As the second quarter of 2024 concludes, the S&P 500 Index, Dow Jones Industrial Average Index, and NASDAQ Index sit at all-time highs. One notable theme in the stock market this year has been the outperformance of the largest companies. The S&P 500 Index gained 4.4% in the second quarter, increasing its 2024 return to more than 15%. In contrast, the Russell 2000 Index of small cap companies fell by 3.3%, lowering its 2024 return to 1.6%. The Magnificent 7, which is a group that includes Microsoft, Apple, Google, Facebook-parent Meta, Amazon, Nvidia, and Tesla, has returned 34.9% this year. Expanding to the top 50 S&P 500 companies, which are smaller in market cap, reduces the S&P 500’s return to 15.2%.
The global economy proceeded along the lines that were expected in the second quarter. While there is increasing evidence that growth is slowing, any slowdown still appears manageable and unlikely to result in a recession in the near term. The slowing is contributing to ongoing disinflation, which will bring the economy back into balance and allow central banks to begin to cut interest rates. U.S. inflation eased substantially in June, extending a recent slowdown in price increases that opens a path for the Federal Reserve to cut rates by the end of the summer. The consumer-price index, a measure of goods-and-services costs across the economy, fell slightly from May, dropping the year-over-year inflation rate to 3% which was the lowest since June 2023. Core prices, which exclude volatile food and energy items and are seen as a better gauge of underlying inflation, rose 0.1% since May. That was the mildest increase since January 2021, when large swaths of the economy were still frozen by the pandemic.
The U.S. economy shows mixed signals across various sectors. In the labor market, the jobs report indicates strong nonfarm payroll growth, and rising wages, but also highlights increased unemployment and a shrinking labor force. The housing market struggles with affordability issues, impacting new buyers despite increased construction activity. The manufacturing sector faces contraction due to high costs and reduced demand, while the services sector rebounded strongly after a slight decline the previous quarter.
Geopolitical risks and global economic concerns are mounting on several fronts. Election uncertainty, both domestically and internationally, poses significant challenges to market stability. The rising risk of a wider conflict in the Middle East threatens to push oil prices higher, potentially fueling inflation globally.
RETIREMENT READINESS CONFIDENCE ROBUST
The Employee Benefit Research Institute (EBRI) in its 2024 Retirement Confidence Survey reports strong confidence in financial readiness to retire and it is more than twice as high among those with retirement plan coverage than among those who lack it. Among respondents who are covered by a retirement plan, 77% of the 2,521 Americans they surveyed said they are at least somewhat confident that they will be financially ready to retire, and 25 % said they are very confident. Confidence among those who are not covered by a retirement plan was far lower among those studied – just 34% said they were at least somewhat confident, with a mere 5% saying they were very confident.
Despite the high levels of confidence, some concerns about retirement readiness remain. A large percentage of the respondents cited debt, inflation and the cost of living having a serous effect on their ability to save as much as they want to.
COPING WITH MARKET VOLATILITY
Market volatility plays a big role in the performance of investments over time. And while you can’t control market volatility, there are actions you can take to help minimize its impact on your retirement. Consider these five steps:
- Know your long-term goal – you need a long-term, disciplined plan for saving and investing so you can draw from your savings throughout your retirement.
- Stick to your plan – nobody can predict when the market will have its best days, so it’s also important to stay the course.
- Consider asset allocation – this can be an important investment strategy. It involves dividing your contributions among a mix of different asset classes. The right allocation depends on your comfort level with risk and your time to retirement.
- diversification – is the process of spreading your money among different investment options from a variety of asset classes.
- Rebalance regularly – because over time, your asset allocation can change as some investments grow more than others.