Monthly Market Commentary

These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

Latest Commentary:

With the Russell 1000 Growth up 21% YTD and more than 33% over the last 12 months, there are a few reasons (Nvidia, Meta, Amazon, Eli Lilly) for investors to be in a good mood over the holiday.  The dual themes of anything tied to AI or GLP-1 drugs have fueled the momentum factor and pushed US equity markets to multiple new highs so far in 2024.  The performance of these names have hidden some of the softness in other sectors which may be showing signs of the delayed impact of the Fed’s fight against inflation.  In Q2, the more economically sensitive Financials, Materials, Industrials, and Energy sectors each posted negative returns. Approximately 60% of the S&P 500 stocks had negative returns in Q2 despite the 15% return of the index. Overseas markets were mixed with EAFE delivering a dud of a quarter at -0.4% while the EM Index posting a solid 5%. 

With many stories to be played out in the second half of 2024 – US elections, Fed policy, continuing geopolitical issues globally – there may be less room for optimism looking ahead than in our rearview mirror.

Here are a few observations about what occurred across the public markets during the month.

Overall

• The S&P 500 Index was up 3.6%% in June, up 4.3% in Q2, up 15.3% YTD, and up 24.6% on the trailing one-year. 
• The MSCI EAFE Index was down -1.6% in June, -0.4% in Q2, up 5.3% YTD, and up 11.5% on the trailing one-year.
• The Bloomberg Aggregate Bond Index was up 1.0% in June, up 0.1% in Q2, down -0.7% YTD, and up 2.6% on the trailing one-year.

Domestic Equity

• In Q2, domestic equity returns were mixed across styles and market caps. The NASDAQ and S&P 500 reached record highs this quarter, driven by surging semiconductor and tech mega-cap stocks, despite declines in the majority of the S&P 500 index.
• Large-cap growth stocks handily outperformed value and smaller stocks largely due to AI. Nvidia briefly became the most valuable company in the world and Apple rebounded from a Q1 slump after announcing its AI strategy. The strong returns of these stocks highlight the limited market breadth as approximately 60% of the S&P 500 finished Q2 in the red. 

International and Global Equities

• Foreign developed stocks generated modestly negative returns in Q2, with limited differences between value and growth across many regions. In Europe, the results were mixed: France experienced the largest decline with a 9% loss while Denmark saw the highest gain with a 7% increase.
• In Q2, emerging markets outperformed developed markets, driven by high returns in India due to improving growth expectations and in Taiwan which has exposure to semiconductors. 

Fixed Income Markets

• Bond market returns were mixed in Q2.  Improving inflation metrics increased expectations for at least one rate cut in 2024. Yields on the 10-year Treasury fell more than 30 bps from their April peak, ending Q2 at 4.37%. High-yield bonds saw larger gains of 1.09%, while longer maturity bonds lagged.

Specialty Markets

• REITs continued to chip away at the losses from earlier this year but still posted negative returns. Commodities delivered positive returns in Q2 behind increased copper and gold prices. 

US Equity Sectors

• In Q2, sector performance was mixed as six of the eleven sectors were negative performing sectors. Leading the positive performing sectors were Communication Services and Information Technology. Utilities saw growth-type returns in Q2 due to AI's extensive electricity needs.

Dear Valued Investor,

Stocks finished the first half of the year the same way they started — with solid gains. Strong rallies from big tech names, combined with somewhat softer economic and inflation data, helped propel the S&P 500 to its seventh monthly gain in the past eight months and set dozens of new record highs along the way. As we close the book on a strong first half for the stock market, we celebrate America’s 248th birthday.

But America isn’t the only birthday we’re celebrating in July. The Federal Reserve’s (Fed) interest rate “pause” turns one year old — the Fed’s last rate hike came on July 23, 2023. Fed pauses (neither rate hikes nor cuts) have generally been good for stocks, especially the longer ones, with gains for the S&P 500 lasting about eight months in five of the last six pauses. In what is currently the second-longest pause since the 1970s, the S&P 500 is up about 20% and nearing the 22% gain registered during the longest pause in 2006–2007. This means the current bull market has already captured the average historical gain for year two of a bull market, a few months before its two-year mark on October 12.

So, what might the second half of 2024 have in store for stocks? If history is a guide, then more gains are possible, as strong first halves have historically been followed by above-average second half returns of about 6.0%. When first-half gains were 10% or greater, the index averaged a 7.7% advance in the second half. S&P 500 companies in aggregate are expected to deliver double-digit earnings growth in the upcoming second quarter earnings season, which may offer near-term support for stock prices — particularly AI beneficiaries.

However, bull markets are not linear, and pullbacks or a correction should be expected in the second half. Political and geopolitical risks are rising. The AI trade could fizzle. Inflation data, including the Fed’s preferred measure for May, has cooperated of late, but that could reverse and push yields up again.

Furthermore, this market’s advance has been quite narrow. In fact, technology and internet stocks have driven 70% of the year-to-date advance, with about 30% of it coming from NVIDIA. That’s a big gap to fill in a possible tech sell-off. Rotating into more attractively valued areas of the market, potentially industrials or energy, might help limit downside, but that is no sure thing.

We hope everyone had a safe and enjoyable July 4th holiday. Happy birthday America!

As always, please reach out to me with questions.

Sincerely, 

 
Scott Krase

Previous Commentary:

• May 2024 Market Commentary
• April 2024 Market Commentary
• March 2024 Market Commentary
• February 2024 Market Commentary
• January 2024 Market Commentary
• December 2023 Market Commentary
• November 2023 Market Commentary
• October 2023 Market Commentary
• September 2023 Market Commentary
• August 2023 Market Commentary
• July 2023 Market Commentary
• June 2023 Market Commentary
• May 2023 Market Commentary
• April 2023 Market Commentary
• March 2023 Market Commentary
• February 2023 Market Commentary
• January 2023 Market Commentary
• December 2022 Market Commentary
• November 2022 Market Commentary
• October 2022 Market Commentary
• September 2022 Market Commentary
• August 2022 Market Commentary
• July 2022 Market Commentary
• June 2022 Market Commentary
• May 2022 Market Commentary
• April 2022 Market Commentary
• March 2022 Market Commentary
• February 2022 Market Commentary