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Market Commentary – June 2024

Wall Street got off to a slow start to begin the second quarter of 2024. Stocks lagged for much of April, rebounded in May, and were choppy in June. Investors spent the quarter watching economic data, trying to gauge whether the Federal Reserve might lower interest rates. In April, investors were discouraged by the unexpected rise in inflation, which dampened hopes of several interest rate decreases during the year. However, the latest economic data gave some indication that inflationary pressures may be scaling back. The personal consumption expenditures (PCE) price index for May rose at its slowest pace since March 2021. Nevertheless, lowering price pressures has been a slow process and inflation could push higher again. In response, the Federal Reserve has remained cautious in its assessment of inflation going forward and will look for more concrete data confirming downward price pressures before loosening its restrictive monetary policy. Several indexes reached new records throughout the quarter. The S&P 500 and the Nasdaq closed out the quarter at new highs, marking the 32nd record close of the year for the S&P 500 and the 21st for the Nasdaq. Among the market sectors, information technology outperformed, gaining 14.5% in the quarter, followed by communication services, and utilities. Materials, industrials, and real estate lagged. Rising bond yields weighed on prices, with the yield on 10-year Treasuries closing the quarter up nearly 15.0 basis points from the end of the first quarter, while the yield on the 2-year note ended the quarter about where it began. Corporate earnings got off to a good start for the year, with first-quarter earnings exceeding analyst expectations for the fifth consecutive quarter. Roughly 78.3% of S&P 500 companies reported earnings that beat expectations, as companies in consumer staples, financials, health care, real estate, and communication services bested their prior four-quarter average.

Gold rose more than 4.0% in the second quarter and nearly 13.0% in 2024 as anticipated interest rate cuts by central banks supported trading precious metals. In addition, higher demand for gold by several Asian central banks, particularly the People's Bank of China, helped lift the price of gold, which reached a record high of $2,450 per ounce in May. Crude oil prices dipped about $1.75 per barrel by the end of the first quarter. Prices on March 28 were $83.17 per barrel, dropping as low as $74.07 per barrel in early June, and settling at about $81.51 per barrel on the last business day of June. However, fears that the unrest in the Middle East will escalate, coupled with a cut in production, could drive prices higher through the remainder of the year. The retail price for regular gasoline was $3.438 per gallon on June 24, $0.139 below the price a month earlier and $0.085 less than the price March 25th estimate. Regular retail gas prices decreased $0.113 from a year ago. The U.S. dollar ended the quarter trading at its highest price since November 2023. Home mortgage rates began the quarter at about 6.82% for the 30-year fixed rate, according to Freddie Mac. Rates jumped as high as 7.03% at the end of May, ultimately settling at 6.86% on June 27th.

April saw stocks get off to a slow start as progress toward reducing inflation took a step back, heightening concerns that interest rates would remain higher for longer. Each of the benchmark indexes listed here ended the month in the red, with the S&P 500 suffering its first monthly loss in the last six months. Small-cap stocks were particularly hit hard, dragging the Russell 2000 down by over 7.0%, which caused that index to fall into negative territory since the beginning of the year. Ten of the 11 sectors of the S&P 500 recorded losses, with the exception of utilities, which eked out a marginal gain. The bond market also struggled in April, with the yield on 10-year Treasuries climbing 48 basis points, reaching its highest level since October. First-quarter earnings season kicked off in April and saw reports come in modestly above expectations. Investors paid particular attention to economic reports and the response from the Federal Reserve. Reports released in April revealed 315,000 new jobs added in March. The PCE price index rose 0.5% in March, while the Consumer Price Index (CPI) climbed 0.4%. Industrial production edged higher. The housing sector produced mixed results in March, with sales of existing homes falling, while new home sales advanced.

In May, equity markets rebounded from a moribund April, with each of the benchmark indexes listed here making notable gains. The Dow, the Nasdaq, and the S&P 500 reached all-time highs during the month. Tech shares outperformed, while energy declined with falling crude oil prices. Over half of the S&P 500's nearly 5.0% May gain was attributed to growth of four mega tech stocks. Investors also saw economic signs that might support an interest rate reduction. Job growth was weaker than expected. First-quarter GDP lagged to 1.3% growth. April's PCE price index (excluding food and energy prices) advanced 2.8%. April's CPI rose 0.3%, while retail sales were weaker than expected. Corporate earnings for the first quarter were favorable, as 78% of reporting S&P 500 companies beat earnings per share (EPS) estimates. Companies in the communications services sector had a growth rate of 34%, beating the other ten market sectors. Prices at the pump fell in May from April. The dollar fell nearly 1.6%, the first monthly decline in the last five months.

