Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of June.
GLOBAL
TRENDS
The global economy continues to grapple with restrictive
monetary policies due to persistent inflation. Short-term interest
rates from the world’s largest central banks are at the highest
levels observed over the last decade which adds pressures to
global financial systems.
In October 2023, Israel was attacked by Hamas which reignited
war in the Middle East. Aside from the human tragedy that is
always associated with War, this conflict adds to uncertainty and
volatility for financial markets. Pairing these headwinds with the
pressures associated by Russia’s invasion of Ukraine has only
added to Global economic concerns.
Taken together, recent global and economic actions have
kept investors on edge. Geopolitical turmoil, supply chain
bottlenecks, restrictive central bank policy actions, and inflation
measures are topics that the Investment Management Group is
monitoring. Despite these concerns, global economic growth
remains resilient and is likely to continue in 2024, though at a
slower rate than historical norms.
CENTRAL BANK
POLICIES
The Federal Open Market Committee (FOMC) last met on June
12th and held their interest rate unchanged leaving their target
range at 5.25%-5.50%. In a prepared statement by the Federal
Reserve, it was noted that: “Recent indicators suggest that
economic activity has continued to expand at a solid pace.”
Turning to inflation the statement highlighted that, “In recent
months, there has been modest further progress toward the
Committee’s 2 percent inflation objective.” The statement
concluded by providing guidance on what future decisions
will be based on: “The Committee does not expect it will be
appropriate to reduce the target range until it has gained
greater confidence that inflation is moving sustainably toward
2 percent.” During the month of June market participants held
expectations relatively static on when rates cuts will begin with
cuts expected in September or November 2024.
The European Central Bank (ECB) last met on June 6th and
cut their target interest rate by 25 basis points. The decision
was informed from “… an updated assessment of the inflation
outlook, the dynamics of underlying inflation and the strength of
monetary policy transmission, it is now appropriate to moderate
the degree of monetary policy restriction after nine months of
holding rates steady.” At the end of June, market participants
expect 1 or 2 additional 25 basis point cuts from the ECB over
the second half of 2024.
EQUITY
PERFORMANCE
Global equities were mixed in June. Domestically, larger
companies outperformed smaller companies, with the S&P 500
outperforming the Russell 2500. Within the S&P 500, sector
returns were also mixed with 5 sectors posting positive returns,
with Information Technology surging ahead by over 9% in June.
On the other hand, 6 sectors posted losses with Utilities lagging
all other sectors retreating 5.5% this past month.
First quarter earnings for the S&P 500 wrapped up this past
month. Actual earnings growth continues to be positive for the
index with around 65% of companies detailing positive earnings
results for the first quarter. Looking ahead, just over half of the
index is set to report second quarter results in July.
The S&P 500 Index rose by 3.6% in June. The blue-chip Dow
Jones Industrial Average gained 1.2% over the month. The tech
heavy NASDAQ Composite rose by 6.0%. International stocks
were mostly up with the MSCI All Country World Index of
developing and developed market stocks returning 2.3% in June.
The MSCI Emerging Market Index rose by 3.9% in June. The MSCI
EAFE Index of developed international equities fell by 1.6% in June.
INTEREST RATES
AND GROWTH
On June 27th, first quarter U.S. GDP was revised to 1.4%, below
the initial estimates of 1.6% and below the prior two quarter’s
GDP reports. Despite coming lower than prior quarters, results
did detail continued strength for consumers as detailed by
personal consumption metrics which were offset by falling
inventories.
At this past June’s FOMC meeting the Fed released an update
on their Summary of Economic Projections which details the
central bank’s outlook on a variety of prospective economic
measures. Specifically, investors digested higher inflation
projections for 2024 and 2025 paired with unchanged median
GDP projections for 2024 and 2025.
During the month of June term points in the U.S. Treasury curve
moved lower. Specifically, the U.S. Treasury 2-year yield fell 12
basis point to 4.75% while the 10-year fell 10 basis points to
4.40%. The results of these changes netted a less inverted curve
with the 2/10 inversion compressing to 35 basis points.
Mortgage Rates moved lower in June as the Freddie Mac 30-
year Primary Mortgage Market Survey fell to 6.86% on June 27th
down 17 basis points from May 30th.
POLITICAL AND
REGULATORY TRENDS
On May 14th President Joe Biden increased tariffs on several
Chinese manufactured products including but not limited to
electric vehicles, semiconductors, solar cells, and batteries. In a
prepared statement from the White House, it was noted that the
tariffs are aimed “… to counter China’s unfair trade practices.”
On May 30th former President Donald Trump was convicted
on 34 charges in a New York Court. As of June 28th, former
President Donald Trump has accrued 2,265 delegates, well over
the needed 1,215 needed to win the nomination as Republican
Candidate for the upcoming Presidential Election. Current
President Joe Biden has accrued 3,894 delegates, well over the
required 1,968 delegates to win the Democratic nomination.
On June 28th the Supreme Court overturned ‘Chevron v. Natural
Resources Defense Council,’ after 40 years in a 6-3 decision.
With the reversal, federal regulator’s ability to interpret laws and
apply regulations has been curtailed and a greater emphasis
on Congress for direct policy actions is implied. The ruling also
gives lower courts a mandate to ensure appropriate actions
taken by regulators. Chief Justice Roberts noted: “Chevron
was a judicial invention that required judges to disregard their
statutory duties.”
INVESTMENT
TRENDS
The May CPI report detailed year-over-year inflation at 3.3%,
above target levels but below the April rate of 3.4%. The first
quarter U.S. GDP report detailed an expanding US economy
with a 1.4% growth rate. Finally, the most recent Summary of
Economic Projections detailed an expected 2024-year end GDP
of 2.1% with inflation measures above the U.S. Central Banks
target of 2.0%.
Recent stresses on the global financial system, persistent
inflation domestically and abroad, and geopolitical tensions
continue to weigh on investor sentiment. On balance, the headand-tail winds currently at play suggest there is a potential
path for global economic growth, albeit at a slower than initially
expected pace.
Equal Housing Lender.