Weekly Market Update | June 16, 2024

June 16, 2024

Volume 11, Issue 24

Weekly Recap

The major domestic equity indexes ended last week mostly higher, with the S&P 500 and Nasdaq Composite touching new highs. The market’s advance remained exceptionally narrow for the second consecutive week, however, with an equally weighted version of the S&P 500 trailing its more familiar, capitalization-weighted counterpart by 215 basis points (2.15 percentage points). 

Relatedly, enthusiasm over the potential of artificial intelligence appeared to provide a continuing tailwind to technology-related stocks and growth shares, which outpaced value stocks by the largest margin since March 2023 (461 basis points). Last week was also notable for the shareholder approval of Tesla CEO Elon Musk’s roughly $48 billion (with a “B”) pay package (in the form of Tesla stock), which may have partly reflected enthusiasm over his push for autonomous driving vehicles. Another factor behind growth shares’ outperformance was reassuring inflation data and falling interest rates, which increase the theoretical value of growth companies’ future earnings. On Wednesday, the Labor Department reported that headline consumer price index inflation was flat in May for the first time in nearly two years. Core (ex-food and energy) prices rose 0.2 percent, a tick below expectations and a seven-month low. On a year-over-year basis, core inflation fell to 3.4 percent, the lowest level since April 2021.

Producer price index inflation, reported Thursday, also surprised on the downside, defying expectations for a slight increase and falling 0.2 percent. On a year-over-year basis, core PPI fell back to 2.3 percent, marking an end to five consecutive months of increases. Relatedly, import prices fell 0.4 percent in May, their first decline in four months.

Also calming inflation fears – but perhaps raising concerns about the overall health of the economy – were surprise jumps in weekly and continuing jobless claims. Over the week ended June 8, about 242,000 Americans filed for unemployment, the most in almost a year. Over the previous week, the number of people who had filed at least two weeks of claims hit 1.82 million, the most since the week ended January 20 and the third-highest number over the past year.

Perhaps because of its late arrival, the benign consumer inflation data appeared to have little impact on Federal Reserve policymakers, who concluded their scheduled policy meeting on Wednesday. Following the meeting, the Fed released its quarterly summary of individual members’ economic projections. While median growth expectations remained unchanged, expectations for core personal consumption expenditure inflation – considered the Fed’s preferred inflation gauge – in 2024 rose from 2.6 to 2.8 percent. 

The Fed left rates unchanged, as was widely expected, but officials increased their median expectation for the federal funds rate at the end of 2024 significantly, from 4.6 to 5.1 percent, which would imply one cut later in the year. In their post-meeting statement, however, Fed officials acknowledged that there has been “modest further progress” on inflation – versus “a lack of further progress” in the May 1 post-meeting statement. The downside growth and inflation surprises pushed the yield on the benchmark 10-year U.S. Treasury note sharply lower for the week, from 4.43 to 4.21 percent. Indeed, U.S. government bonds rallied across the yield curve.

Market Monitor

A full listing of market performance data is available here.

DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocksKoyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.

In the News

Federal Reserve officials penciled in just one interest-rate cut for this year, indicating most are in no hurry to lower rates, even after a widely watched report Wednesday showed inflation improved last month. The central bank also held its benchmark rate steady, in a range between 5.25 and 5.5 percent, a move that was widely expected. The overall CPI was flat in May compared with April, the first time in almost two years that it didn’t climb – thanks in part to a drop in gasoline prices on the month. The core index, which excludes food and energy, rose 0.2 percent, the least since last October – undershooting all but 12 of the 71 forecasts in Bloomberg’s survey. Services were the main reason why core inflation came in less than forecast, helped by a decline in car insurance after the biggest run-up in prices in that category since the 1970s. Airline fares were also down. The so-called supercore services gauge, which excludes housing, dropped by 0.04 percent, the first decline since 2021 and boding well for the Fed’s preferred inflation gauge, the PCE, which is out later this month. The annual rate of core inflation came down to 3.4 percent, the lowest since April 2021, aided by the smallest increase in housing costs in more than two years. Headline CPI came in at 3.3 percent.

U.S. producer prices unexpectedly declined in May by the most in seven months, another welcome development that will strengthen the Federal Reserve’s confidence in moderating inflation.

The U.S. economy keeps throwing up surprises, making it difficult to get a read on what’s happening for everyone from ordinary investors to the Federal Reserve. A growing disconnect between the fortunes of upper and lower-income Americans could account for some of the crossed signals.

The recession, predicted by business executives, economists, and investors, refuses to show up.

The Federal Reserve has more than one way to work its will on the economy. It could soon start using its more subtle tools to start nudging rates down. That still would have a real impact on businesses and households. In the week ending June 8, the advance figure for seasonally adjusted initial claims was 242,000, an increase of 13,000 from the previous week’s unrevised level of 229,000. The 4-week moving average was 227,000, an increase of 4,750 from the previous week’s unrevised average of 222,250.

Charts of the Week

I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.

This is the best thing I’ve read recently; the best thing I saw. The sweetest. The most inspiring. The least surprising. The best photography. Pat Sajak signs off. The grift is real. RIP, Jerry West. FamilyForty-three years ago last week.

Since 1952, the S&P 500 alone has generated an average return of 7 percent during presidential election years. If you limit that to presidential election years in which the incumbent president is running for reelection, the average jumps to 12.2 percent.

“The most important adage regarding leverage reminds us to ‘never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average.’”  ~ Howard Marks

Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.

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