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June 24, 2024

Beacon Weekly Investment Insights 6.24.24

Head of Investment Strategy, Brian McGann, CFA, provides insights to guide you through changing market conditions. Please read the full text below or download the PDF version.

As we approach the end of the first half of calendar 2024, we find ourselves in a very similar situation as 2023. The capitalization weighted S&P 500 index has a year-to-date gain of about 15.4%, with very narrow participation concentrated in technology and communication services. By contrast, the equally weighted S&P 500 has a gain of only 5.5%. The Dow Jones ended the week with the best performance rising 1.5% while the tech dominated NASDAQ Composite finished basically flat on the week. Interest rates, as measured by the benchmark 10 Year US Treasury, rose only 3 basis points last week to yield 4.26% after significant declines during the previous week.

We were also swamped by the media coverage of the “market cap horse race” within the S&P 500 between Microsoft, Apple, and Nvidia. In the previous week, Apple eclipsed Microsoft while last week Nvidia briefly eclipsing Microsoft early in the week as the largest US company, before pulling back later in the week. I only mention this in the context that, as mentioned earlier, the highest cap components of the weighted index have diverged on an equally weighted basis. Our expectations remain and we continue to exercise patience for a broadening of performance similar to Q4 of last year in an environment of moderating inflation and growth, which would allow the Federal Reserve to begin their process of lowering short-term interest rates.

Recent economic data has softened but remains consistent with an economy that continues to grow at a moderate pace. For example, last week retail sales were reported as rising by only 0.1% during the month of May versus consensus for a rise of 0.3%. Additionally, the previous month’s report (April) was revised down from a 0.6% increase to a 0.0% figure. May’s figures showed strength in components such as sporting goods, clothing and motor vehicle parts and dealers. In contrast, the detractors came from gasoline stations, furniture stores, and food service and drinking establishments. The implications of these softer figures from consumer sales could lead to a softer GDP print for Q2. On the positive side, softer demand could help to moderate inflationary pressures.

Also last week, the index of leading economic indicators was released and declined by 0.5% in May, a steeper decline than the 0.3% anticipated. Five of the 10 data points were negative including building permits and jobless claims. This index has started a new streak of negative readings in February 2024 after a slight tick positive that month.

This week we will be focused on a solid week of data releases. Housing will be in focus with mortgage application data and new home sales on Wednesday, pending home sales on Thursday, followed by existing home sales data on Friday. Consumer sentiment is released with the Conference Board Consumer Confidence index on Tuesday and the University of Michigan Sentiment index on Friday. Thursday’s releases include durable and capital goods orders, final GDP for Q1 and the initial jobless claims. Friday will have the most anticipated release of the week with the Personal Consumption Expenditures Index (PCE Deflator), which is the Federal Reserve’s favored measure of inflation.

 

Market Scorecard:

6/21/2024

YTD Price Change

Dow Jones Industrial Average

39,150.33

3.88%

S&P 500 Index

5,464.62

14.57%

NASDAQ Composite

17,689.36

17.84%

Russell 1000 Growth Index

3,663.89

20.06%

Russell 1000 Value Index

1,772.55

8.78%

Russell 2000 Small Cap Index

2,022.03

-0.25%

MSCI EAFE Index

2,307.56

3.19%

US 10 Year Treasury Yield

4.26%

38 basis points

WTI Crude Oil

$80.73

12.67%

Gold $/Oz.

$2,321.98

12.55%