June 2024 Market Insights

BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS

The S&P 500 rose above 5,500 for the first time this month on strength from the largest Technology stocks. Inflation readings generally improved and it will be more than a year from the last Fed hike (July) to the first Fed cut. 

Stocks:

Of the 15.5% total return from the S&P 500 this year, we estimate that around 9% came from higher valuations, less than 1% came from dividends, and the remainder came from earnings growth. The forward price-to-earnings ratio has increased to 21.0, which is towards the higher end of recent history. While the S&P 500 already had one 5% pullback this year, another could happen at any time, and we view this as a normal and necessary function in the market. Near-term, any additional gains will more likely be driven by earnings growth than higher valuations. Earnings growth is currently expected to be around 11% for calendar year 2024 and 14% for calendar year 2025. The Technology sector has grown to be nearly one-third of the S&P 500, including over 20% of the index being represented by three stocks: Microsoft, NVIDIA, and Apple. For risk management and diversification, our custom stock portfolios typically limit single-stock exposure to 5%, and sector exposure is targeted to be within +/-3% of the weight in the S&P 500.

Economy:

Reports over the past month have generally been favorable. Various inflation readings have ranged from 2.2% to 3.3% and most improved from the prior month. The Fed’s ultimate goal is to get inflation closer to 2.0%. The ISM Services report was much stronger than expected, having rebounded back into growth territory. Services are a larger part of the economy than manufacturing, and this index has shown growth in 46 of the past 48 months. While weekly jobless claims have recently increased, the level remains historically low. The monthly jobs report at the beginning of June showed national unemployment rising to 4.0% for the first time in over two years, but again, this figure is historically low. High mortgage rates are having an impact on housing demand; while average prices remain higher than a year ago, the rate of change is slowing. The average 30-year loan rate was recently 6.87%, according to Freddie Mac.

Bonds & the Federal Reserve:

Since our last Insights, interest rates have declined slightly. 5-year and 10-year Treasury yields moved as high as 4.6% and as low as 4.2% in the past month, but are currently sitting towards the low end of that range. Due to moderating inflation and economic data, expectations for 0.25% cuts to the Fed Funds rate in September and December are becoming more entrenched in market expectations.

Behind the Scenes:

Just after Memorial Day, trading settlement changed from two days to one day for stocks, corporate bonds, exchange traded funds (ETFs), and more. Previously, mutual funds and Treasury bonds traded with next-day settlement, while now everything trades next-day. Settlement is when cash becomes available from a sale or when cash is due from a purchase. The switch is a benefit for clients and traders, and the transition in late May went smoothly.

Buckingham is here for you:

Buckingham Advisors continues to welcome new households and small businesses to our Family of Clients! Thank you to our clients for your referrals and continued support. Our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please forward this issue on to others. To get in touch directly, please use the following link: https://mybuckingham.com/contact. 

Thank you for your continued trust and referrals.

Ryan P. Johnson, CFA, CFP®

Managing Director of Investments

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RISKS AND IMPORTANT CONSIDERATIONS

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.