June proved to be a month full of ups and downs for stocks. The month began with each of the benchmark indexes listed here posting gains (with the exception of the Russell 2000). A robust jobs report helped alleviate concerns about an economic slowdown, although it bolstered the Fed's hawkish stance. Through the middle of June, tech stocks, particularly AI holdings, carried the market. Unfortunately, the rally came to a halt at the end of the month. Nevertheless, stocks closed June higher than it began, with several of the benchmark indexes closing in the black, with the exception of the Russell 2000 and the Global Dow, which closed the month lower. Most of the market sectors outperformed, with information technology and consumer discretionary leading the way. Utilities, materials, and energy were the only sectors to close in the red.

Market/Index* 2023 Close

As of

June 28th

Monthly

Change

Quarterly

Change

YTD

Change

DIJA 37,689.54 39,118.86 1.12% -1.73% 3.79%
NASDAQ 15,011.35 17,732.60 5.96% 8.26% 18.13%
S & P 500 4,769.83 5,460.48 3.47% 3.92% 14.48%
Russell 2000 2,027.07 2,047.69 -1.08% -3.62% 1.02%
Global Dow 4,355.28 4,677.14 -0.76% 0.02% 7.39%
Federal Funds 5.25% – 5.50% 5.25% - 5.50% 0 bps 0 bps 0 bps
10-yr Treasury 3.86% 4.34% -17 bps 14 bps 48 bps

*Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Last Month’s Economic News

  • Employment: Total employment increased by 272,000 in May, following a net downward revision over the previous two months. The May jobs increase was well above expectations. Employment trended up in health care, government, leisure and hospitality, and professional, scientific, and technical services. In May, the unemployment rate increased 0.1 percentage point to 4.0% and was 0.3 percentage point above the rate from a year earlier (3.7%). The number of unemployed persons was relatively unchanged at 6.6 million. In May, the number of long-term unemployed (those jobless for 27 weeks or more), at 1.4 million, accounted for 20.7% of all unemployed people. The labor force participation rate, at 62.5%, was 0.2 percentage point below the prior month's estimate, while the employment-population ratio dipped 0.1 percentage point to 60.1% in May. In May, average hourly earnings increased by $0.14, or 0.4%, to $34.91. Since May 2023, average hourly earnings rose by 4.1%, which is up from the April figure of 3.9%. The average workweek was unchanged at 34.3 hours in May.
  • FOMC/interest rates: The Federal Open Market Committee met twice in the second quarter, in May and in June. Following each of those meetings, the Committee kept interest rates at their current levels. Each time, the FOMC noted that the economy in general, and the labor market in particular, had remained steady, while inflation stayed well above the Fed's target rate of 2.0%. Overall, the FOMC maintained its hawkish stance toward lowering interest rates, with the possibility of one rate cut before the end of the year.
  • GDP: The economy, as measured by gross domestic product, accelerated at an annualized rate of 1.4% in the first quarter of 2024, according to the third and final estimate from the Bureau of Economic Analysis. GDP increased 3.4% in the fourth quarter. Personal consumption expenditures rose 1.5% in the first quarter compared to a 3.3% increase in the previous quarter. Consumer spending on goods dipped 2.3%, while spending on services rose 3.3%. Gross domestic investment rose 4.4% in the first quarter, well above the 0.7% increase in the fourth quarter. Nonresidential fixed investment advanced 4.4% in the first quarter (3.7% in the fourth quarter), while residential fixed investment increased 16.0% in the first quarter compared to a 2.8% increase in the fourth quarter. Exports inched up 1.6%, while imports, which are a negative in the calculation of GDP, increased 6.1%. Consumer prices increased 3.4% in the first quarter, compared with an increase of 1.8% in the previous quarter. Excluding food and energy prices, the PCE price index increased 3.7%, compared with an increase of 2.0% in the fourth quarter.
  • Inflation/consumer spending: According to the latest Personal Income and Outlays report, personal income rose 0.5% in May (0.3% in April) and disposable personal income also increased 0.5%, up from 0.3% in April. The PCE price index was unchanged in May after rising 0.3% in each of the prior three months. The PCE price index excluding food and energy (core prices), ticked up 0.1% in May. Consumer prices rose 2.6% since May 2023, down 0.1 percentage point compared to the 12 months ended in April. Core prices increased 2.6% over the same period, 0.2 percentage points lower than the 12 months ended in April. Consumer spending rose 0.2% in May after advancing 0.1% in April.
    • The Consumer Price Index was unchanged in May after rising 0.3% in April. Over the 12 months ended in May, the CPI rose 3.3%, down 0.1 percentage point from the period ended in April. Excluding food and energy, the CPI rose 0.2% in May, (0.3% in April), and 3.4% from May 2023. Increases in prices for shelter (0.4%) and food (-0.1%), particularly food away from home (0.4%), were offset by a decrease in prices for energy (-0.2%) and gasoline (-3.6%). In addition to advances in prices for shelter and food, May saw increases in prices for medical care, used cars and trucks, and education, while prices for airline fares, new vehicles, communication, recreation, and apparel were among those that declined.
    • Prices that producers received for goods and services fell 0.2% in May after rising 0.5% in April. The May decline was attributable to a decrease in prices for goods (-0.8%), while prices for services were unchanged from the prior month. Nearly 60% of the May decrease in prices for goods can be traced to a 7.1% decline in prices for gasoline. Producer prices increased 2.2% for the 12 months ended in May, unchanged from the increase over the 12 months ended in April. Producer prices less foods, energy, and trade services were flat in May after increasing 0.5% in April. For the 12 months ended in May, prices less foods, energy, and trade services moved up 3.2%, the same increase as estimated for the 12 months ended in April.
  • Housing: Sales of existing homes fell 0.7% in May and 2.8% over the last 12 months. According to the National Association of Realtors® (NAR), existing home sales have stagnated due to low inventory, rising home prices, and high interest rates. The median existing-home price was $419,300 in May, the highest price ever recorded. The May price was 3.1% above the April price of $406,600 and 5.8% higher than the May 2023 price of $396,500. Unsold inventory of existing homes in May represented a 3.7-month supply at the current sales pace, up slightly from 3.5 months in April. Sales of existing single-family homes decreased 0.8% in May and 2.1% from the prior year. The median existing single-family home price was $424,500 in May, up from $411,100 in April and well above the May 2023 estimate of $401,500. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.87% as of June 20, down from 6.95% the previous week but up from 6.67% one year ago.
    • New single-family home sales also declined in May, falling 11.3% below the April pace and 16.5% under the May 2023 rate. The median sales price of new single-family houses sold in April was $417,400 ($417,900 in April). The May average sales price was $520,000 ($503,700 in April). The inventory of new single-family homes for sale in May represented a supply of 9.3 months at the current sales pace, up from 9.1 months in April.
  • Manufacturing: New orders for durable goods rose 0.1% in May following a downwardly revised 0.2% April increase. Excluding transportation, new orders decreased 0.1% in May. Excluding defense, new orders fell 0.2%. New orders for transportation equipment advanced 0.6% in May, contributing to the overall increase in new orders. New orders for nondefense capital goods in May decreased 2.8%, while new orders for defense capital goods increased 22.6%.
  • International markets: The United Kingdom's GDP expanded 0.7% in the first quarter, a little higher than expectations. It was the largest expansion in over two years, which signals an end to the economic recession that began last year. Canada's GDP rose 0.3% in April but is expected to slow to 0.1% growth in May. Eurozone inflation rose 0.2% in May and 2.6% over the last 12 months. Core prices advanced 2.9% for the year, 0.2 percentage points above the period ended in April. In China, retail sales rose 3.7%, ahead of expectations, while industrial production inched up 0.3%. For June, the STOXX Europe 600 Index fell 1.1%; the United Kingdom's FTSE lost 1.1%; Japan's Nikkei 225 Index advanced 2.9%; and China's Shanghai Composite Index fell 3.9%.
  • Consumer confidence: Consumer confidence dipped in June to 100.4, down from 101.3 in May, according to the Conference Board Consumer Confidence Index®. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, increased to 141.5 in June, up from 140.8 in the previous month. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, fell to 73.0 in June, down from 74.9 in May. The Expectations Index has been below 80 (the threshold which usually signals a recession ahead) for five consecutive months.

Eye on the Month Ahead

Investors will likely focus much of their attention on the Federal Reserve during the third quarter of 2024. While the Fed has maintained interest rates at their current level for several months, they suggested that one decrease could be in the offing this year. Stock performance was choppy during the second quarter, with some indexes reaching record highs, only to fall back. Traders will look to the third quarter for more stability and steady gains in the market.


The information and opinions in this report were prepared by the ANB Financial Services Division of ANB Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent ANB Financial Services opinion as of the date of this article and are for general information purposes only. ANB Financial Services does not undertake to advise you of any change in its opinions or the information contained in this article. Past performance does not indicate future results. The value or income associated may fluctuate. There is always potential for loss, as well as gain. Trust and Investment Services are not insured by the FDIC, Not a deposit or other obligation of, or guaranteed by, the depository institution subject to investment risks, including possible loss of the principal amount invested.