At halftime of 2024, the S&P 500 is up 14.48% YTD (source: Morningstar), driven by expectations of interest rate cuts and AI enthusiasm. A 29% annual gain for the market is not unheard of, so the second half might see a continuation. However, key risks remain, including valuation, breadth, and inflation. Perhaps a reversal occurs, taking back the 1st half’s gains. If so, valuation issues would likely resolve and improve 2025 performance. Bottom line, stock market returns are lumpy. Longer term, the return is consistently close to 10% (Source: Dimensional Matrix Book – Historical Returns Data).
Gains have been driven disproportionately by a few large tech companies associated with AI, so a diversified portfolio including international, small and midcap stocks, and even the 493 stocks in the S&P 500 that are not Nvidia, Alphabet, Meta, Microsoft, Apple, Amazon or Tesla, your performance is less than the S&P 500. These 7 stocks comprise more than 30% of the market cap weighted index. Hopefully the market will broaden as businesses adopting AI see upside potential.