Dear Client, Prospect, Partner,
The tech and AI rally have continued to rage on as we enter the summer months. Can it continue is the question? We’ve shifted some of our portfolio over to information technology, Artificial Intelligence and other industries connected to these spaces to enhance the possibility of gains. The markets will probably continue to run upward through the election in November. Mega Caps continue to provide the steam for the S&P 500’s growth in 2024. As I’ve mentioned in the past an equally weighted S&P 500 Index would not be up double digits so far this year. The growth of Nvidia, Microsoft, Amazon, Apple, Meta, and others have propped up the gains so far in the first six months of the year.
We have increased our utilities exposure to play some defense as the momentum of the Mega Caps continues. The average member within the Nasdaq has had a >35% drawdown from its peak this year while the Nasdaq 100 Index has had no more than a 7% drawdown. Quite remarkable.
Cybersecurity and retail have been long-term sectors that we have been invested in. The cybersecurity industry continues to consolidate with the larger players scooping up the smaller companies and start-ups. Palo Alto Networks (PANW) and Zscaler (ZS) have been companies that we own. PANW was punished last quarter for earnings that were solid, but the outlook was weaker than expected. It’s a good space to be in as AT& T just announced today that they had a data breach for all their wireless customers. That is concerning and conducive to why Cybersecurity continues to be a sector we want to be in. The retail sector has been a struggle with the rising cost of goods sold and inventory issues for many companies. We’ve owned Nike in the past though, not currently. We own Lululemon and Deckers. The latter which owns Hoka shoes has had a momentous year but stumbled recently on continuing record growth and Lulu is a tough one to make out. It’s been punished so far in 2024 but recent earnings were strong. They have started to close some brick-and-mortar stores in MN and other states to cut costs, we assume.
U.S. consumer prices dropped 0.1% in June making the case for the Federal Reserve to start lowering rates in September. This is the data chairperson Powell wanted to see. Let’s see if he follows through with his promises and takes action. June non-farm payrolls rose by 206,000 while unemployment moved up slightly to 4.1%. The 30-year mortgage rates continue to hover around 7% continuing to make it difficult for first-time home buyers.
It is summer so enjoy the weather while you can! With such a weak winter of snow last year in the Midwest I am sure we’ll see a long, tough winter season ahead.