Watch the CPK Market Action Report: June 2024
Tech stocks once again lead all three major indices to new all-time highs for the month of May. Will market sentiment toward rate cuts later this year continue to improve or will sticky inflation have a dampening effect on those hopes?
Watch the Market Action Report now:
Market Action Report
June 2024
INTRO TAG
Tech stocks once again lead all three major indices to new all-time highs for the month of May. Will market sentiment toward rate cuts later this year continue to improve or will sticky inflation have a dampening effect on those hopes?
That action starts now!
INDEX PERFORMANCE RECAP
Tech led the charge to new highs this month with another double-digit return just above 10%. The S&P 500 and Nasdaq were the winners gaining 5.16% and 7.24% respectively. The Dow was the laggard of the three closing up just 2.07%.
EQUITY UPDATE
My biggest concern for this market remains that we get an unexpected economic slowdown because that’s one of the few events that can legitimately cause a material correction in stocks (meaning 20% or more) and my concern about that slowdown became stronger last week.
The number of companies citing reduced demand, or a more discerning customer is growing quickly and it’s stretching across industries. It’s another signal that the economy is seeing slowing growth. Examples of companies reporting this type of behavior include (but are not limited to): Workday (WDAY), Salesforce (CRM), American Airlines (AAL), Kohls K(SS), Walgreens (WBA), Lululemon (LULU), Humana (HUM) and others.
BOND UPDATE
After a pullback during the first half of the month, hot economic data saw yields to reverse course higher in the second half. However, a slight reduction in Q1 GDP, dovish commentary from Fed President Williams and in-line Core PCE Price Index pushed yields lower once again in the last two days of the month.
The 5yr closed at 4.52%, 10yr at 4.51% and the 30yr at 4.65%
COMMODITY UPDATE
July WTI Crude saw a pretty choppy month that increased in size as the month went on. WTI Crude closed out at $76.99/bbl.
A surge in refinery runs resulted in a bullish draw in oil stockpiles but bearish builds in refined products. But importantly, the trend in the implied measure of gasoline demand remains to the upside with the latest weekly gasoline supplied figure holding comfortably above its four-week moving average. That is key right now as demand worries ahead of the summer driving season were weighing on investor sentiment. Oil bulls will want to see more above-trend gasoline demand metrics in the week’s ahead, otherwise another pullback into the mid-$70s will become increasingly likely.
Copper futures had ripped to fresh record highs in May as a crowded speculative short position was squeezed, forcing exit bids while other investors who were latching on to the “super-cycle” narrative based on low supply and the potential for surging demand due to AI and EV industries, chased the market higher through the middle of the month. Weak economic data over the course of last week saw traders begin to book profits and convicted shorts reopen positions last week, resulting in another weekly loss of 2.76%. Looking ahead, the trend in copper remains bullish with more upside likely but a continued consolidation period after the May volatility is likely here.
Gold had a strong rally through mid-month before seeing the gain all evaporate in a matter of days and close out at $2,322.90/oz. The threat of a deeper pullback remains if the Fed continues to reiterate a “higher for longer” stance and we see a renewed uptrend in the dollar and new YTD highs in real interest rates.
CURRENCY UPDATE
The dollar had a slight pullback for the month to close out at $104.62.
Despite hot Spanish CPI and negative GDP revisions in the U.S., the Dollar Index didn’t decline in part due to New York Fed President Williams’ commentary where he stated that policy was restrictive and it’s working and he sees no need to cut rates anytime soon. That was yet another reminder of the higher-for-longer policy in place from the Fed and as long as that’s in place, the Dollar Index will have a very hard time declining from around the 105 level. As such, stock investors should not count on the dollar to deliver any support for equities anytime soon (a drop below 103 would likely put a small tailwind on stocks via better earnings while a rally above 107 likely increases pressure on foreign earnings by U.S. companies).
ECONOMIC UPDATE
It seems the economic data is shifting its polarity on a week-to-week basis. In April, data stoked fears of stagflation and now in May the data is presenting a calmer picture due in part to the month’s inflation and labor market data. This calming data has slightly increased the outlook for year end rate cuts from one to one and a half. Botom line, the key to any cuts will be a sustained decline in inflation that instills confidence in the Federal Reserve that PCE is trending towards their 2% target.
THE WRAP
I want to distinctly and clearly point out that the evidence of slowing growth is growing on the macroeconomic and microeconomic fronts and that’s increasing my medium-term fear that investors are complacent to economic slowdown risks. If I’m right about that, the second half of the year could be much more volatile than the first half.
I will continue to watch macroeconomic data and microeconomic results to tell us if (and when) the slowdown appears imminent, because at that point it will be time to get defensive (and we will have time to do so). For now, bad is still good so it makes no sense to materially de-risk, but we will continue to gradually move to reduce volatility in portfolios (while still maintaining long exposure) so that if we’re wrong, our investments rise with the tide—and if we’re right, we’re insulated from the coming volatility.
CPK FOCUS
For the month of June, our models continue to hold a 50% allocation to the money market.
Our broad focus remains on Domestic Equities and International Equities.
Our focus in Domestic Equities is on Large Cap Growth, Large Cap Blend and Mid Cap Blend with an emphasis on Technology, Industrial, Financials and Consumer Cyclicals.
In International Equities, our focus is still on Europe Emerging, Latin America and Europe Developed.
CPK DISCLAIMER
As a reminder, my current allocation is not a recommendation. Regardless of what happens next, investors like you need to have a simple and yet solid financial plan that reduces RISKS, COSTS and TAXES while securing the necessary income you need to maintain your lifestyle throughout retirement.
If you don’t have a plan OR you’re not comfortable with the plan you currently have, call me today to get pointed in the right direction.
I’m Chad Kunc and that puts a wrap on the June 2024 Market Action Report. Thanks for joining me. It’s time for me to get back to the markets.
And that action starts, NOW!