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June’s Economy & Stock Market Update

June’s Economy & Stock Market Update

May brought a breath of fresh air to the major US equity indices after a lackluster April, with significant rebounds marking a turnaround. The S&P and Nasdaq pleased investors with five consecutive weeks of gains, although they saw slight dips towards the month’s end. Yet, persistent concerns about market concentration cast a shadow, notably impacting the equal-weight S&P, which trailed behind.  Tech giants continued to steer market performance, contributing to over half of the S&P’s May gains.  This causes some market observers to wonder if the stock market really is doing well, or if it’s just a handful of companies that are doing well and camouflaging overall weakness.  For sure, if you don’t own those tech leaders, your portfolio returns probably aren’t going to match the S&P 500’s.  There’s wisdom in diversification, though, so I’d encourage you to make sure that you’re not too heavily concentrated in just a few stocks. 

Despite some late-month weakness, Treasury bonds strengthened May, pushing yields lower. The US dollar reversed its four-month upward trend, helping stocks, while also helping gold to mark its third consecutive month of gains.

The Federal Reserve remained a focal point, with continued expectations that the Fed’s overnight rate would remain steady until later in the year. This is in sharp contrast to late 2023 predictions of several rate cuts by the Fed this year.  Economic data presented mixed signals, with softer indicators prevailing. April nonfarm payrolls fell short of consensus, and there was a monthly decline in April’s retail sales, signaling potential consumer concerns. Manufacturing and service surveys for April were mainly weaker, although there was a substantial uptick in consumer confidence.  I think that maybe consumers are seeing a light at the end of the inflation tunnel.

Corporate earnings were a bright spot, with S&P companies surpassing expectations, on average. However, the magnitude of those beats fell below historical averages, raising questions about sustainability.  In other words, earnings were very good, but are they good enough to support continued stock market gains?

Now that earnings season is pretty well wrapped up, we’ll shift from company-specific reports to macroeconomic factors, including inflation reports, jobs data, and the upcoming Fed meetings.  Recent data suggests a moderation in the main engine of US economic growth—the consumer. Downward revisions to economic reports show slowing consumer spending.  Thankfully, evidence of disinflation is mounting, and may be enough to reverse this trend. Major retailers are slashing prices, fast-food chains are offering value meals, and travel discounts are becoming more prevalent, signaling relief for budget-conscious consumers.  Generally speaking, I think this is positive for overall fiscal health.  Economists have complained for months now about out of control consumer spending, and that appears to be correcting.  And if inflation really is slowing—which it seems to be—that would leave most of us with more income that we could save or spend.  Recent evidence, although limited, indicates that many “experiences,” like concerts, are coming down in price, too, so hopefully the extra money in our pockets will allow us to afford some things we’ve been putting off.  If we decide instead to save the money rather than spend it, that should have the effect of lowering inflation even further and could push up stock prices if the money is invested.

This shift to a new regime of lower inflation is likely to cause stock market volatility, in my opinion.  It’s going to require a change in expectations, and there could be different winners and losers.  Again, diversification, while not a guarantee against losses, is usually a wise strategy for long-term investors looking to avoid having to choose between short-term winners and losers.

As we enter June, bullish sentiments persist regarding further disinflation, solid corporate earnings, a healthy labor market, and continued (albeit slower) consumer spending. Given the pivotal role of Fed expectations and bond yields in recent years, monitoring bond yields closely remains prudent. If bond yields reverse course and head higher, that would likely pose a headwind for stocks and correspond to increased volatility. Conversely, continued moves downward in bond yields could fuel further upside in stocks.

While optimism about disinflation and economic health persists, uncertainties surrounding Fed policy and market dynamics warrant caution. As we navigate these evolving market conditions, staying informed and vigilant is key to making informed investment decisions.

In June, the market is closed on June 19 in observance of Juneteenth, and of course it will be closed on July 4th (there is also an early market close on July 3).  For those of us on the East Coast, hurricane season is about to get going, so now is a great time to review your property and casualty insurance…we can help with that, if you’d like.  And last, but certainly not least, happy Father’s Day to all of the dads and father figures out there!

As always, these opinions are mine, and may or may not be the same as those of Raymond James.  This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.  
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur.  Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss.  There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.
The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. 
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Individuals cannot invest directly in any index.  U.S. government bonds and Treasury notes are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury notes are certificates reflecting intermediate-term (2 – 10 years) obligations of the U.S. government.  Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Scott Mitchell and not necessarily those of Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.  Raymond James does not provide tax or legal services.  Please discuss these matters with the appropriate professional.

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