A message from the Investment Management Team of Strategic Advisers LLC
By Brian Enyeart, CFA®,* President, Strategic Advisers LLC
MARKET BACKDROP
Economic growth lifted U.S. and international stock returns.1
POSITIONING
Added exposure to stocks due to continued global growth and trimmed exposure to investment-grade bonds.
PERFORMANCE
Technology and communications sectors led the rally in stocks. Meanwhile, bonds returns were incrementally positive.2
OUTLOOK
As earnings grow, stocks may continue to rise through periods of volatility.
The job market remained strong. The service industry has been thriving, with dining and travel-related activity in demand. This came even as lower income consumers spent less. Inflation continued its slow, downward trajectory.3 The U.S. Federal Reserve (Fed) reaffirmed its intention to wait for more inflation data before cutting rates. The market expects 1-2 interest rate cuts this year, which may support stock and bond returns later in the year.
International stocks experienced positive returns for the quarter. 4 Emerging market stocks outpaced developed market stocks.5 Within developed markets, a weaker yen led to nearterm economic disruptions in Japan. Meanwhile, France struggled with political events which hindered short-term returns. On the other hand, the U.K. and Hong Kong provided a boost to developed markets.6 Emerging markets experienced a strong quarter thanks to China and India.7 China likely benefitted from policy measures to support the economy. Meanwhile, India’s earning expectations remained positive.
Bonds8 were barely positive as interest rates moved modestly higher. High-yield bonds and short-term investments outperformed investment grade bonds.9
Within U.S. stock exposures, we maintained investment styles close to the benchmark.10 Nevertheless, we had a small preference for value stocks instead of growth stocks. In our view, growth stocks appeared expensive relative to value stocks.11 Overall, we have tended to favor research-driven managers over the last quarters, rather than particular investment styles.
The global economy has increasingly been showing signs of stability. As a result, we raised exposure to both developed and emerging market international stocks. Like our approach to U.S. stocks, we’ve kept investment styles close to the benchmark12 and favor research-driven managers over investment styles. We have maintained a small preference for quality stocks.13 In general, we have positioned international stock exposures based on individual company opportunities, market fundamentals,14 and broad economic outlooks.
We trimmed exposure to investment-grade and short-term bonds and maintained exposure to high-yield bonds, international bonds, and bank loans. With positive global economic and earnings outlooks, bonds may lag stocks. However, maintaining some bond exposure may provide stability during periods of volatility, which may be common during a prolonged expansion.
Past performance is no guarantee of future results. Indexes are unmanaged. It is not possible to invest directly in an index. US stocks are represented by the Dow Jones US Total Stock Market Index, International Developed Market Stocks are represented by the MSCI EAFE Index (Net MA Tax), Emerging Market Stocks are represented by the MSCI Emerging Markets Index (Net MA Tax), High-yield Bonds are represented by the ICE BAML High Yield Constrained Index, and Investment-grade Bonds are represented by the Bloomberg U.S. Aggregate Bond Index. All data is as of 6/30/2024.
Many consumers have likely felt the sting of high inflation and anxiety from some headlines about corporate layoffs. However, it’s important to note that inflation has fallen from its peak of 9.0% back in 2022.16 Meanwhile, the U.S. job market has been experiencing very low unemployment levels. While U.S. manufacturing has shown signs of slowing, services like dining and travel have remained strong. Outside of the U.S., manufacturing has improved and earnings outlooks have been positive. A moderate slow-down in consumer spending or the job market may help push inflation lower. However, significant slowing may have a negative impact on the outlooks for the U.S. economy and earnings. As the U.S. presidential election looms closer, news headlines may lead to periods of market volatility. Yet, stocks have generally experienced healthy gains during election years and the years following elections. Therefore, we believe investors may benefit from staying invested through election years. We believe our positioning is likely to benefit clients if markets continue to rise. If the economy shows signs of sustained slowing, we are prepared to reposition client accounts as we seek to manage risk.
The foregoing commentary was prepared by Strategic Advisers LLC and Fidelity Management & Research Company LLC. Fidelity Personal and Workplace Advisers LLC (FPWA) has engaged Strategic Advisers LLC, its affiliate, to provide discretionary portfolio management services for Portfolio Advisory Services account: Total Return Investment Approach, subject to FPWA’s oversight. Strategic Advisers implements trades for Portfolio Advisory Services account: Total Return Investment Approach accounts based on the model portfolio of investments it receives from its affiliate, Fidelity Management & Research Company LLC, but may select investments for an account that differ from Fidelity Management & Research Company’s model. Strategic Advisers LLC and Fidelity Management & Research Company LLC are a registered investment advisers and Fidelity Investments companies.
1Dow Jones U.S. Total Stock Market Index, as of 6/30/2024.
2Based on the ICB industry breakdown of the Dow Jones U.S. Total Stock Market Index, as of 6/30/2024.
3Bureau of Economic Analysis, Personal Consumption Expenditures Price Index (PCE). PCE is the U.S. Federal Reserve’s preferred measure of inflation.
4MSCI All Country World ex U.S. Index (Net MA Tax), as of 6/30/2024.
5MSCI Emerging Markets (Net MA Tax) and MSCI EAFE Index (Net MA Tax), respectively, as of 6/30/2024.
6Based on a country-level breakdown of the MSCI EAFE Index, as of 6/30/2024.
7Based on a country-level breakdown of the MSCI Emerging Markets Index, as of 6/30/2024.
8Bloomberg U.S. Aggregate Bond Index, as of 6/30/2024.
9ICE BofA U.S. High Yield Constrained Index, Bloomberg U.S. 3-Month Treasury Bellwether Index, and Bloomberg U.S. Aggregate Bond Index, respectively, as of 6/30/2024.
10Dow Jones U.S. Total Stock Market Index.
11FactSet, based on forward price-to-earnings (PE) ratios for the Russell 1000 Growth Index and Russell 1000 Value Index, respectively, as of 6/30/2024. A PE ratio compares the price of a company’s stock to its earnings. It is commonly used to measure a company’s value.
12MSCI All Country World ex U.S. Index.
13Quality stocks tend to have stable earnings and low levels of debt relative to other stocks. These investments have historically done well in this phase of the business cycle.
14Fundamentals are information that contributes to the financial or economic well-being of an investment and its subsequent financial valuation.
15Based on the ICB industry breakdown of the Dow Jones U.S. Total Stock Market Index, as of 6/30/2024.
16Bloomberg Municipal Bond Index, as of 6/30/2024.
* The CFA designation is offered by the CFA Institute. To obtain the CFA charter, candidates must pass three exams demonstrating their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management, and security analysis, and must also have at least four years of qualifying work experience, among other requirements. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Past performance is no guarantee of future results.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
Indexes are unmanaged. It is not possible to invest directly in an index.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.
Lower-quality debt securities generally offer higher yields, but they also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
In general, the bond market is volatile, and fixed-income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed-income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.
Investments in smaller companies may involve greater risk than those in larger, more well‐known companies.
Index information:
Securities indexes are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.
Benchmark returns assume the reinvestment of dividends and interest income. Investments cannot be made directly in a broad‐based securities index.
- Bloomberg Municipal Bond Index is a market value–weighted index of investment–grade municipal bonds with maturities of one year or more.
- Bloomberg US 3 Month Treasury Bellwether Index is a market value-weighted index of investment-grade fixedrate public obligations of the US Treasury with maturities of 3 months, excluding zero coupon strips.
- The Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, governmentrelated and corporate securities, mortgage-back securities (agency fixed-rate pass-throughs), asset-backed securities and collateralized mortgage-backed securities (agency and non-agency).
- Consumer Price Index is a widely recognized measure of inflation calculated by the US Government.
- Dow Jones US Total Stock Market Index is a float-adjusted market capitalization–weighted index of all equity securities of US headquartered companies with readily available price data.
- ICE BofA US High Yield Constrained Index is a modified market capitalization–weighted index of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The ICE BofA US High Yield Index but caps issuer exposure at 2%.
- MSCI ACWI (All Country World Index) ex USA Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of large and mid cap stocks in developed and emerging markets, excluding the United States. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).
- MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed markets, excluding the U.S; Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).
- MSCI Emerging Markets Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).
- Russell 1000 Growth Index is a market capitalization–weighted index designed to measure the performance of the large-cap growth segment of the US equity market. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth rates.
- Russell 1000 Value Index is a market capitalization–weighted index designed to measure the performance of the large-cap value segment of the US equity market. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth rates.
Fidelity® Wealth Services provides non‐discretionary financial planning and discretionary investment management through one or more Portfolio Advisory Services accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FBS, and NFS are Fidelity Investments companies.
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