June 2024 Market Lookback

Another strong month in the books, as stock indexes reached new all-time highs in June. Again. Economic data, such as inflation, generally came in cooler than expected, though the all-important payroll number beat all estimates. Federal Reserve officials indicated the weaker than expected May inflation print was not enough to lower interest rates, and that they needed to see more data to embark on a cutting cycle. Treasury yields finished the month lower than where they began, though longer-term yields started moving up again at the very end of the month.

Macro

•   The FOMC held the fed funds target rate at a range of 5.25%-5.50%, with the median expectation of Federal Reserve officials indicating only one interest rate cut in 2024, though several officials projected two cuts.

•   Relative to their March projections, the median Fed expectation saw the same unemployment rate and GDP growth, but with slightly higher inflation.

•   272k nonfarm jobs were added in May, above all estimates, while the unemployment rate ticked up from 3.9% to 4.0%, the highest since January 2022.

•   May CPI (0.0% m/m, 3.3% y/y) and PPI (-0.2% m/m, 2.2% y/y) both came in cooler than expected.

•   Not only did May retail sales growth of 0.1% come in lower than expected, but April data was also revised down.

•   The U.S. Dollar Index, which tracks the strength of the dollar against a basket of major currencies, strengthened from a value of 104.7 to 105.9 in June, with notable depreciation in the Japanese Yen.

•   Despite falling to as low as $73/barrel on June 4, the price of a WTI barrel of oil rose to $82.

Equities

•   Buoyed by mega-cap tech companies, the Nasdaq Composite returned 6.0% in June, its third month of at least 5% gains so far in 2024.

•   Bottom-up 2024 EPS estimates for the S&P 500 fell from $245 to $244 in June, while top-down strategist estimates rose from $247 to $248.

•   Large-cap growth stocks rose 6.7% while other size and style combinations had negative months.

•   Despite a strengthening of the U.S. dollar, emerging market stocks rose by 4.0%, while developed market international stocks fell 1.6%.

Fixed Income

•   The Treasury yield curve bull steepened in June, as the 2-year Treasury yield fell by 15bps, while the 10-year yield fell by 9bps.

•   Investment grade credit spreads widened from 85bps to 94bps, while high yield spreads were largely unchanged.

Hit the Ground Running

It wouldn’t be controversial to say that stock returns were strong during the first half of 2024. The S&P 500 is up over 15%, while the more tech heavy Nasdaq Composite is up nearly 19%. This outperformance gets more noticeable as you go up the cap spectrum: The top 10 stocks in the S&P 500 are up 29% year to date, benefiting from the ongoing tailwind of the artificial intelligence theme.

The dynamic for the first five months of the year largely held in June even when looking at it from a factor perspective, as large-cap growth stocks returned nearly 7%, while other size and style combos were negative on the month. It also held from a sector perspective, as Information Technology and Communications led.

A look at the calendar could not have predicted the strong year we’ve gotten thus far, especially considering that it’s a presidential election year. Historically speaking, seasonality and an election year suggest stocks should have struggled and barely treaded water so far this year.

Though seasonal weakness often manifests in May, this year markets hit a rough patch in April. Does that mean that investors are pulling forward seasonal effects? It’s certainly possible that investors could front-run such an effect, but whether that’s true is uncertain.

It’s Getting Hot in Here

The start of the summer, with temperatures rising, may also feel like things are heating up for investors, as the late-June through mid-July period has historically been one of the best periods for stock returns.

This seasonal pattern has gotten some media attention of late, but what some investors might be unaware of is that summer seasonality changes when it’s a presidential election year. While the hot start to July still shows up in the data, performance tends to heat up considerably further at the end of July through much of August. In fact, on a two-week investment horizon (i.e. short-term) forward returns at the end of July are historically the best of the entire year.

Still, if investors have been especially attentive in trying to get ahead of seasonal trends earlier in the year, why would that stop now? It’s possible that the historical election year strength of late-July and August gets pulled forward as well. And if that were to happen, it could raise the possibility that September’s seasonal headwinds get pulled forward as well. That could put a damper on this rally and ruin some investors’ summer vacations in the process.

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Performance data quoted represents past performance. Past performance does not guarantee future results. Market returns will fluctuate, and current performance may be lower or higher than the standardized performance data quoted.
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