Hold Steady
July 16, 2024
Markets In Review
Increasingly hot market sentiment led to rising domestic equities markets in June with major indices reaching 2024 highs. The three most watched indexes in the US all saw gains for June with the S&P 500 Index rising 3.35% with 2024 year-to-date total gains of 15.13% through month end. The NASDAQ Composite Index finished +5.37% and the Dow Jones Industrial Average +1.5% for the month. The NASDAQ and DOW are up +20.09% and +4.72% year to date, respectively. Seven of the eleven sectors that comprise the S&P 500 Index were positive, with information technology (+8.26%) and consumer discretionary (+4.7%) sectors leading the way. Utilities (-4.40%) and Materials (-2.48%) were the lead detractors for June.
Foreign developed markets as represented by the MSCI EAFE Index erased May gains and finished down -2.51% in June while the MSCI All Country World Index was up +1.68%. Regionally, Japanese stocks as tracked by the Nikkei225 Index were up +1.7% while European (Invesco MSCI Europe UCITS ETF [MXEU] -1.42%),Chinese (Shanghai Composite Index [SHCOMP] -3.61%), and Latin American (MSCI Emerging Markets Latin America Index [MXLA] -.34%) equities were in the red. The MSCI ACWI ex US IMI Index finished at +4.86%. U.S. bond markets as tracked by the Bloomberg Aggregate Bond Index was up +.36% for June. The US Dollar gained against the Euro +1.43%.
Economic Headlines & Looking Ahead
Consensus estimates by world economists for the Federal Reserve’s June 12 meeting were to keep the target Fed Funds Rate at 5.5%. Those estimates proved to be true with the Federal Reserve keeping their dual mandate of maximum employment and stable prices. In that afternoon’s press conference Fed Chair Jerome Powell said that "Inflation has eased substantially from a peak of 7 percent to 2.7 percent but is still too high. We are strongly committed to returning inflation to our 2 percent goal in support of a strong economy that benefits everyone.”1
The World Interest Rate Probability Index (WIRP) has priced in -1.855 cuts with the implied rate of 4.865% by year end. The Federal Funds Target Rate Index (FDTR) points to a maintenance of current rates with an average estimate of the Fed Funds Rate of 5.49%. The Chicago Board Options Exchange Volatility Index (VIX Index) that is used to measure volatility in the S&P 500 Index fell -5.11% in June and fell to 35.31% from its April high. Economic headlines for June were mixed with better than forecasted May lookback employment figures. Average Hourly Earnings (YoY and MoM), Manufacturing Payrolls, Nonfarm Payrolls, and Private Nonfarm Payrolls all beat estimates.
The May unemployment rate ticked up slightly with initial jobless claims dropping by month end. Revised May Housing Starts and Building Permits did not meet forecasted estimates, but June Building Permits beat estimates. Interest rates coupled with still higher home prices continues to drag on New Home Sales. The CB Consumer Confidence and Michigan Consumer Sentiment polls both beat estimates.
June 2024 was the first time that US stocks could trade and settle (e.g., “T+1”) in a day. On the face of it, this may sound like an uneventful change from the typical T+2 settle time that had been in effect since 2017. However, halving the time to settle could prove to have its benefits as well as drawbacks. The benefits include receiving proceeds much faster – perhaps hours rather than days – and lower margin requirements reducing the chance for brokers to restrict trades – think 2021 meme stock frenzy. Disadvantages include liquidity issues for foreign investors who have a much shorter time to purchase US dollars and overseas financial companies are planning to move staff to New York and hire overnight staff.2
It remains to be seen how markets will react to the unfolding of the 2024 presidential race & the evolution of economic headlines over the back half of the year. However, by month end the NASDAQ and S&P 500 indexes were above their 50-,100-, and 200-day moving averages. Ten of the eleven sectors that make up the S&P 500 are positive through June with the S&P Real Estate Index being the lone hold-out. Of the 503 constituents in the S&P Index, 321 have seen positive returns for the first half of the year. The Chicago Board of Options Exchange Volatility Index (CBOE VIX), which is a measure of implied volatility of S&P 500 Index options3, is negative through the first half of2024. This low volatility measure along with the breadth of positive constituents is an optimistic sign for investors heading into the back half of 2024. However, the heightened political climate not only in America, but worldwide, will go a long way in deciding the results of markets and therefore portfolios in 2024.
Brandon Cooper
Portfolio Management Associate
1https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20240612.pdf
Published June 12, 2024; Accessed July 5, 2024
2https://www.bloomberg.com/news/articles/2024-05-03/about-the-t-1-rule-making-us-stocks-settle-in-a-day
Published May 3, 2024; Accessed July 5, 2024
3https://www.investopedia.com/articles/optioninvestor/09/implied-volatility-contrary-indicator.asp
The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and itis highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange.
The MSCI EAFE Index (Europe, Australasia, Far East) is an unmanaged free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US& Canada.
The MSCI All Country World Index (ACWI) is a stock index designed to track broad global equity-market performance. Maintained by Morgan Stanley Capital International (MSCI), the index comprises the stocks of nearly 3,000 companies from 23 developed countries and 24 emerging markets.
The Invesco MSCI Europe UCITS ETF [MXEU]is a free float adjusted market capitalization index that is designed to measure the equity performance of the developed markets in Europe.
The Shanghai Stock Exchange (SSE) Composite [SHCOMP] is a stock market composite made up of all the A-shares and B-shares that trade on the Shanghai Stock Exchange (SSE).
The MSCI ACWI ex USA Investable Market Index (IMI)captures large, mid, and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets(EM) countries.
The MSCI Emerging Markets (EM) Latin America Index captures large and mid cap representation across 5 Emerging Markets (EM)countries in Latin America. With 90 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The Bloomberg Aggregate Bond Index includes government Treasury securities, corporate bonds, mortgage-backed securities (MBS), asset-backed securities (ABS), and municipal bonds to simulate the universe of bonds in the market.
The CBOE Volatility Index (i.e., “the VIX”) is a key measure of market expectations of near-term volatility conveyed by S&P500 stock index option prices.
The term federal funds rate refers to the target interest rate range set by the Federal Open Market Committee (FOMC). This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight.
This Federal Funds Target Rate Index series represents upper limit of the federal funds target range established by the Federal Open Market Committee. The data updated each day is the data effective as of that day.
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