s. The finely tuned global supply chains developed over the past 30 years are a marvel of logistics, technology, communications and open sea lanes. As Covid demonstrated, disruption of global supply chains can be both debilitating and inflationary. Unipolar status comes with lots of side benefits that most of us take for granted. Losing those benefits would be a severe headwind for the U.S. economy and our way of life for many years to come. Stay vigilant and pay attention.
Ashby Foote III is President of Vector Money Managemen and serves on the Jackson City Council, Ward 1. He is on the board of Bigger Pie.
