What’s Up In The Market

Week Ending June 14, 2024

Weekly Market Summary

Global Equities: Evidence of cooling inflation helped keep the equity rally going, pushing domestic indices to new all-time highs during the weekly session. The Nasdaq Composite continued to outperform other major indices, advancing 3.2% during the week. The S&P 500 gained 1.6%, while the Dow Jones Industrial Average lagged with a -0.5% weekly decline. The market gains were mostly concentrated in mega-cap technology names, leaving small caps trailing with a -1.0% weekly loss. Fallout from the prior week’s European Union turmoil continued to weigh on developed international stocks, which fell -2.5%, while emerging markets held on to gains with a 1.2% weekly advance.

Fixed Income: The Federal Reserve’s latest policy decision was largely uneventful and inflation data was encouraging, which helped to push 10-Year Treasury yields lower. The 10-Year yield briefly dipped below 4.2% for the first time since March. Demand for 10-Year bonds was robust during Tuesday’s auction, which also helped keep yields suppressed. High yield bonds kept recent momentum going with a 0.2% weekly gain.

Commodities: Oil prices had their biggest gains in four months as expectations for demand increased despite continued record production from the United States. US West Texas Intermediate traded above $79 a barrel as of Friday. Russian oil output exceeded the self-imposed OPEC+ quota in May, but the nation pledged to dial back production in the coming months.

Weekly Economic Summary

CPI Cools: The Federal Reserve desperately needed evidence that its rate hikes were making a dent in inflation after a bad start to 2024, and that data finally arrived in the May Consumer Price Index (CPI). The headline CPI reading showed no monthly increase, bringing the year-on-year inflation rate to 3.3%. The Core reading, which excludes food and energy, increased 0.2%, equating to an annual rate of 3.4%. The underlying shelter component, which has been the primary source of inflation, remains stuck at a 5.4% annual rate.

PPI Deflation: Markets got a second set of good data on inflation during the week in the form of lower Producer Price Index (PPI) results, which showed May in deflationary territory at -0.2%, lowering the annual rate to 2.2%. Core PPI was flat for the month and 3.2% annually. PPI is a leading indicator for consumer inflation, so if the trend continues, consumer prices should post similar declines in the coming months.

FOMC: The latest Federal Open Market Committee (FOMC) meeting resulted in a unanimous decision to hold rates steady, as expected. The Fed also released its quarterly “dot plot” Summary of Economic Projections chart, which showed the median expectation fell to just one interest rate cut for 2024. The Fed’s expectation for year-end Core Inflation rose from 2.6% to 2.8%, reflecting the lack of progress nearly half-way through 2024. Fed Chair Jerome Powell was encouraged by the latest inflation data which came the morning of the press conference, but underscored the Fed’s stance that policy decisions remain “meeting by meeting” and a rate cut will require additional positive inflation reports.

Chart of the Week

The Chart of the Week shows a three-year view of the Nasdaq 100 ETF (QQQ, black line), which is market-cap weighted, compared to the equal-weight version (QQQE, blue line). The two ETFs typically move in tandem, with QQQ showing slight outperformance in late-2021 to early-2022. The synchronization has greatly deteriorated over the last year, however, as mega-cap stocks such as Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Meta (META) Broadcom (AVGO), and Alphabet (GOOG) have grown to collectively represent nearly 46% of QQQ. These mega-caps have kept the market afloat by consistently blowing away earnings forecasts, while the smaller-market-cap names have languished.

Source: Stockcharts.com. Commentary by Vestbridge Advisors, Inc.

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