The month of June continued the strong performance in Technology (+11.34%), evidenced by the NASDAQ index for the month, 2nd quarter and YTD. Many of the names are also represented in the S&P 500. Small and mid-cap equities have underperformed YTD. Communication Services (+6.28%) and Consumer Discretionary (+5.26%) were also strong June performers. Utilities (-4.66%) and Materials (-2.55%) brought up the rear.
The equity markets began June in a great position after Q1 earnings were well received. Almost 80% of reporting S&P 500 companies beat on earnings. Q2 earnings reporting begins on Friday this week, starting with banks.
S&P 500: June +3.47% YTD +14.48%
DOW: June +1.13% YTD +3.80%
NASDAQ: June +5.96% YTD +18.13%
Russell 2000: June -1.49% YTD +0.60%
Sector Performance YTD:
Communication Services +26.68%
Consumer Discretionary +5.66%
Consumer Staples +8.98%
Energy +10.93%
Financials +10.17%
Healthcare +7.81%
Industrials +7.75%
Technology +28.24%
Materials +4.05%
Real Estate -2.45%
Utilities +9.44%
Current U.S. Treasury Yields:
6 Month Bill 5.26%
2 Year Note 4.62%
5 Year Note 4.24%
10 Year Note 4.28%
30 Year Note 4.47%
The Fed and the Economy:
China continues with an uneven economic recovery. PMI rose to 51.8 in June, up from 51.7 in May and is the sixth straight month of improvement. Strong exports and consumption are juxtaposed by weaker investment. Tariffs from the EU, and soon the U.S., will be punitive. Japan’s economy is contracting as Q1 GDP data was revised lower. A rate increase is on the table. The yen hit a 38 year low as inflation angst rises.
In the UK, the Labour Party emerged victorious after almost 20 years. Now they need to fix their economic stagnation. Q1 growth was the strongest since late 2021. The EU inflation rate was lower in June at 2.5% but is still above target and there are no more rate cuts being discussed. The ECB President, Christine Lagarde, noted that time is needed and is in no rush.
In the U.S., fears of an economic slowdown were alleviated with a solid jobs number. 206,000 jobs were added, down from 218,000 in May. Government, healthcare, social assistance and construction added jobs. The June U.S. unemployment rate hit 4.1% for the first time since November 2021.
The Fed kept rates unchanged and will remain data dependent on potential rate cuts. Both April and May hiring levels were revised lower. Average hourly earnings were up 3.9% in June, from the prior year, and is the smallest increase since May 2021. A September rate cut remains a possibility as there are signs of the economy slowing.
Looking Ahead:
Corporate earnings reporting begins this week with the banks. June witnessed a slowing of the market broadening out away from Technology. Market volatility has been a bit muted. Momentum is still in play, allowing the market to continue to move higher.
Money Market funds remain near 5% yields and continue to meaningfully contribute to portfolio cash positions. Short-term U.S. Treasuries (1-6 month paper) yields remain more favorable than long-dated paper. Yields persist in trading in the 5.3% range.
The current market picture has favored Technology positions and discounted broad market sectors. We are closer to the Fed’s positive move in rate cuts which will boost equity prices. The consumer, and real estate in particular, need attention.
A more accommodating Federal Reserve will translate to lower short-term treasury yields and will support the economy and stock returns. We believe the market is on pace to move higher, albeit not at the pace of the first half of 2024. We remain positive on the market through year-end.
GN&Co
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