Investment Review for Second Quarter 2024

Risky asset returns.

Risky asset returns were mixed for the second quarter. Within the U.S., the S&P 500 index—which represents large U.S. companies—gained 4.3%. However, it’s important to note that this index is heavily influenced by a few dominant stocks. The top 10 stocks currently account for 37% of the index, and the top 25 stocks represent almost 50% of the index. When we consider U.S. stock performance beyond these large companies, returns were negative. An equal-weighted portfolio of all 500 companies in the S&P 500 showed a decline of 2.6%. Small-cap stocks fell by 3.1%, and mid-cap stocks fell by 3.4%.

Outside the U.S., Emerging markets led the way, with Chinese stocks rising by 7.1% and emerging markets (excluding China) rising by 4.2%. However, foreign developed stocks (both large and small) declined during the quarter.

NVIDIA vs the world.

At the end of the quarter, NVIDIA’s stock price had surged to the point where the company’s market value now surpasses $3 trillion. To provide context, let’s compare NVIDIA’s value to other companies in the S&P 500:

• NVIDIA’s value surpasses that of 12 major financial companies combined, including JPMorgan Chase, Visa,    Mastercard, Bank of America, and Wells Fargo.

• It is worth more than 35 consumer defensive companies combined, including Procter & Gamble, Costco,      Walmart, Coca Cola, and Pepsi.

• The combined value of 39 industrial companies falls short of $3 trillion.

• Even when combining 36 consumer cyclical companies, their total worth is only $1.9 trillion.

• 22 energy companies are worth $1.7 trillion combined, while 18 communication companies are valued at        $1.4 trillion.

Despite NVIDIA’s impressive product portfolio and demand for AI-related technologies, the question remains: Is a company with less than $80 billion in trailing 12-month sales truly worth over $3 trillion?

Petroleum & other liquid fuels.

Against the complex backdrop of the clean energy revolution, domestic oil and liquid fuel production has steadily grown in recent years, while consumption has decreased. To be precise, production rose from pre-
Covid levels of 19.5 million barrels per day in 2019 to 22.1 million barrels per day in early 2024. Simultaneously, consumption declined from 20.5 million barrels per day to 19.8 million barrels per day.

In contrast, in the emerging economies of India and China, consumption continues to rise and far outpaces their respective productions.

Autos.

Before June, many of us had never heard of CDK Global, a software provider for auto dealerships. This company experienced a significant cyber incident that forced it to shut down most of its systems. As a result, thousands of car dealerships in the US faced serious disruptions and were largely paralyzed. The impact affected various aspects of dealership operations, including processing vehicle sales, processing trade-ins, financing and insurance, lead follow-up, and routine service and repairs.

Consequently, June’s auto sales and service figures are expected to be lower compared to the same period last year. This decline, however, is not necessarily indicative of reduced consumer demand for vehicles.

Election around the world.

Indian parliamentary elections spanned several weeks in the second quarter. During this period, the Indian stock market experienced fluctuations due to mounting concerns about the Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, securing a majority in the 543-seat Parliament. At stake was the BJP’s ability to advance its probusiness agenda. Ultimately, the BJP formed the National Democratic Alliance, with Modi as its leader.

In Europe, Marine Le Pen’s far-right National Rally made gains during the European Parliament elections, causing uncertainty in France. President Emmanuel Macron responded by calling for snap French parliamentary elections, introducing a new source of economic and market uncertainty. Concerns revolved around the potential impact on EU rules regarding deficit control and inclusive policies among member countries.

Finally, shortly after the quarter ended, the UK held its general election. After ruling for 14 years, the Conservative Party was decisively defeated by the Labour Party. With power swiftly changing hands, the incoming government confronts significant challenges, including addressing the country’s slow economic recovery and social unrest exacerbated by Brexit, the COVID-19 pandemic, and various scandals within the Conservative Party.

Although the long-term effects of these elections remain uncertain, the prospect of change can lead to market volatility as investors navigate a country's uncertain direction.