The Cornerstone Investment Commentary: 2nd Quarter 2024

‘Holding course’ during the second quarter with our overall strategy to emphasize equities and global
growth stocks provided solid results for overall returns. As is often the case, however, a closer look
revealed several interesting happenings.

Equities rose 2.4% from April through June, very much in line with their 10% long-term annual average.
US equities again outpaced foreign stocks. However, over 50% of the US market gain was due to the
gains in just one stock, and US large growth and technology stocks accounted for nearly all market returns.
(To further illustrate how narrow market growth has become, just 24% of the 500 stocks in the S&P500
have outperformed the index so far this year – one of the lowest amounts ever; typically, about 50% do.).
Overseas, stocks in emerging economies scored an impressive 5+% return, essentially the opposite of
what happened to US small-cap stocks. The bond market was as calm as it’s been in quite a while with
shorter-term bonds again holding a slight edge over longer-term bonds.

The reason for this relative quiet seems to be the mixed global economic signals. On the one hand, the
U.S. economy continues to grow at a steady – but slowing – pace. On the other hand, the unemployment
rate has risen slightly since January. Furthermore, inflation’s first quarter uptick now seems an aberration,
converging to about 3% since this time last year. In fact, a possible economic slowdown is becoming a
greater risk than inflation due to the interest rate levels since 2022. Put together, all this helps give the
Federal Reserve needed evidence to begin cutting rates later in 2024. As we wrote in April, it’s a matter of
‘when’ and not ‘if’ … and this is key.

Against this backdrop, we believe your portfolio’s equities remain well-positioned. However, it seems
prudent to shift about one-third of fixed income holdings from shorter-term to intermediate-term. This
should be beneficial as interest rates decline or if the economy begins to slow, and it would give a more
even balance between these two bond market components. We anticipate making this change during the
third quarter. In addition, we will look to rebalance your portfolio to take advantage of this year’s equity
gains. And it probably goes without saying that we will be watching how markets react to the above
events as this year continues to unfold.

With wishes for a healthy, restful and/or fun remainder of summer, we thank you for the continuing
opportunity to work together.