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In This Issue:
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Uneven Distribution
The equity market notched another strong quarter, with the S&P 500 gaining 4.3% and the tech-heavy Nasdaq up almost twice as much at 8.4%. Beneath the surface, however, this quarter’s returns were concentrated in just a few sectors, as only four of eleven S&P sectors finished the quarter in positive territory. The spread between the best and worst performing sectors in the second quarter was over 13%!
Despite the number of lagging sectors, investors have enjoyed handsome returns from the AI-driven rally. AI frontrunner Nvidia (NVDA) was up 150% in the first half of 2024. A rising tide lifts all boats and companies such as Super Micro Computer (SMCI), Advanced Micro Devices (AMD), and Taiwan Semiconductor Manufacturing Company (TSM), among others, have also benefited from the AI surge.
Has the AI boom reached its peak or is there still room to run? Earnings will tell whether companies can generate new revenue, improve profit margins, or both from all the AI initiatives. Right now, investors are hopeful that the future is bright, and that enthusiasm is driving tech stocks to new altitudes.
Did you know… The IRS waived 2024 RMDs for IRA beneficiaries subject to the 10-year rule?
On April 16th, the IRS announced that IRA beneficiaries subject to the 10-year payout period who have RMDs are not required to make any distributions in 2024. Previously, the IRS excused RMDs in 2021, 2022, and 2023. Even with no RMD this year, it might make sense to take voluntary IRA withdrawals while tax rates are low.
Please note that this IRS Notice only applies to IRA beneficiaries with annual RMDs within the 10-year period. Talk to us if you have any questions.
Buying a Home or Car is More Expensive Than Ever
Home and auto affordability is near an all-time low. Two major factors are to blame: cost (price tag) and interest rate.
Cost: The US median home sale price was more than $420,000 in June 2024. Just ten years ago, that number was roughly $275,000. New vehicles, on average, had a price tag of over $48,000 in the first quarter of 2024, compared with around $32,000 in 2014.1
Interest rates: US homeowners and auto buyers enjoyed rock-bottom interest rates for much of the past decade, driving sales to record levels. Since the Fed began raising rates, borrowing costs have also surged.
What Will It Take for the Fed to Cut Rates?
Recent CPI reports have confirmed sticky inflation. June’s inflation numbers were milder, however, with consumer prices rising just 3%. If the Fed determines that the labor market is slowing or sees other potential risks or weakness, we could see a rate cut as soon as September.
While prices for goods are no longer increasing at an alarming pace, costs for services continue to rise with no signs of easing. So far this year, insurance costs (home and auto) as well as utilities have continued to push higher while travel and leisure have moderated. Falling service prices would, in part, be a result of decreased demand. Costs of travel and leisure, personal services, professional services (legal, accounting and finance), and skilled workers (plumbing, auto repair) would need to fall in line with the Fed’s 2% inflation rate target. In this scenario, the economy would experience a significant slowdown at the very least.
Taking the Stress Out of End-of-Life Planning
As Benjamin Franklin famously penned, two things in life are certain: death and taxes. Planning your own funeral is one of the best things you can do for yourself and your loved ones. Read the Wall Street Journal article “Plan Your Own Funeral, Just Don’t Pay for It Now”2 or listen to the Podcast3 for more details.
FAQs From Our Clients:
Is it too late to buy Nvidia?
After watching Nvidia skyrocket for the past two years, many are wondering if they’ve missed the boat. Even though Nvidia has never been part of our strategy, our clients have indirect exposure to the stock through exchange-traded funds such as S&P 500 Index and/or Nasdaq 100 funds. The current weight of Nvidia in the S&P 500 index and Nasdaq 100 is 7% and 8%, respectively. Many index ETFs are top-heavy with mega-cap technology companies, as evidenced by the fact that the only companies with more weight than Nvidia in these two indexes are Apple and Microsoft.
Send us your questions to have them included in next quarter’s publication!
Footnotes:
1 https://www.coxautoinc.com/market-insights/june-2024-atp-report/#:~:text=In%20June%2C%20according%20to%20data,%25)%20compared%20to%20June%202023
2 https://www.wsj.com/us-news/planning-funeral-avoid-prepaying-95675d32?st=hqdfw6frugd5by0&reflink=desktopwebshare_permalink
3 Podcast: https://www.wsj.com/podcasts/your-money-matters/plan-your-funeral-now-pay-for-it-later/654B561A-3FCA-483A-9A46-64858AF9E6A4
