11/15/24

Weekly Market Recap

After a strong rally in U.S. stocks during election week, we experienced a minor downturn the following week. This is to be expected, as stocks do not rise in a straight line and volatility is normal. Some economic data released may be weighing on the stock market’s rally. Year-over-year inflation increased to 2.6%, up from its previous level of 2.4%. Shelter costs (rent) are still rising, with a year-over-year increase of 4.9%. However, the overall economy still appears strong. Retail sales rose by 0.4% in October, indicating that consumers are still spending, which is good for the broader economy.

President-elect Donald Trump has started making his cabinet appointments, and parts of the market are reacting. For instance, the biotech sector has dropped roughly 10% over the past five days after RFK Jr. was appointed to head the Department of Health and Human Services. As usual, the market tries to anticipate potential changes in the regulatory environment, but this doesn’t necessarily mean the biotech sector won’t perform well in the coming four years. For example, many believed the energy sector would thrive under the previous Trump administration due to his favorable energy policies, yet the sector was down nearly 40% during Trump’s presidency. This shows that it’s difficult to predict sector performance based solely on who is in office.

Chart of the Week

This week’s chart serves as a warning against attempting to time the market. The first bar shows what an investor would have earned if they had invested $10,000 in an S&P 500 index fund and remained fully invested from 2004 to 2023. Despite the volatility investors had to endure, their investment would have grown to $63,637, representing an annualized growth rate of 9.7%. This period includes the 2008 global financial crisis, during which the S&P 500 dropped by 50%. Yet, if you stayed the course, your wealth would have grown significantly.

Notice what happens if you missed just the ten best days: your returns are nearly cut in half. It can be very tempting to time the market due to hindsight bias, but predicting the past is far easier than predicting the future. The key is investing in a portfolio that aligns with your risk tolerance. For many investors, an all-stock portfolio may not align with their risk tolerance, and that’s okay—as long as a lower-risk portfolio can still deliver the returns needed to reach their goals.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial

Source: J.P. Morgan Asset Management analysis using data from Bloomberg. Returns are based on the S&P 500 Total Return Index,anunmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results whileinvesting over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under-or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with thebenefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index. Data as of December 31, 2023.