Hello all - we hope you had a nice June. Hard to believe half the year is already over.
The markets started the month strongly and stayed roughly flat for the latter half. The major indexes again saw a wide divergence in performance, with the Dow up 2.6%, the S&P 500 rose 3.6%, and the Nasdaq, which has a higher concentration of tech stocks, was higher by 4.7%.
The markets started the month strongly and stayed roughly flat for the latter half. The major indexes again saw a wide divergence in performance, with the Dow up 2.6%, the S&P 500 rose 3.6%, and the Nasdaq, which has a higher concentration of tech stocks, was higher by 4.7%.
Here’s a look at how the markets moved this month:
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It’s a very strange market right now, where a small amount of very large stocks are driving the direction of the overall indexes.
The AI darling Nvidia now makes up about 7% of the S&P 500 Index. Microsoft and Apple are also at about 7% each. These big stocks have performed very well, carrying the market gains. The rise in Nvidia alone this year has accounted for about 30% of the S&P’s gains for the year.
This chart shows how the S&P has been following the moves of Nvidia.
The rise in these big stocks has masked what has otherwise been a mediocre market. In fact, 40% of the stocks in the S&P 500 are actually lower for the year.
When we look at the S&P 500 with all the stocks at the same weighting, we can see how different the index looks.
When we look at the S&P 500 with all the stocks at the same weighting, we can see how different the index looks.
This is not a healthy market.
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FED
The Fed held a policy meeting this month and announced no changes to their economic policy, as expected. However, fewer of the Fed members think they will lower interest rates this year. Lower rates have helped stock prices, so the news was not welcomed warmly by investors.
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INFLATION
Let’s look at the inflation data from this month.
The annual inflation level ticked slightly lower in the most recent report, but that rate hasn’t moved much in the past year (the gray line).
We think the monthly inflation chart is more important. The monthly inflation rate has remained stubbornly higher for years now and this month, it rose just 0.006% - so let’s call it flat.
The reason for the lower inflation level this month was entirely due to lower gas prices. Gas prices have risen again this month, however, so it’s unlikely it will be helpful for the next inflation data release.
The chart below is very busy, but it shows all the different components making up the inflation level. The black line shows the overall monthly level.
The reason for the lower inflation level this month was entirely due to lower gas prices. Gas prices have risen again this month, however, so it’s unlikely it will be helpful for the next inflation data release.
The chart below is very busy, but it shows all the different components making up the inflation level. The black line shows the overall monthly level.
It was a milder print for monthly inflation when excluding energy and food from the calculation, (which economists call the “core” measurement), but it still shows an increase.
The PPI, which is the inflation at the business level before they pass on the price increases to us, showed a welcomed decline last month.
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ECONOMIC DATA
Economic data released this month was mixed.
We’ll start with the leading economic indicators, which we’ve talked about for many months. This index combines several indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).
This index had been lower for 22-straight months before finally turning higher three months ago. Unfortunately, the positive report is looking like a one-off, as the index continues to deteriorate. This report is a good recession indicator, so it is an important one to watch.
The manufacturing part of our economy was looking like it was improving; however, the last two months showed a decline as it moved back into contraction territory (a number below 50 indicates contraction).
The services sector showed a nice improvement, though.
The services sector showed a nice improvement, though.
Retail was an interesting story this month. The level of retail sales showed a positive gain last month, but there are many warning signs.
Many retail companies are warning that their sales are slowing as the higher prices continue to hurt shoppers and debt levels keep rising.
From Bloomberg:
From Bloomberg:
As an example, Walgreens cited a tough consumer environment and troubling high prices, which is forcing them to close many of their stores. We’re hearing this story more and more.
Durable goods (these are items with a longer life, like a phone or refrigerator) was slightly lower.
Consumer confidence moved slightly lower:
Small business optimism moved slightly higher, however:
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Where does the market go from here?
It’s hard to tell at this point.
The market, when including the high-flying tech names, looks a little expensive here (overbought). When excluding those names, the market looks a little more reasonable. Its hard to tell if the rest of the market will catch the high-fliers, or the other way around. We don’t have a lot of conviction either way.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
