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  • Writer's pictureMercedes Petrellis

Stocks Continue to Rise, While Bonds Stumble

February 2024

Despite expectations to the contrary, stocks prices have continued to climb. For the past twelve months the return of the S&P 500 is 24% and has already exceeded a level that many predicted for the end of 2024. Big tech companies are primarily responsible for the outsized gains.  


Vanguard’s large cap funds for the past year are up double digits 19.2%. The large cap stock allocation for CIM clients is in the mutual funds, Vanguard’s Wellington Fund and Fidelity’s Puritan Fund. Those two are balanced funds with allocations of 65% stocks and 35% bonds. The funds don’t report the performance of the stock portion separately, but the overall return closely approximates a blend of 65% of the S&P 500 and 35% of Vanguard’s Intermediate Bond Index Fund. The Puritan fund has 33% of its stock in tech which is higher than the S&P at 31%. Wellington’s tech is at 27%.  


What have bonds done for us lately? Not much. It’s easy to forget but back in November bonds had their best month since 1985 and in December the third best month ever. Rising interest rates cause bond prices to fall. As bond mutual funds replace maturing bonds the new bonds pay the higher rates. It takes time, but the bond funds will recover. Bonds are not as volatile as stocks and thus provide stability to a portfolio. That said, we continue to look  forward to normalcy when bond returns can be expected to be twice what they have been since the 2008 crisis. That is a long time.


The markets over optimistically continue to anticipate interest rate cuts by the Federal Reserve. When there is any indication of continuing inflation, those hopes are dashed and the markets react. This has been going on for over a year. In an election year the Reserve doesn’t like to do anymore more than what’s necessary because of potential political consequences.


The economy continues to hum along, consumers are doing their part, unemployment is low, and the worst inflation increases are apparently behind us. Expectations of a recession that were so prominent six months ago have diminished. The private sector continues to be as innovative and vibrant as ever. Congressional chaos isn’t going to diminish, so we await the next threat of a government shut down. The stated aims of the two leading candidates for the presidency couldn’t be more different. We’ll have to see how that plays out.  



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