Rockbridge Institutional – November 2024 Market Review

Market Review

Here are the recent returns for indices representing various stock and bond markets:

• These numbers present a generally positive period for stocks. Domestic stocks stand out. The results for the S&P 500 are driven by the extraordinary performance of the few (six) largest US Tech companies expected to benefit from the development of AI. Additionally, stock markets have been buoyed by continued economic growth with declining inflation.
• These numbers present a generally positive period for stocks. Domestic stocks stand out. The results for the S&P 500 are driven by the extraordinary performance of the few (six) largest US Tech companies expected to benefit from the development of AI. Additionally, stock markets have been buoyed by continued economic growth with declining inflation.
• Nvidia, which many consider to be a bellwether for the future of AI, posted better than expected quarterly results. While the Market apparently expected more, they reflect a continued positive outlook for AI.
•  International and emerging markets continue to disappoint. Valuation metrics for international stocks are well below those of domestic companies, which have been the case for some time. However, extrapolating continued shortfalls in the performance of these stocks far into the future should be done with care. Maintaining commitments to both domestic and international markets ensure the long-term benefits of diversification.
•  Bond returns are down, reflecting the recent increases in yields of about 0.5%. The yield on 10-year Treasuries is now 4.3%, up from 3.8% at the beginning of the quarter. Bond market signals are consistent with little change in interest rates.
• The spread in inflation-adjusted yields is up a bit to about 2.3%, yet consistent with a reasonable inflation picture, which could change with the implementation of some of the Trump Administration policies.

Election

Domestic stock markets approved the election results – S&P 500 up 5% and Russell 2000 up 9%, respectively the first week of November. This response, no doubt, reflects, among other things, the anticipation of tax cuts and a relaxed regulatory environment. However, the impact of increased tariffs and reduced immigration is apt to bring another bout of inflation. In any event, with the significant changes from the election results, it is reasonable to expect disruptions and continued market volatility ahead.

A Perspective on Cryptocurrency

Anticipating less regulation, the value of Bitcoins skyrocketed – up from about $70,000 to nearly $100,000 this month. Take care before jumping on this bandwagon; these positive results, notwithstanding, Cryptocurrency has little to do with allocating capital to its best use – it is still primarily a means to gamble. Bitcoins are valued in a “Bigger Fool” market – today’s price reflects the expectation that a bigger fool will purchase it at a future higher price. Whether a particular trade works out depends on fortuitous timing.

A future use for Cryptocurrency beyond a mechanism for gambling is not apparent. Some have suggested that Cryptocurrency value comes from its future acceptance as a currency. However, it is not yet exchanged for a wide variety of goods and services. Bitcoin prices fluctuate widely, making it less than useful as a unit of account or a measure of value. Additionally, mining Cryptocurrencies is costly, requiring significant levels of energy. It is not clear what problem Cryptocurrencies solve.

Yet, Bitcoins have now been around for a while and some lucky people appear to have become wealthy.  We can expect to hear more about Cryptocurrency. Be wary.