The headlines have been clamoring for your attention, with tales of inflationary pressures, monetary policy shifts, the rise of artificial intelligence (AI), and bloody strife in the Middle East and Eastern Europe.

We’ve also witnessed the first-ever criminal conviction of a former U.S. president, an historic event that is predictably generating partisan vitriol across the political spectrum. Public debate nowadays has devolved into screaming matches, puerile insults, physical violence, and death threats…all carried 24/7 by cable news. Welcome to the American Idiocracy.

It’s a lot to absorb! Therefore, you can be forgiven if you haven’t noticed a few important but subtle dynamics at play in the stock market.

Below, I examine year-to-date investment trends that may surprise you. For the average investor, these trends are occurring under-the-radar, but they seriously affect your portfolio. I also steer you in the direction of sensible trading advice.

• Pullbacks have been remarkably mild.

For starters, we’ve witnessed unusual stability amid recent market pullbacks. Volatility and pullbacks are normal features of the stock market. Yet as June begins and we near the midpoint of 2024, the market has demonstrated remarkable calm that bucks historical norms.

Despite “sticky” inflation, elevated interest rates, delays in anticipated Federal Reserve interest rate cuts, rising geopolitical tensions, and a raucous U.S. presidential election, the stock market has only experienced brief and shallow dips.

The most significant pullback this year has been a mere 5.5%. Over the past four decades, only four years (1993, 1995, 2017, and 2021) have seen smaller maximum intra-year pullbacks, with 1995 and 2017 not even witnessing a 3% decline.

A stock market correction, defined as a decline of at least 10% but less than 20% from a recent high, occurs more frequently than a crash. Since 1980, the S&P 500 on average has undergone a correction once every 1.2 years.

This year’s market has not only avoided major setbacks but also has seen only modest daily fluctuations. So far in 2024, there has been just one day with a market movement of 2% or more, a stark contrast to the average of 21 such days per year since 2018.

Historically, even in strong markets, temporary pullbacks are common. The slight 5% dip in April may not be the last of its kind in 2024, given the unknowns surrounding elections and Fed policies. However, in the coming months, future pullbacks are unlikely to be severe, unless we get significant declines in economic growth and corporate earnings, or a big spike in inflation (three improbable scenarios).

• Equities have outperformed despite high short-term yields.

With short-term interest rates at their highest in nearly two decades, many investors are drawn to the attractive 5% yields of short-term bonds and CDs.

While diversifying into these areas is sensible, it’s crucial to maintain your long-term investment strategy. Since 2-year Treasury yields surpassed 4.5% in October 2022, the stock market has surged over 50%. Even as 2-year yields peaked at 5.21% seven months ago, stocks have gained 23%.

The allure of high yields in low-risk investments is clear, but equities have significantly outperformed these safer options. Investors should consider the impressive returns in the stock market when evaluating their portfolio allocations.

• Market leadership has broadened beyond technology.

In 2023, technology and growth stocks, particularly the “Magnificent Seven” and AI-related companies, drove much of the market’s gains. However, the laggards of 2023 are becoming the leaders of 2024.

My 2024 outlook at the start of this year predicted that lagging sectors would catch up as the economic and market cycles advanced, and this trend has come to fruition.

Tech stocks posted a remarkable 26% year-over-year earnings growth in the first quarter of 2024, exceeding high expectations. However, other sectors are gaining traction, including consumer discretionary, communication services, utilities, and financials. This broader market leadership is a positive sign for continued market momentum.

To be sure, the stock market dipped last week, as it struggled with rate worries and hawkish comments from Fed officials. After a long winning streak for equities, consolidation was to be expected (see chart).

That said, the latest inflation data has come in softer than expectations. It should be noted that persistent inflation also reflects resilient economic growth. As inflation gets closer to the Fed’s 2% target, the economy is achieving a rough equilibrium…although you wouldn’t know it from the misinformation peddled by political blowhards who claim the economy is in horrible shape (it isn’t).

If you’re confused by all of these crosscurrents and seek clarity, turn to corporate operating results. They help cut through the noise.

According to FactSet, consensus estimates project year-over-year earnings growth of 11% for the S&P 500 in full-year 2024. That’s a solid foundation for future stock market price appreciation.

The main U.S. stock market indices closed mixed on Monday as follows:

• DJIA: -0.30%
• S&P 500: +0.11%
• NASDAQ: +0.56%
• Russell 2000: -0.50%

The good news is, the benchmark 30-year U.S. Treasury yield slipped by 2.17% to settle at 4.55%, as rate cut optimism takes hold again.

The week ahead…

In the coming days, we’re scheduled to get inundated with key economic data with the power to move markets. The calendar’s highlights:

S&P flash U.S. manufacturing PMI, construction spending, ISM manufacturing, auto sales (Monday); factory orders, job openings (Tuesday); ADP employment, ISM services, U.S. productivity, U.S. trade deficit, S&P flash U.S. services PMI (Wednesday): initial jobless claims (Thursday); consumer credit, wholesale inventories, U.S. employment report, and U.S. hourly wages (Friday).

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John Persinos is the editorial director of Investing Daily.

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