What a whirlwind were the first two quarters of the year!
If we simply looked at year-to-date returns, it would seem like a pretty normal year. Up 6% for the S&P 500. Up 4% for core US bonds¹. Sectors that we have liked for a while, including industrials², financials³, and, technology⁴, were respectively up 13%, 10%, and 7% for the year.
But we would be kidding ourselves if we acted like this was a normal year. We had angst and volatility over Trump, trade, and tariffs until much of it was largely walked back. Here’s how it looked. We all know how it felt.
Here’s the S&P 500⁵:
Here’s the VIX index⁶, an index that tracks volatility and is often used as a gauge of fear and uncertainty:
For investors who were long-term focused and held tight or for those that saw a buying opportunity amidst the angst, you were rewarded.
- We continue to believe in prudent diversification in sectors, styles, factors, and regions for equities.
- We continue to believe that the AI boom will continue to unfold and that many companies and sectors will benefit from the developments in AI.
- We continue to be cautious on the long end of the yield curve and in the lowest credit quality when it comes to fixed income.
- We continue to believe that inflation is coming down and growth is slowing, but not to the point of a recession.
- We continue to expect that the Federal Reserve will cut rates by 2-4 times this year, due to slowing inflation and a weakening labor market.
- Finally, we believe that the markets and the economy will benefit from lower regulation, lower taxes, and positive seasonality in the second half of the year.
As always, we will continue to monitor the data and adjust our thesis if the data changes or if risk becomes more elevated than we feel comfortable with.