Steel Grove Capital Advisors

As investment advisors, Steel Grove Capital Advisors is often asked about market trends, tax strategies, and investment opportunities. But this year, concerns are tied to the upcoming election. Historically, election years bring a mix of volatility and opportunity to the stock market, with one major factor playing a key role: whether the sitting president is running for re-election. When an incumbent president seeks re-election, summer trading tends to be relatively calm, with the S&P 500 working higher. This period of stability is often followed by a slight dip towards the end of August, as market participants weigh the potential impacts of the election. Comparatively, when the incumbent is not running, the market historically faces greater uncertainty. Summer trading becomes choppier, and volatility tends to spike from September through November as investors grapple with the unpredictability of a non-incumbent race and the possible changes in economic policy that may follow. Understanding these historical patterns help investors better navigate the unique risks and opportunities that come with election years. While election years often lead to strong market performance, the absence of an incumbent introduces greater uncertainty, making it essential to stay informed and manage risks effectively during the historical precedent for heightened volatility. Whoever you are voting for it is important to know the market characteristics that surround elections and where potential risks and opportunities lie. Please reach out to Steel Grove for further information on the topic or about investment opportunities during these intriguing times. *Disclosures*: The S&P 500 is not the only index used as a benchmark for measuring the performance of a portfolio. Depending upon the holdings in your portfolio, your investment objectives, and your risk tolerance, it may be more appropriate to measure performance against a different benchmark. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. References to market or composite indices, benchmarks, or other measures of relative market performance over a specified period of time are provided for information only. Reference or comparison to an index does not imply that a portfolio will be constructed in the same way as the index or achieve returns, volatility, or other results similar to the index.

Market Breadth and the S&P 500: A Closer Look Market breadth has been incredibly narrow, and the S&P 500 returns don't tell the whole story about the market. As of the end of Q2, the S&P 500 was up 15.3%, with 9% of that coming from just 7 Big Tech names, as shown in the graph below. Startlingly, 440 companies did not contribute at all to the growth of the S&P this year. We also see this in the lack of correlation between equal weighted indexes and the market cap weighted, among the lowest in 25 years. Will we see a broadening out as the election steers closer? Can Big Tech and AI continue to carry the S&P to outsized returns? Over the last year, we've seen a resurgence of small/mid-cap companies. The graph comparing their returns versus the S&P, which has been rightfully glorified, shows that small caps have outperformed over the last year. Profitable small/mid cap companies have been greatly in favor and active managers have reaped the benefits of these solid balance sheets. This trend surrounding small cap was also observed in 2016 with the Trump presidency, as small caps fared very well. Are small caps pricing in a win for Trump? This will be something to closely monitor in Q3, along with the expected nomination of Kamala Harris on the Democratic side and how that could effect economic trends. At Steel Grove Capital Advisors, we analyze these trends to position our clients in a way that processes the risk/reward relationships surrounding these economic opportunity sets. Market breadth has widened out in the last few weeks but remains incredibly narrow compared to recent history. At Steel Grove, we strive to produce peace of mind for our clients and these data sets present interesting themes and opportunities for us to allocate to. Please reach out with any questions about our analyses or about the Steel Grove process in general and we would be happy to chat. #MarketAnalysis #SP500 #SmallCaps #Elections #Economy #SteelGrove