Returns for the major stock indexes in 2024 and the current bond and money market yields are as follows:
| Index | 2024 YTD |
| Dow Jones Industrial Average | 5.62% |
| S&P 500 | 10.16% |
| Fixed Income Yields | 1 year | 2 year | 5 year | 10 year | 30 year |
| Municipals | 3.21% | 2.99% | 2.52% | 2.52% | 3.73% |
| US Treasuries | 5.02% | 4.62% | 4.21% | 4.20% | 4.34% |
| Fidelity Government Cash Reserves Money Market Fund | 5.15% |
| Fidelity Money Market Fund Class Premium | 5.29% |
The stock market is on a tear! The S&P 500 year-to-date performance has already eclipsed 10%, the 14th-best first-quarter performance since 1928. The major market indexes, the S&P 500, Dow Jones Industrial Average, and Nasdaq are each at all-time highs. The S&P 500 is up 27% from its October low and just recorded impressive back-to-back quarters of double-digit returns, a feat that has not happened since 2012 and only seven times since 1945. Growth stocks have led the charge, and nearly every style, sector, and index are participating. Through the first quarter, 10 of the 11 S&P 500 sectors are in positive territory. Even the previously challenged equal weight indexes are demonstrating signs of improvement, indicating a broadening of market breadth. No matter how you slice it, the markets are performing.
Strong markets can serve as a reminder that the power of compounding interest is real and merits comprehension. Albert Einstein famously said that compounding interest is the 8th wonder of the world, and he who understands it, earns it, and he who doesn’t, pays it. Many long-term investors have lived this experience; Warren Buffett, now 93 years old and perhaps the most extreme individual example, has made 98% of his net worth since age 65, a staggering statement that speaks to the power of compounding. I have seen the compounding phenomenon play out with many clients, including early in my career, as I watched my grandfather’s net worth triple from his retirement in 1981 to his death in 1998. To quote the late, great legend and Buffet’s business partner, Charlie Munger: “The first rule of compounding is to never interrupt it unnecessarily.” However you wish to accept this truth, it is unquestionable that the compounding effects of being a long-term investor can be truly rewarding.
At LYNCH & Associates, we always attempt to be aware of the differences between long-term decision-making and temporary feelings, behaviors, and attitudes. We know as markets improve, so do investor sentiments and appetites. Investor intelligence surveys, at their highs and lows, can be reasonable indicators of the necessity for contrarian thinking. Today, bullish sentiment is over 60% (or top 5%), which is generally consistent with market tops. Correspondingly, investor sentiment was at 28% (bottom 5%) at the market lows of October 2022.
We are generally disheartened by the ever-growing role the Federal Reserve has in the economy. The abundant reserve policy that took hold during the Financial Crisis and expanded as a response to Covid could get more discussion when/if inflation does not stay contained and the interest levels on the national debt do not improve. In short, there is no longer a natural borrowing rate on short-term interest rates. It is a longer conversation, but at minimum seems counterintuitive when the Fed is indicating three rate cuts this year as markets roar, employment remains strong, and GDP growth is solid.
Despite concerns, for now, optimism abounds as earnings growth remains strong, as do projections; estimates call for the second quarter growth at 9%, and full-year 2024 growth is estimated at 9-10%. The narrative and reality resulting from the fast-moving progress of Artificial Intelligence (AI) is undoubtedly a powerful transformation and an encouraging driver of investor optimism.
We continue to be intrigued by the themes we mentioned at the end of 2023: the significant performance differences between large and small capitalization stocks, growth versus value stocks, and domestic versus foreign equities. Our investment strategy remains biased toward value investing. Further, we have recently been adding small-cap stock exposure where appropriate. The bond market, though unexciting, continues to improve, and our money market rates remain attractive relative to recent history, currently exceeding 5% (15-year highs).
We encourage our clients to remain focused on their long-term investment goals. Our team is here to provide guidance and support as needed, and we remain committed to helping you achieve your investment objectives. We thank you for your continued confidence in LYNCH & Associates.
Sincerely,
Ryan T. Lynch, CFP® ChFC®
President
Form ADV Part II and III of the LYNCH & Associates Uniform Application for Investment Advisor Registration and the LYNCH & Associates Code of Ethics are available to all clients at any time. If you would like to receive a copy, please contact Jennifer Farless at (812) 853-0878 or [email protected].