Welcome, Sandbox friends.
Today’s Daily discusses:
stocks hit new records to close out the first half
Let’s dig in.
Blake
Markets in review
EQUITIES: Nasdaq 100 +0.64% | Dow +0.63% | S&P 500 +0.52% | Russell 2000 +0.12%
FIXED INCOME: Barclays Agg Bond +0.40% | High Yield +0.39% | 2yr UST 3.721% | 10yr UST 4.232%
COMMODITIES: Brent Crude -0.24% to $67.63/barrel. Gold +0.97% to $3,319.4/oz.
BITCOIN: +0.20% to $107,598
US DOLLAR INDEX: -0.61% to 96.811
CBOE TOTAL PUT/CALL RATIO: 0.75
VIX: +2.51% to 16.73
Quote of the day
“Stop telling yourself you're not qualified, good enough, or worthy. Growth happens when you start doing the things you're not qualified to do.”
- Steven Bartlett
Stocks end wild 1st half at all-time highs
President Dwight Eisenhower is often quoted as saying “what is important is seldom urgent and what is urgent is seldom important.”
This perfectly captures the challenges many investors face, since it often feels as if every breaking market and economic development is urgent and requires immediate action. That has certainly been the case this year with tariffs, geopolitical conflicts, and economic worries on investors’ minds.
And yet, the most important investment decisions are not the urgent ones, but those made with patience and a long-term perspective.
The impactful factors for building wealth – such as staying disciplined, saving steadily, contributing to your portfolio regularly, and benefiting from compound growth – require planning and commitment rather than sudden changes to portfolios.
Despite an incredibly challenging start to the year, the stock market has now reached new record levels. The S&P 500 and Nasdaq 100 each surpassed their previous peaks to wrap up a tumultuous first half, with year-to-date returns of roughly 5% and 7%, respectively.
While market challenges lie ahead, this is a reminder that it has been more important to stick to long-term plans than react to every headline thrown your way.
The market has reached new all-time highs. New highs are confirmation of a bull market.
First, it's important to understand that market’s printing new all-time highs is perfectly normal.
Since markets trend upward over long periods, bull markets spend much of their time at or near record highs. Of course, this does not mean the market only moves up in a straight line. It does, however, mean that those who can see through short-term market swings are better positioned to benefit from longer-term market cycles.
From 2013, when the S&P 500 recovered from the 2008 Global Financial Crisis, to 2024, the average calendar year experienced 37 new all-time highs. This amounts to ~15% of all trading days – a statistic many find surprising. In some years, we experience more new highs as the market runs; in other years, during periods of consolidation or pullbacks, we experience less.
This pattern occurs due to the market and business cycle. When the economy is expanding, the stock market tends to rise alongside it. Since the mid-20th century, these cycles have grown longer, with bull markets far exceeding bear markets in duration and returns, a fact that has benefited those who stuck to their financial plans. Thus, new all-time highs are not necessarily, on their own, reasons to worry or a signal that the market is about to reverse.
A question that some investors may naturally have after markets reach new record highs is whether they should "wait for a pullback."
While periodic declines are inevitable, attempting to time these movements can be counterproductive. In fact, the opportunity cost of waiting for the perfect entry point is often higher than simply getting invested in the first place.
Corporate bonds have performed well since the tariff pause
The positive momentum in stocks has been accompanied by similar strength in the bond market, especially corporate bonds.
Bonds are often categorized by their credit quality, which is a measure of how likely it is for investors to be repaid. The interest rates on these bonds have fallen recently, both in absolute terms and compared to Treasury yields. This is often described as credit spreads “tightening,” which is positive for investors since it means the prices of these bonds are rising.
This occurs because when the economy is stable and the stock market is strong, there is greater confidence in the ability of companies to service their obligations.
This is why there is often a positive correlation between the stock market and credit markets, since they mirror the same underlying drivers. When investors push stocks to record levels, corporate bond prices also tend to benefit from optimism about economic conditions and corporate health.
Tightening credit spreads also suggest that the flight-to-safety that occurred earlier this year has largely faded for the time being.
Lower credit spreads can also be positive for the underlying economy since they allow companies to raise funds, finance new projects, and roll over existing debt more easily.
Asset allocation remains important despite strong performance
For many investors, this is a reminder that while the stock market receives the most attention by a country mile, many other asset classes have supported portfolios this year as well.
With U.S. stocks at record highs, now is a great time to review your portfolio’s allocation and ensure that your financial plan is set up for all phases of the market cycle. More specifically, if you found that your portfolio was overexposed to stocks earlier this year and it kept you up at night, today is the perfect time to lighten your risk exposures.
While the strength in both stocks and bonds is encouraging for investors, it also underscores the importance of maintaining disciplined portfolio management.
Building a portfolio is not just about investment returns. Instead, what matters is the balance of risk and returns, and how each asset class contributes to this overall balance. Doing so properly leads to a portfolio supportive across changing market environments, and one you stick with through thick AND thin.
Portfolios more heavily invested in stocks may outperform when the market is expanding, but will also typically experience larger swings during downturns. Including bonds can make the ride smoother, which likely helps to ensure that financial goals are met.
Which path makes the most sense depends on your particular risk tolerance, return objectives, and perhaps, most importantly, your time horizon.
Bottom line?
While the market has bounced back, investors should maintain a disciplined approach rather than chase recent performance.
History shows that staying invested through market cycles remains the best approach to achieving long-term financial goals.
Source: Clearnomics
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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