A Mid-Year Letter from Our Founder

Dear Valued Clients,

As we reach the midpoint of 2024, I want to take a moment to reflect on our journey together and provide an update on our shared financial path. Our approach remains steadfast: we are goal-focused, plan-driven, long-term equity investors. Your portfolios are crafted not based on fleeting market trends or economic forecasts, but rather on your most cherished lifetime financial goals.

We hold a fundamental belief that neither the economy nor the markets can be consistently predicted. Therefore, we do not attempt to time the markets or make short-term moves based on current conditions. Our strategy is to remain fully invested to capture the full premium compound return of equities. This means we are prepared to ride out the equity market's frequent, often significant but historically always temporary declines. During such periods, reinvested dividends enable us to purchase more lower-priced shares, harnessing the power of compounding to our long-term benefit.

The first six months of 2024 can be succinctly summarized with two key observations: the U.S. economy continued to grow, albeit modestly, and the equity market performed exceptionally well, driven by accelerating earnings growth and rising dividends. Economic growth remained marginally positive, avoiding recession, while job growth continued to be relatively strong. Inflation slowed gradually, giving the Federal Reserve no urgent reason to reduce interest rates.

Monetary policy remains gently but firmly restrictive, with the fed funds rate well above the inflation rate—a situation that benefits long-term investors. The Federal Reserve's primary goal of reducing inflation to its target of two percent remains crucial.

Despite the lack of stimulating rate cuts, the equity market advanced solidly across a broad spectrum, with all three major stock indexes reaching new highs. This progress is underpinned by strengthening earnings and rising dividends. Current estimates from Bloomberg suggest that S&P 500 earnings will increase by approximately 8.8% this year, with a further 13.6% increase anticipated in 2025.

Although cash dividend payments are at record high levels, S&P 500 companies are still paying out a below-average percentage of earnings (about 37% compared to the 30-year average of nearly 46%). This, combined with sharply increasing earnings, indicates significant potential for further dividend growth this year and next.

Ultimately, earnings and dividends drive the long-term value of our core investment asset: ownership equity in a broadly diversified portfolio of enduringly successful companies. Factors such as the national debt, upcoming elections, Federal Reserve rate decisions, wars, or government shutdowns do not alter this fundamental strength.

By focusing on these core strengths, we can better tune out the noise and avoid emotional reactions to market fluctuations. I believe in our plan and am confident in the quality of our investments. In fact, I love what we own.

Thank you, as always, for being my clients. It is a privilege to serve you.

Sincerely,

Erik Thompson
Peerless Wealth LLC