Equity Update


Where is my free lunch?          

2024 Wealth management bulletin

Bradley A. Ruppert, CFA®
Executive Vice President
Chief Investment Officer
513-932-1414 ext. 59105
Harry Markowitz won a Nobel Prize in economics for his work on Modern Portfolio Theory and was credited with saying that, “diversification is the only free lunch on Wall St.” His work showed that a portfolio constructed of different asset classes and investments with low correlation to one another could improve risk adjusted returns. Put another way, you could achieve higher returns with less volatility (risk).

Unfortunately, myself and a lot of other investment professionals who subscribe to this theory have not seen a free lunch in many years. Except for a few brief reversals, U.S. Large Cap Growth stocks have now vastly outperformed all other asset classes for over a decade and once again in the first quarter of 2024.

The resilient economy and more dovish Fed tone late last year fueled a strong start to the year for stocks as the momentum from 2023 spilled over into the first quarter of 2024. The S&P 500 Index returns continued to be driven by mega-cap tech stocks and finished the quarter up 10.56%. The top ten issues in the S&P 500 Index now make up over 30% of the index and make it a little top-heavy in our opinion.

International and small-cap stocks also performed well to start the year, just not as well as the large-cap domestic stocks. The Russell 2000 Index of small-cap stocks returned over 5% in the 1st quarter and nearly 20% over the trailing 12 months. International stocks as represented by the MSCI ACWI ex US Index returned 4.69% in the quarter and over 13% for the trailing 12 months.

The April cool down for stocks has led to some rotation as the mega-cap stocks mentioned above have sold off more than other stocks. We are still holding out for that free lunch and recommend investors continue to pay attention to valuation and invest in well diversified portfolios.

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