The First Half of 2024

It’s hard to believe that we’re over halfway through 2024. The S&P 500 had a very good 1st half of the year. As I’m writing this, the index has closed at an all-time high for six consecutive sessions. Interestingly, the market has been relatively boring this year. There have been just 14 trading days with gains of 1% or more. There has been only one 2% up day this year. And there have only been 7 days of down 1% or worse. Bull markets are typically boring like this. Uptrends tend to be slow, methodical moves higher. Bull markets usually don’t make for good headlines because they’re made up of small, slow, gradual improvements.

Bear markets on the other hand, are where the excitement happens. Downtrends are usually full of both big down days and big up days. The bear market of 2022 is a good example. During that awful year in the stock (and bond) market, the S&P 500 was down 1% or worse on 63 trading days. There were also 23 down days of 2% or worse and 8 days of 3% or worse losses. But there were lots of big up days as well — 59 days of +1% or more, 23 days of 2% or more and 4 days of 3% or better.  The best and worst days happen at the same time because volatility clusters. Volatility clusters because investors overreact to the upside and the downside when emotions are high. The second-best day of 2020 (+9.3%) was sandwiched between the two worst days (-9.5% and -12.0%) during the COVID crash. The best day of 2020 (+9.4%) followed daily losses of -4.3% and -2.9%. Markets aren’t always like this but these are the general characteristics of uptrends and downtrends.

So why should you concern yourself with the characteristics of bull markets and bear markets as a long-term investor? It can be helpful to be aware of these characteristics when investing so you aren’t one of those people who overreact when fear or greed is running hot. It’s also interesting to note that even though the S&P 500 is having a good year, it doesn’t mean every stock or even sector in the index is having a similar experience. There are 134 stocks down 5% or worse and 85 stocks that are down 10% or more so far this year. Small Cap Stocks were even negative for the year before a rally in the last few trading days. Stock market returns this year have largely been concentrated in the large, Mega Cap stocks. Even during “good” market years, it’s normal for many stocks to go down. This JP Morgan chart shows the number of stocks in the S&P 500 that end the year down 5% or more going back to 1994:

It makes sense that you’d see high numbers in the bad years (2000-2002, 2008, 2018, 2022, etc.), but lots of stocks also go down during the up years. This is another reason why individual stock selection is difficult and diversification is important. They say successful investing should be like watching paint dry. Remind yourself that markets won’t be boring forever. At some point the excitement and volatility will return.

Bottom Line: It’s been a pretty boring year so far, but that can change quickly. Pullbacks of 10% or more happen almost every year so we shouldn’t be surprised if we have one at some point this year. Now is a good time to remind yourself that you should never overreact to the good (greed) or bad (fear) times in markets.

As always, please let us know if you would like to discuss this in more detail. 

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