Quarterly Review and Outlook - July 2024

Dear Clients and Friends,

Shall I compare thee to a summer's day?

Recently, on the eve of the summer solstice – the longest day of the year for those of us in the Northern Hemisphere - I had the opportunity to catch up with a friend and fellow investment manager who has been based in Japan the past two decades. Among our usual topics of conversation like politics and baseball, we discussed the global financial markets, the European Central Bank’s decision in June to lower its benchmark interest rate for the first time in five years, and the Bank of Japan’s actions earlier this year to lift interest rates into positive territory following eight years of negative interest rate policy.[1]^,[2] We opined about the ongoing artificial intelligence investment boom (or bubble, depending on your point of view) and the relative strength of the largest US stocks, to which he offered, “Enjoy summer in the States. It’s just another Tsuyu for the rest of the world.”

Tsuyu, for those who don’t know, is considered by many to be Japan’s unofficial fifth season, a dismally rainy and humid stretch that typically lasts from May through mid-July. The soggy-summer analogy to global financial markets may be apt:  both Japan and the Euro-area economies are projected to grow at less than 1/3^rd the rate of the United States in 2024, according to the World Bank’s latest Global Economic Prospects report.[3]  Indeed, the same report points out that growth is expected to underperform the average pace of the 2010s in nearly 60 percent of economies around the globe, a sodden outlook for sure. Meanwhile, Wall Street’s projections for 2024 US economic activity have increased as the year has progressed.[4]

At Evermay, we remain overweight large-cap US equities when compared to broad global stock indices, as we believe that asset class has offered more compelling growth potential than most others. That said, valuations have become a greater concern in recent months with the S&P 500 stock index rising faster than earnings projections and reaching new all-time highs. The stock market seems to be climbing the proverbial “wall of worry,” moving higher despite growing uncertainty surrounding the US presidential election, ongoing hostilities in the Middle East and Ukraine, and potential for expanded trade tensions with China. While we do emphasize large US stocks, we also continue to advocate for broad diversification within stock portfolios as a means to help manage portfolio risk. Similarly, within our bond holdings, we remain focused on shorter-term US Treasuries which still offer attractive yields and may provide a buffer of sorts against possible equity market volatility as the presidential election approaches.

With the summer solstice now past and the remaining days of 2024 becoming increasingly shorter, we want to inform you of possible changes on the horizon relating to the 2017 Tax Cuts and Jobs Act (TCJA). At the end of 2025, several key provisions from the TCJA are set to "sunset," meaning they will expire and revert to their previous levels. While Evermay does not provide tax advice, several of the sunsetting TCJA provisions could impact your estate and other financial planning considerations. Although these changes are still a year and a half away, we encourage you to reach out at any time to discuss your portfolio to ensure your mix of assets is appropriate and aligned with your financial goals.

 

Warmly yours,

Mitch Schlesinger
Chief Investment Strategist