According to the headline indices, June 2024 was another strong month for the stock market. The S&P 500 rose by 3.6% in June, contributing to a year-to-date return of 15.3%. However, this headline figure masks the underlying divergence in the market, with the equal-weight S&P, mid-cap, small-cap, and value indices all experiencing declines. Additional divergence between stock market performance and economic indicators adds to the mixed picture.
Markets
June’s stock performance saw a continuation of the trend where a small number of US mega-cap tech stocks like Nvidia drove the majority of the stock market's performance. For more on Nvidia’s ballooning size, check out John Gullo’s video here. Around the world, emerging markets, rising 4.0%, did much better than their foreign developed peers who declined 1.6% for the month.
The bond market also saw positive a return for the month as yields on government bonds dropped. The benchmark 10-year treasury yield dropped 15 basis points to 4.36%. The overall bond market moved about 1.0% higher in June, bringing the quarterly return into the green by 0.1% but still down 0.7% for the year.
Mixed Economic Indicators
Economic indicators presented a mixed picture. Manufacturing data and consumer confidence have shown signs of weakening, suggesting a disconnect between the stock market's performance and the broader economic reality. The Purchasing Managers’ Index (PMI) indicated contraction, and consumer spending was bifurcated, with affluent households benefiting from the stock market's rise, while lower-income households struggled with increased costs. Meanwhile, GDP reports show the economy is still expanding, albeit at a slower pace, and the labor market remains healthy.
Inflation and Monetary Policy
The June release of US headline inflation rate edged lower to 3.3%, with core inflation falling to its lowest in three years at 3.4%. Despite inflation persistently above their 2% target and solid employment figures, the Federal Reserve held off on rate cuts at their June meeting. Meanwhile, the European Central Bank (ECB) commenced its easing cycle, cutting rates by 0.25% to 3.75%.
Conclusion
The market continues to be influenced heavily by the performance of a few large companies, while the broader economic indicators suggest a more cautious outlook. Investors should remain vigilant of the potential disconnect between market performance and economic fundamentals. Diversification across asset classes, sectors, and geographies remains crucial for mitigating risk in this evolving economic landscape.
