AIA July 2024
Welcome to the summer doldrums
Q2 Portfolio Returns
AIA Portfolio
AIA S&P 500
The portfolio was down slightly in Q2 as uranium stocks corrected. The overall results are from Q1 2020-present.
Dividend Portfolio
I started the Dividend Portfolio on 4/1/2024, so there is not a long-term history. Nevertheless, The portfolio was up 1.55% for Q2.
Monthly Commentary
Welcome to the summer doldrums in the markets. During the summer months, traders and other participants are on vacation or out of the office. Trading activity and company news flow tends to slow down as fewer people are around the office or focused on the markets.
You may have heard the old market adage, “Sell in May and go away.”
It is based on stocks' historical underperformance during the six-month period from May to October.
The historical pattern was popularized by the Stock Trader's Almanac, which found investing in stocks as represented by the Dow Jones Industrial Average from November to April and switching into fixed income the other six months would have "produced reliable returns with reduced risk since 1950."
The divergence has remained pronounced in recent years, with the S&P 500 index gaining an average of about 2% from May to October since 1990, compared with an average of approximately 7% from November to April, according to Fidelity Investments.
I want to start by pointing out a couple of metrics I am following that should give some optimism that we are on the correct path regarding the portfolio’s holding of resource stocks.
As you know, I track central bank actions as a general way to track liquidity. It is not a precise measure of liquidity, but if central banks, especially the Bazooka central banks (FED, ECB, BOE, BOC, BOJ), are cutting rates, we will likely see more liquidity in the markets. As Stan Druckenmiller says, “In the short term, the markets are driven by sentiment and liquidity.”
So far, in 2024, 80 central bank rate cuts have been made, and only 16 rate increases have been recorded. The trend of more rate cuts than hikes has existed since August 2023.
The ECB and the Bank of Canada have begun cutting rates in the last few weeks.
So, we should continue to see central banks cutting rates and increasing global liquidity.
With the caveat that nothing goes in a straight line or on a predictable timeline, the increased liquidity, with a lag effect, should lead to increased economic activity, which I track using the Purchasing Managers Index (PMI).
The last global PMI reading in June was 50.9. A reading above 50 indicates growth. There seems to be a good correlation between improving monetary conditions and economic growth.
Improving economic conditions should lead to more demand for resources and commodity prices.
I have just assembled a train of thought that should be taken as a 30,000-foot flyover. These are complicated issues to analyze, and it is beyond my scope to be an expert econometric forecaster. However, the factors that benefit higher resource prices appear to be lining up.