Stocks puttered along through April and May with little conviction. This changed in the final week of May which saw the start of a rally and by the end of June, US equities were up 8.3% for the quarter. International equities only gained 3% and bonds fell by 1% as interest rates rose.

April was headlined with lingering concerns from March’s banking crisis, mixed inflation numbers, and corporate earnings that beat expectations. Net, net stocks were little changed, not moving more than 2% in either direction. This continued through May, when the federal reserve hiked rates by a quarter of a percent and a looming debt ceiling crisis weighed on markets.

Things turned in the final week of May as a debt ceiling deal between Congress and the White House looked more likely. This was followed by a strong jobs report, better-than-expected inflation data, and finally, a Fed meeting which saw the committee decide to not raise rates for the first time in 15 months. By the time June 30th arrived, U.S. stocks had posted their best quarter since Q4 of 2021.

Price Action:

  • Technology stocks continued to dominate, with the Nasdaq gaining 15.3% in the quarter.
  • The rally in technology companies was helped by optimism in artificial intelligence. Companies like Nvidia and Palantir rallied 52% and 81% respectively.
  • The trend of growth outpacing value continued with US Growth stocks gaining 12.4% on the quarter and Value only increasing 4.0%. Despite growth stocks besting value stocks by 22% on the year, Value is up 6.2% since 1/1/2022 due to the 30% difference seen last year.
  • REIT’s woes continue with the sector gaining 2.6% in Q2.
  • The Fed Funds rate now sits at 5.125%. Fed Officials are forecasting two more hikes this year while the market only expects one.
  • The yield curve continued to invert with 2-year yields increasing by 0.8% while 10-year USTs increased 0.3% The yield of the aggregate bond market now sits at 4.8%, providing an attractive return for fixed-income investors.
  • Commodities had a rough quarter with gold falling 2.7%, WTI Oil dropping 6.6%, and a broad commodity index falling 5.5%. The pullback in commodity prices has some concerned a recession may be more likely than many believe.
  • Housing prices reversed their 7-month decline and rose 2.8%.

Looking Forward - Concerns over a recession are at the forefront of most investors’ minds. If we enter a recession, how severe it is, and what it does to interest rates and corporate earnings are all factors that will drive market performance. Inflation data and the Fed’s subsequent actions will also garner attention from capital markets.

Geopolitically, we recently saw some unexpected activity in Russia. Those hoping for the end of Putin’s regime are reminded the replacement could be worse. Domestically, the 2024 election will begin to matter more as time goes on. At some point, we need to address the national debt. It seems these market drivers are the same ones we’ve been talking about for the last year.

Expect something not on our radar to grab headlines and move markets in the next several months, unfortunately, we don’t know what it will be until it happens. When it does, remember to stay calm and take a measured approach to your investments.