The Sunday Drive - 07/21/2024 Edition [#120]
The Sunday Drive - 07/21/2024 Edition [#120]
Musings and Meanderings of a Financial Provocateur
👋🏼 Hello friends,
Greetings from Manchester, VT and the Vermont Summer Festival. VSF is a six week long equestrian competition. We are here watching our daughter compete in Week 3 and she is competing at her best ever levels. We are so proud of her and all that she has accomplished in the sport that has been her passion since she was a young child.
Now, let’s enjoy a leisurely Sunday Drive around the Internet.
🎶 Vibin'
There has been much change in my and my family’s lives over the last few years and in the world in general, with no slowdown in sight it seems. So this week’s Vibe seems appropriate.
This week I’m vibin’ to David Bowie’s (as Ziggy Stardust) 1973 live performance of Changes.
💭 Quote of the Week
📈 Chart of the Week
This week’s Chart showcases the range and frequency of daily trading ranges for the S&P 500 over the last few years. In particular, it shows just how quiet - in terms of volatility - the market has been thus far in 2024. According to Sherwood News, as of July 17th it has been 512 days since the S&P 500 has fallen more than 2% in a single day. Quite placid by historical standards.
2020, the Pandemic market year, was certainly a very volatile year by historical standards. But… the S&P 500 was UP 18.4%* for the full year despite having been down nearly 40% at one point in the year.
Framed between these two extremes, we have the two closer to normal volatility years of 2021 and 2023. S&P 500 returns were 28.7% and 26.3%, respectively - returns that were much higher than long term equity returns.
Sandwiched between those two years was 2022, which exhibited a volatility experience that might be expected in a garden variety bear market year where the equity market, as expressed by the S&P 500, was down 18.1% for the year.
Bonds, on the other hand, experienced the worst performance year in the history of the modern bond market in 2022, with the Bloomberg Aggregate Bond Index down 16.3% for the year, with much higher of volatility than historical levels.
Most of us are accustomed to thinking of investing in terms of risk (volatility) and return - the higher the risk, the higher the expected returns.
But as demonstrated by the risk and returns of investing over the last several years, these two don’t necessarily come at the same time. Typically, periods of high volatility coincide with negative investment returns. This in turn sets up a period of stronger than normal positive returns in an environment of declining volatility.
So what might we expect from the stock and bond markets for the balance of 2024 and into 2025?
Inflationary pressures continue to recede, with some of the stickier parts of the economy finally showing disinflationary behavior (see the article on declining rents below). To the extent that allows for the Federal Reserve to lower short term interest rates without sparking fears of a renewal of inflationary pressure, then we have most likely seen the worst in the bond market and returns could be closer to long term norms.
I think that fiscal policy and its resulting impact on the U.S. Dollar will be an important driver of equity returns over the coming quarters, with the outcome of the 2024 Presidential election being a potential accelerant in either direction.
As I’ve been writing about recently in the Sunday Drive, I don’t think the sleepy yet strong equity market performance of the first six months of 2024 will persist and some measure of volatility likely lies ahead.
Vigilance and a dispassionate approach to one’s long term investment goals remains, as ever, the prudent path going forward.
*Source: YCharts for all cited performance.
🚙 Interesting Drive-By's
🤔 When Things Go Wrong - from Glen Harlan Reynolds [Link]
💡 New Nuclear Startup Aims Big - from Andrew Freedman [Link]
💸 Bad and Good Arguments for Industrial Policy - from Noah Smith [Link]
📉 Rents Have Been Falling For Over a Year - from Julie Taylor [Link]
🤓 Why Do People Mostly Stop Learning After College? - from Patrick Carroll [Link]
👋🏼 Parting Thought
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.
Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners or Cache Financials.
I hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mike
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