Market Review 20th June 2024
Simplify the craziness
DAILY REVIEW
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4 min read
Stock markets closed with mixed performance on Thursday. The Dow Jones Industrial Average rose, while the S&P 500 and Nasdaq Composite both fell. Year-to-date, the Nasdaq is up approximately 18%, and the S&P 500 is up nearly 15%, whereas the Dow Jones has only seen an increase of about 4%*. The divergence is largely due to the sectoral composition of each index. The Dow is more heavily weighted towards financials, healthcare, and industrials, while the S&P 500 and Nasdaq have greater weights in technology and growth sectors, which have been driving the markets higher.
On Thursday, Treasury yields also ticked higher. The 10-year Treasury yield rose by about 0.03% to 4.26%, remaining below the April highs of 4.7%*. The recent decline in bond yields has been supportive of better performance in both stock and bond markets.
Current & Upcoming Fed News/Economic Data
The market's attention is turning to the personal consumption expenditure (PCE) inflation data for May, which is set to be released next Friday. This is a critical metric for the Federal Reserve, as it informs their monetary policy decisions. The expectation is for headline PCE inflation to drop from 2.7% year-over-year to 2.6%, and for core PCE inflation (excluding food and energy) to decrease from 2.8% to 2.6%. In its June meeting, the Fed projected core PCE inflation to be 2.8% for 2024. A lower-than-expected inflation reading next week could provide the Fed with the justification to cut interest rates, potentially more than once, in the latter half of the year.
Bonds and Treasury Yields
Treasury yields have shown an upward trend this week, although they remain lower than their recent peaks. The 10-year Treasury yield increased slightly to 4.26%, while the two-year yield, which closely tracks Federal Reserve policy expectations, rose to 4.72%. Mixed economic data have influenced these movements. Initial jobless claims decreased last week but not as much as anticipated, and housing starts were lower than expected. The bond market's performance has been crucial in shaping investor sentiment, as lower yields have supported higher equity valuations.
Notable Earnings
The latest earnings reports have provided critical insights into the financial performance of several major companies. Here are the highlights:
Adobe Inc. (ADBE): Reported Q2 earnings of $3.91 per share on revenue of $4.82 billion, beating estimates of $3.79 per share and $4.77 billion respectively. Strong performance in its digital media segment drove the results.
Oracle Corporation (ORCL): Posted quarterly earnings of $1.67 per share on revenue of $13.84 billion, surpassing the expected $1.58 per share and $13.74 billion. The growth was attributed to its cloud services and license support business.
FedEx Corporation (FDX): Delivered Q4 earnings of $4.94 per share, higher than the anticipated $4.85 per share, on revenue of $24.39 billion. Increased shipping volumes and higher shipping rates contributed to the positive results.
Lennar Corporation (LEN): Reported Q2 earnings of $3.01 per share, exceeding the forecasted $2.64 per share, with revenue hitting $8.04 billion. Strong demand in the housing market helped bolster their performance.
Darden Restaurants, Inc. (DRI): Announced Q4 earnings of $2.58 per share, above the expected $2.54 per share, on revenue of $2.77 billion. Increased customer traffic and higher menu prices supported their earnings.
Crypto Market Update
Bitcoin (BTC): The price of Bitcoin is currently around $65,050. This represents a slight increase in its 24-hour trading volume, which stands at approximately $26.37 billion. Bitcoin's market remains highly active with notable recent news, such as the Winklevoss twins donating $2 million worth of Bitcoin to support Donald Trump in his fight against Biden's policies on cryptocurrency (StatMuse) (CoinGecko).
Ethereum (ETH): Ethereum is trading at around $3,582. The 24-hour trading volume for Ethereum is also robust, reflecting its continued importance in the cryptocurrency market. Ethereum's price movements are closely watched as it plays a crucial role in the functionality of various decentralized applications and NFT markets (CoinGecko).
Analyst Sentiments and Future Outlooks
Analysts remain cautiously optimistic about the market's future. The performance of mega-cap technology stocks, particularly those involved in AI, has been a major driver of the market's gains. The technology and communication services sectors, which include many large-cap AI stocks, have outperformed the broader S&P 500, each up over 23% this year thus far*. However, analysts emphasize the need for market leadership to broaden beyond these sectors. They predict that earnings growth will become more diversified in the latter half of the year, driven by sectors outside of technology.
Moreover, as the Federal Reserve approaches potential rate cuts, cyclical areas of the market may catch up as yields moderate. The efficiencies brought about by AI are expected to support broader stock leadership over time, benefiting various sectors beyond technology.
Conclusion
The stock market's mixed performance this week highlights the ongoing sectoral divergence and the significant impact of economic data and Federal Reserve policy on investor sentiment. While mega-cap technology stocks have driven much of the market's gains, there is a growing consensus that broader market participation is necessary for sustained growth. Upcoming economic data, particularly the PCE inflation report, will be crucial in shaping the Federal Reserve's policy decisions and, by extension, market dynamics. Investors will continue to monitor these developments closely, seeking opportunities in both traditional and emerging sectors, including the ever-evolving cryptocurrency market.
References
Market Watch: Nasdaq, S&P 500, and Dow Jones year-to-date performance.
CNBC: Treasury yield movements and economic data impacts.
Federal Reserve: Core PCE inflation projections and potential rate cuts.
Reuters: Accenture earnings and AI bookings.
Bloomberg: Gilead Sciences trial results.
CoinDesk: Bitcoin, Ethereum, and other cryptocurrency market updates.
