Market Monitor: June Update

Headlines and Highlights
  • AI drives market gains: Large U.S. growth and technology stocks logged another strong month, closing out a sizzling first half that saw the lion’s share of gains go to a small number of firms linked to the artificial intelligence boom. Tech stocks’ 9.3% rise paced the S&P 500 to a 3.6% total return in June, leaving the stock market benchmark up 15.3% at midyear. Nvidia, the biggest winner, surged 149% in the first half. Small caps (-1.1%) and international developed stocks (-1.8%) declined last month while U.S. REITs (+2.0%) delivered solid gains. Bond prices advanced but remained fractionally negative for 2024.
  • Inflation decelerates, boosting rate-cut odds: The Federal Reserve’s favorite inflation gauge ticked up just 0.08% in May, the smallest monthly advance since November 2020. The core personal consumption expenditures price index was up 2.6% from a year ago, a three-year low. The latest evidence that price growth is cooling bolstered investors’ hopes for coming interest-rate cuts. Two-thirds of market participants in fed funds futures now expect the Federal Reserve to lower rates twice and at least 0.5% by year-end, according to the CME FedWatch Tool.
  • U.S. growth tapering off: Fresh data confirm the economy’s shift to a more moderate growth pace as inflation and high rates take a toll on consumers, housing and employment. On top of softening retail sales, personal spending was revised down by the Bureau of Economic Analysis to an annualized 1.5% in the first quarter. A homebuying slump is deepening, with the National Association of Realtors index of contract signings for previously owned homes falling to the lowest level since 2001. And continuing jobless claims rose to a three-year high, though they remain very low on a historical basis.
Selected Market Returns

market monitor

Sources: Morningstar, Altair Advisers

Our Views
  • The global economy is on course for a smooth landing from a period of high inflation and slowing growth, with inflation easing and growth remaining resilient. It should benefit further from a round of rate cuts recently initiated by the European Central Bank, the Bank of Canada and others.
  • The U.S. economy remains the global pacesetter while gradually cooling as Federal Reserve policymakers have sought. Consumers are spending less freely but still supporting their two-thirds of the economy. As long as the job market remains solid, spending can hold up and offset the weakness in other areas.
  • The Fed should begin cutting its benchmark interest rate by year end or it will be taking an undue risk with the economy, since monetary policy acts with a long lag. While a recession is not a near-term threat, Fed policymakers will jeopardize the economy’s resilience by keeping rates above 5% for too long.
  • The market rally has narrowed this year, limiting the largest gains to portfolios top-heavy in only a few large-cap and technology stocks. We anticipate improved performance in the second half for asset classes that have underperformed, including small caps, international developed stocks, and bonds. Coming rate cuts can help lift them all.
  • Increased uncertainty about the November election following the presidential debate could create more market volatility in the runup to the vote. But we do not expect markets to move substantially on political news unless polls make clear that one party is poised to take control of the presidency and both houses of Congress, which they do not currently indicate.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.