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Q2 2024 Quarterly Market Update

Market Update Q2 2024

Good morning everybody and welcome to the Rise Advisors market Outlook for the second quarter of 2024. I'm Zach Harrington and on behalf of my partners Mark Jones, Stephanie Km and Scott Klatt, I'd like to thank you for taking the time to watch this video today.

 We're going to focus on a couple of key points within the market. We're going to try and keep this short and sweet. We're going to talk about the importance of asset allocation. We're going to talk about what returns in the market look like for asset allocated investors after CD rates have peaked during a rate hiking cycle. We're going to talk about bond market dynamics, which at this point I'm sure a lot of you are sick and tired of hearing me talk about. We're also going to talk through stock valuations a little bit more on that value versus growth data that we talked about during the first quarter. And we're going to talk a lot about the importance of stock market valuations, especially as we head into this part of the economic cycle.

So asset allocation, for those of you who have been in a meeting with me the odds are you've seen these charts before and what these charts are, these are known as the Canon Periodic Table of Returns. What I love most about these is it does a really great job of showing you how every asset class in a given year performs. And what's really important to keep in mind when you look at one of these charts is that there are different pockets of the market that outperform, that underperform, and the most important part is that the consistent middle is an asset allocated portfolio. So, there's going to be years where US stocks perform really well or US bonds perform really well and provide stability or emerging market stocks perform well.

The key here is that you want to be an asset allocated investor and play the middle so that there's always a part of your portfolio that you can sell at a gain to produce income. And there's always a part of your portfolio that's underperformed that you can take gains from and reallocate to when markets underperform.

When we look at this chart here, what this focuses on once again, is after certificate of deposits (CD) have peaked, specifically we're looking at the six-month CD, which is the benchmark CD rate. When we look at these, we want to say, how does a 60/40 investor or an investor who owns 60% of the S&P 500, 40% of the Bloomberg US aggregate bond index, what does that performance look like in a period following that peak? So what we did is we went and we look at the last six rate hiking cycles that we've been a part of.

So, in December of 2018, we had a peak in CD rates in June of 2006, in May of 2000, December of 1994, March of 1989, and June of 1984. And in those periods of time you can see that the return both in the stock market and the bond market has been quite robust in the 12 months following. In only one period of time, which was the early 2000s when the tech bubble hit, did you have a negative stock market performance after the peak of CDs. CDs here peaked right around September of 2023. So we're about six months past that peak of the six month CD. It's been a really good period of returns for the US stock market, but there still remains a lot of opportunity in the bond market because you can see that normally the peak of those CDs leads to rate cuts. When rate cuts happen, you get really strong bond market performance.

And that speaks to this chart, which for those of you who have been following these videos over the last four years or so, we've covered this chart quite a bit both throughout the rate hiking cycle and now as we get closer and closer to the rate cutting cycle. And so, what this is looking at is the impact of a 1% rise or fall in interest rates and we're looking at total return. What total return means is taking into account the coupon that those bonds are paying you on a monthly basis, plus the price fluctuation as rates move up or down. So in your portfolios, predominantly you own US treasuries, and we like to use the 10 year as a benchmark, you own investment grade corporates and you own some mortgage backed securities.

When we look at those areas here, you are looking at anywhere from 11.2% to a 12.3% total return in the 12-month period, falling a 1% decline in rates. So right now we're expecting a 2.5% to 3% rate cut over the next 24 months or so. And with that in mind, you are looking at 25% to 30% of total return from just the bond portion of your portfolio alone, which really speaks to some of the bond market returns we've seen following the peak of short-term rates.

One of the things we talked about in our first quarter video was around the fact that value seemed to be undervalued compared to that of growth stock. So, with value companies, I want you to think of a lot of blue chip names. A lot of the big banks, a lot of the Coca-Colas of the world, a lot of the insurance companies, just blue chip names tend to pay a really consistent dividend. They're not very attractive stocks to own when you can get yields higher in bonds. But as those yields start coming down, we wanted to own more value stocks, which is what happened in a majority of your portfolios throughout the first quarter.

But what this data shows us here is that on a relative basis, we are looking at historical dispersion of growth versus value. And that tends to show us historically then periods of time where growth far outweighs value. From a valuation standpoint, you're better off being an owner of value stocks during the subsequent period of time.

 And so when we look at the forward price to earnings ratios of the value side of the market, they're looking at about 15.8 times earnings currently. And you're looking at a growth side of the market that's currently sitting at 28 times earnings. And this goes to the importance of valuations, where if we look at the subsequent one-year returns of the market and the subsequent five-year returns of the market from these particular valuation points, you have a value side of the market sitting at about 15 times earnings, which puts us in this cluster rate here. You're looking at a 12-month return somewhere between, you know, 10% to 15%. As you get some of these more stretched valuations out in here, which is where growth sits today, it really can flatten out the expected return within those sides of the market, especially when you go out five years and you look at some of these. So we think that owning value stocks and some of those longer duration bonds continues to be a great place to be and it's really important that we keep an eye on this dynamic as rates start to come down.

 So as always, thank you so much for taking the time to listen to our quarterly market update. As always, if you have any questions or comments around what took place in the portfolios or anything that we're seeing market-wise, I'm here and available. And once again, on behalf of us all just here at Rise Advisors, thank you so much for listening to the video and we look forward to talking to you soon. Thank you.

 Disclosure: This presentation is for Informational purposes only. All investment strategies including rebalancing and diversified asset allocation have risk. Past performance of our investment approach, component holdings and methods does not guarantee future results. Advisory services offered through Rise Advisors, LLC ("Rise") Registered Investment Advisor. While all data is believed to be from reliable sources, accuracy and completeness are not guaranteed.


1.Bloomberg, FactSet JP Morgan Asset Management periodic table of returns 12/31/2009 – 12/31/2023

2.Bloomberg, Robert Shiller, JP Morgan Asset Management

3.Bloomberg, JP Morgan Asset Management data as of March 20, 2024

4.Factset Data – Growth is represented as Russell 1000 growth index, Value is represented as Russell 1000 value index data as of 3/31/2024

5.Factset Refinitiv Data stream – 12 month and 60 month returns measured monthly data considered Feb 1998 – Jan 2023