Both U.S. and global equity markets are still delivering positive returns, and the bond market is calming down. The long-anticipated recession seems to be on hold, making it easy to forget the bear markets of the past. The first two quarters of this year have been solid for investors.

Equities

While the gains have slowed from the first quarter, they remain strong. The S&P 500 gained 3.92% in Q2, achieving a 14.48% gain year-to-date. The Russell Midcap Index is up 4.96% in the first half of 2024. Smaller companies, as tracked by the Russell 2000 Small-Cap Index, posted a 1.73% gain in the first six months.

Foreign markets are also performing well. The EAFE index, covering developed foreign economies, gained 3.51% in the first half of 2024. Emerging market stocks, as represented by the EAFE EM index, have increased by 6.11% in dollar terms.

Bonds

The bond market is stabilizing despite an inverted yield curve. Yields on 10-year Treasury bonds rose slightly to 4.40%, and 30-year government bond yields increased to 4.56%. Investors can get higher returns on 12-month Treasuries (5.11%), 6-month government bonds (5.32%), and 3-month Treasury bills (5.35%). 

Market Trends and AI

Despite the market’s overall upward trend, Q2 saw more modest returns compared to Q1. Pundits suggest the market might be losing steam, but it’s more likely that investors are becoming cautious. A key concern as we enter Q3 is that much of the equity returns are driven by a few AI-related companies. Nvidia, Apple, Amazon, Meta, and Microsoft are seeing significant gains, while the rest of the market takes a breather. Microsoft shares have surged nearly 75% since last year due to its OpenAI initiative, and Nvidia’s share price increased by 149.48% in the first two quarters of this year. Amazon is up over 27% this year.

Long-Term Prospects and Concerns

Experienced analysts warn of potential volatility, drawing parallels to the tech boom and bust of the 1990s. While AI technology promises to revolutionize industries, it currently poses more costs than revenue for most companies, except for a few like Nvidia. Microsoft, Apple, and others are investing heavily, but widespread adoption and profitability are still on the horizon. Additionally, AI’s demand for energy is straining utility systems. Data centers consumed 450 terawatt hours of electricity in 2022, with consumption expected to double in two years, equating to Japan’s current electricity use.

Takeaway

The public is increasingly discussing investments in AI, which can signal a market bubble. In fact, that’s one of two hot topics I heard about in almost every talk at Morningstar’s Investment Conference last week. The other was private equity, which I steer clear of. But AI will likely transform businesses and lives. Investing in emerging technologies can be risky, so I prefer the diversified approach. The critical question for the next 12 months is whether the broader market can sustain its performance if high-flying tech stocks experience a pullback.


Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.