2024 Mid Year Letter

It's a genuine pleasure to report to you on the progress of our portfolio—and even more important, of our plan—during the first six months of 2024.

As I usually do in these reports, I ask that we first remember a handful of what I regard as timeless truths about enduringly successful wealth management. Then we can proceed to some more current observations.

General Principles

• We are goal-focused, plan-driven, long-term equity investors. Our portfolios are derived from and driven by your most cherished lifetime financial goals, not from any view of the economy or the markets.
• We do not believe the economy can be consistently forecast, nor the markets consistently timed. We do not believe it is possible to gain any advantage by going in and out of the markets, regardless of current conditions.
• We therefore believe that the most efficient method of capturing the full premium compound return of equities is by remaining fully invested all the time.
• We are thus prepared to ride out the equity market's frequent, often significant but historically always temporary declines. We believe that even during such trying episodes, our reinvested dividends will be buying more lower-priced shares—and that the power of equity compounding will be continuing, to our long-term benefit.

Current Commentary

• The first six months of 2024 can be simply but accurately summed up in two observations. (1) The U.S. economy continued to grow, however modestly. (2) The equity market—responding to accelerating earnings growth and dividend increases—did very well indeed.
• Economic growth remained marginally positive, continuing to avoid recession, while job growth continued relatively strong. Inflation slowed very grudgingly, providing the Federal Reserve with no urgent prompting to reduce interest rates.
• Monetary policy remains gently but quite firmly restrictive—that is, the fed funds rate is well above the inflation rate—as I believe long-term investors should want it to. Getting inflation down to the Fed's target two percent remains Job One.
• Even without stimulating rate cuts, the equity market advanced solidly across a broad front: all three major stock indexes are significantly into new high ground. The impetus for this has been just what it fundamentally ought to be: strengthening earnings and rising dividends. Bloomberg's current estimates are for the S&P 500's earnings to be up something like 8.8% this year, to be followed by a further 14.4% increase in 2025.
• Even though cash dividend payments to shareholders are at record high levels, S&P 500 companies are still paying out a below-average percentage of earnings (about 37% versus the average for the last 50 years of nearly 41%). Between that and sharply increasing earnings, there would appear to be quite a bit of room for further dividend growth this year and next.
• Earnings and dividends are the variables that ultimately drive the long-term value of our core investment asset: ownership equity in a broadly diversified portfolio of enduringly successful companies. Not the national debt; not the looming election; not the presence or absence of Fed rate cuts; not war(s); not the onset of the next regularly scheduled government shutdown “crisis.”
• I continue to believe that the more we focus on the fundamental strengths of our core asset, the more we're able to tune out the noise, and the less danger we will be in of emotional overreaction to gyrations in “the stock market.”
• I believe in our plan, and I love what we own. 😉

Thank you, as always, for being my clients. It is a privilege to serve you.

 

Sincerely,


Brian A. Magnan CFP®
Accredited Investment Fiduciary®
Director – Magnan Family Wealth Management

 

 

 

 

 

 

<sub>Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed.  The opinions expressed in this report are those of the author(s) and are not those of Wells Fargo Advisors Financial Network or its affiliates.  The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or participate in any trading strategy.  Additional information is available upon request. 

Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Investments in equity securities are generally more volatile than other types of securities. Index returns are not fund returns. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

Sources:  Earnings estimates: Bloomberg. Dividend payout ratios: Bloomberg, First Trust.</sub>