2024 Market Recap: A Look at Key Asset Class Performances

We’re almost 2/3rds through the year, and until recently, it’s been a pleasant year in markets. Below is the performance of the major asset classes through the end of July. 

Indices listed in disclosure

Pretty great. Stocks are performing well, bonds are lagging a bit but still positive, and alternatives have been even better than stocks. 

Despite ongoing military conflict between Ukraine and Russia as well as in the Middle East, a tumultuous election season to say the least, and still no rate cuts from the Federal Reserve, it has been about as calm a market as you could have. The US stock market (S&P 500) hadn’t seen a 2% down day since February of 2023!

But that all changed the first week of August. For a few reasons that we go into in our latest Charts of the Month (link), the stock market sold off aggressively. The VIX, often referred to as the “fear index” spiked to its 3rd highest level on record, the Japanese stock market (NIKKEI) fell a record 12.4% in one day, and interest rates plunged and even briefly un-inverted before recovering throughout the day. 

Here's performance up to the 8/20 as a line chart so you can see how quickly the market sold off and recovered.  

Bonds: Vanguard Total Bond ETF (BND) Stocks: (See Disclosure) Alts: WJ Alts Model (SRRIX 40%, ASFYX 20%, BLNDX 20%, PQTIX 20%)

Though the sell off was sharp, stocks were only down around 5-10% depending on the region. Historically, stocks fall 5% or more in 94% of years since 1928 (using S&P 500 as it has longest history), so this is very normal. 

Perhaps even more shocking is the recovery. Some stock indices recovered in record time, and stocks as a whole are back at or near all-time highs. That’s why it’s important not to make snap reactions to stock market moves. 

One thing worth addressing in the chart above is alternatives, particularly managed futures. Managed Futures are an adaptive strategy. They look across all liquid markets, and buy the things that are doing well, and sell short the things that are doing poorly. Historically, this strategy has been a fantastic diversifier to stocks and bonds. In market crashes, they can short stocks as they fall, and buy things that are doing well, typically treasuries and gold. In 2022, they were short both stocks and bonds, and returned 22% as stocks and bonds fell 15-25%. 

In short periods, however, they can get caught offside. Managed futures were long stocks and short the Yen coming into the last couple of weeks, and those trends abruptly ended. These strategies are adaptive and quickly reduced those positions, but not without sustaining a few bruises. 

Finally, we turn our attention to bonds. Bonds rallied at the end of 2023, as there were strong indications that the Fed was ready to begin lowering interest rates in 2024. The first 4 months of the year threw some cold water on that as inflation came in hotter than expected, and economic growth showed little signs of slowing down. 

Fast forward to today, and things have changed. Inflation is coming down, and perhaps more importantly, the unemployment rate is going up. The Fed has two jobs, to maintain stable prices and full employment. The market believes that the Fed will begin paying more attention to the second one, and that calls for cutting interest rates. Markets (via Fed Funds Futures) are pricing in a 100% chance of at least one rate cut at the next meeting in September. The chart below shows market expectations for how times the Fed is expected to cut in the next 6 months. 

What this means for stocks is difficult to predict and debatable, though broadly it’s expected to be positive. For bonds, it’s almost without question positive. Bonds prices go up as rates go down. What it’s not positive for, is cash. 

Hopefully if you’ve been sitting in cash over the last year or so, you’ve been utilizing our Flourish Cash offering or a Schwab money market fund and earning ~5% annually. That cash yield immediately adjusts to market rates, and if rates are cut as they are expected to next month, that yield will go down without any price appreciation. We believe the next rate cut will be the first of many over the next couple of years, so your cash yield will steadily decline. 

In October 2023’s Charts of the Month and the WJNotes following, we said, “It’s Time to Buy Bonds”, marking that October 30th was likely the peak in interest rates and cash yields would decline. Despite having no Fed cuts as we expected there would be, and a sluggish 2024 for bonds, bonds have outperformed cash. 

Cash: Morningstar Cash TR USD  Bonds: Vanguard Total Bond ETF (BND)

Looking forward, we believe cash yields will begin to decline and bonds will continue to outperform. If a recession were to occur, which is not our base case but certainly possible, that outperformance would likely be even stronger. 

PAST PERFORMANCE IS NOT A GUARANTEE OF CURRENT OR FUTURE RESULTS. Examples of historical information included in this presentation do not, nor are they intended to, constitute a promise of similar future results. Specific client portfolio allocations, risks and returns can and may deviate from these examples depending on accounts and types of investments available through each account. Future market views by WJ Interests, LLC may vary significantly from the historical examples presented herein and no one receiving this summary should assume that WJ Interests, LLC will be able to replicate successful views in the future. 

All return series are for illustrative purposes only. They are calculated by taking a weighted average of the following asset classes and represents an aggressive risk portfolio incorporating leverage and the asset classes in the table:

Assumes Monthly Rebalancing. All data represents total return for stated period.