This is Brad Barrie Chief Investment Officer and Portfolio manager with Dynamic Wealth Group. Welcome to this market and economic update. In this video, we’ll discuss how investors can handle market swings amid the current rotation out of large cap tech stocks and into areas such as small caps. The next few months could also experience more uncertainty due to the presidential election and upcoming Fed rate cuts.
Investors should keep these factors in perspective and remember that the market experiences new all-time highs as well as pullbacks throughout the course of the business cycle.
Over the next few minutes, we’ll highlight the key facts that investors should stay focused on in the coming months.
First, this chart shows the performance of large cap stocks (the S&P 500 in gold) and small caps (the Russell 2000 in red), indexed to 0 in 2015 with the shaded blue area showing the cumulative spread (or essentially the outperformance of large cap over small cap).
As you can see, large cap stocks have outperformed due to technology stocks and the AI boom. However, large caps have pulled back more recently as growth and technology sectors have struggled. Small caps have outperformed in recent weeks as investors have shifted to these stocks instead.
Why has this occurred? For one, investors have been wondering when the AI rally would take a breather for quite some time. There are new concerns about whether the billions that large tech companies are pouring into AI will generate a sufficient return on investment. Additionally, small cap stocks tend to be more sensitive to rate cuts and domestic growth. For all of these reasons, investors have shifted from large caps to small caps, at least for the time being. As we know, this is all “rear view mirror” type analysis, with the future being uncertain.
However, this rotation is a reminder that investors can benefit from being diversified across styles and sectors, rather than focusing only on what happens to be outperforming at the moment.
At Dynamic Wealth Group, we believe investors & advisors goals should be focused on generating a smoother return, which is not always the highest short-term return especially when one area like tech & AI dominate.
Next, this chart shows quarterly GDP growth for the past four quarters with growth broken down into percentage point contributions by major category.
In the second quarter of the year the economy grew robustly at a rate of 2.8%. While some parts of the economy have moderated, consumer spending, shown here as personal consumption expenditures, and business investment, shown as gross private domestic investment, have remained strong.
This supports other economic data including strong job gains and improving inflation. In fact, recent inflation data show compelling evidence that we are slowly returning to a more normal environment.
Finally, this chart shows the total returns and pullbacks in the S&P 500 over the past few decades. The bars represent total returns, and the red dots mark the levels of the largest intra-year declines each year. The largest intra-year decline can be measured as the steepest peak-to-trough decline for the index during the calendar year.
This shows that even though most years’ experience significant intra-year drops, they still tend to end up in positive territory. This is a good reminder that volatility is a normal part of investing. It’s important not to overreact to market pullbacks or all-time highs because these are both normal parts of investing.
We hope you found these high-level insights helpful. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, feel free to download our eye-opening whitepaper titled, “Busting seven risk and return myths”, click the link below or visit our website DynamicWG.com, or emailing us at: Info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired. Until next time, take care everyone, and make smart, logical & fact-based financial decisions.
Disclaimer:
Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities. No part of this should be taken as investment advice. Consult your financial advisor for specific investment recommendations tailored to your specific situation.
Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.
Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.
Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.
< Commentary
The Summer Market Rotation
This is Brad Barrie Chief Investment Officer and Portfolio manager with Dynamic Wealth Group. Welcome to this market and economic update. In this video, we’ll discuss how investors can handle market swings amid the current rotation out of large cap tech stocks and into areas such as small caps. The next few months could also experience more uncertainty due to the presidential election and upcoming Fed rate cuts.
Investors should keep these factors in perspective and remember that the market experiences new all-time highs as well as pullbacks throughout the course of the business cycle.
Over the next few minutes, we’ll highlight the key facts that investors should stay focused on in the coming months.
First, this chart shows the performance of large cap stocks (the S&P 500 in gold) and small caps (the Russell 2000 in red), indexed to 0 in 2015 with the shaded blue area showing the cumulative spread (or essentially the outperformance of large cap over small cap).
As you can see, large cap stocks have outperformed due to technology stocks and the AI boom. However, large caps have pulled back more recently as growth and technology sectors have struggled. Small caps have outperformed in recent weeks as investors have shifted to these stocks instead.
Why has this occurred? For one, investors have been wondering when the AI rally would take a breather for quite some time. There are new concerns about whether the billions that large tech companies are pouring into AI will generate a sufficient return on investment. Additionally, small cap stocks tend to be more sensitive to rate cuts and domestic growth. For all of these reasons, investors have shifted from large caps to small caps, at least for the time being. As we know, this is all “rear view mirror” type analysis, with the future being uncertain.
However, this rotation is a reminder that investors can benefit from being diversified across styles and sectors, rather than focusing only on what happens to be outperforming at the moment.
At Dynamic Wealth Group, we believe investors & advisors goals should be focused on generating a smoother return, which is not always the highest short-term return especially when one area like tech & AI dominate.
Next, this chart shows quarterly GDP growth for the past four quarters with growth broken down into percentage point contributions by major category.
In the second quarter of the year the economy grew robustly at a rate of 2.8%. While some parts of the economy have moderated, consumer spending, shown here as personal consumption expenditures, and business investment, shown as gross private domestic investment, have remained strong.
This supports other economic data including strong job gains and improving inflation. In fact, recent inflation data show compelling evidence that we are slowly returning to a more normal environment.
Finally, this chart shows the total returns and pullbacks in the S&P 500 over the past few decades. The bars represent total returns, and the red dots mark the levels of the largest intra-year declines each year. The largest intra-year decline can be measured as the steepest peak-to-trough decline for the index during the calendar year.
This shows that even though most years’ experience significant intra-year drops, they still tend to end up in positive territory. This is a good reminder that volatility is a normal part of investing. It’s important not to overreact to market pullbacks or all-time highs because these are both normal parts of investing.
We hope you found these high-level insights helpful. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, feel free to download our eye-opening whitepaper titled, “Busting seven risk and return myths”, click the link below or visit our website DynamicWG.com, or emailing us at: Info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired. Until next time, take care everyone, and make smart, logical & fact-based financial decisions.
Disclaimer: