Markets have had a lot to digest lately. The conflict in Iran keeps flaring up and calming down, inflation has stayed a bit sticky but not out of control, and stocks have still held up well this year, even with a bumpier stretch recently.
The biggest story has been a shift in market leadership. The handful of giant tech stocks that drove most of the gains over the past two years (often called the "Magnificent Seven") have basically gone nowhere this year. Instead, semiconductor companies, smaller and mid-sized companies, and international stocks have led the way. Emerging markets in particular have had a strong year, helped by tech and chip companies overseas.
That said, the market's makeup hasn't changed as much as it might feel. The 10 largest companies still make up close to 38% of the S&P 500. More traditional, steadier sectors like health care, consumer staples, and utilities now make up only about 16% of the index, down from 26% just a few years ago. But in choppier stretches, those steadier sectors have often led. It's a good reminder that spreading your investments around takes some intention, even in a fund that already tracks a broad index.
Tech stocks fell hard in July, rallied back over the following weeks, then pulled back again as bond yields climbed. Energy has told a steadier story: with oil prices elevated most of the year, it's been the best-performing sector by a wide margin, up more than 40%.
Speaking of oil, the situation in Iran remains unresolved. A ceasefire earlier this year didn't hold, and shipping through the key oil route in the Middle East is still running well below normal. That's kept oil prices, and energy costs more broadly, elevated and unpredictable.
Bond yields have moved higher too. The 10-year Treasury is near 4.7%, and the 30-year is above 5.2%, its highest point in nearly 20 years. Part of that is inflation worry, but part of it is simply that the government is borrowing more, and investors want more return to hold that debt. Shorter-term rates, by contrast, have eased a bit. The bright side: bonds are paying real income again, more than they have in years, which makes them a solid source of return, not just a safety net. We're still favoring higher-quality bonds over reaching for extra yield in riskier ones.
The Federal Reserve, now led by Chair Kevin Warsh, held rates steady at its last meeting, though a few members pushed for an increase. Where rates go from here is genuinely uncertain, more so than at any other point this year.
The takeaway: markets are working, but they're asking more of investors right now. A mix of company sizes, sectors, regions, and bond maturities is doing more of the work than any single bet. This kind of choppiness is part of the deal with investing, and it's exactly why having a plan built for the long run matters.
The views stated in this letter are not necessarily the opinion of Cetera Financial Specialists or LLC or Cetera Investment Advisers LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.