Global Markets Trade Higher After April Sell-Off

June 5th, 2024

Monthly Market Summary

  • The S&P 500 Index gained +5.1%, slightly outperforming the Russell 2000 Index’s +5.0% return. Ten of the eleven S&P 500 sectors traded higher, led by Utilities.
  • Corporate investment-grade bonds produced a +2.2% total return as Treasury yields fell, outperforming the corporate high-yield bond index’s +1.6% total return.
  • International stock performance was varied. The MSCI EAFE developed market stock index returned +5.1%, while the MSCI Emerging Market Index returned +2.0%.

Stocks and Bonds Rebound in May Driven by Mega-Cap Technology

The S&P 500 set a new all-time high in May after trading lower in April. The technology-heavy Nasdaq 100 Index gained +6.2% and set a new all-time high, with mega-cap stocks like Nvidia, Apple, Microsoft, and Facebook-parent Meta leading the recovery. Notably, smaller companies also participated in the rally, with the Russell 2000 Index now showing positive YTD returns. In the credit market, Treasury yields reversed a portion of their April rise. The U.S. Bond Aggregate Index, which tracks a wide range of investment grade bonds, gained +1.7% as yields fell. What caused stocks and bonds to rebound after the April sell-off? The answer: Labor market and inflation data.

Shifting Economic Data Has Increased Market Volatility in 2Q 2024

The economy and Federal Reserve policy are in focus today. Investors are analyzing every new data point to extrapolate the trend. Labor market and inflation data are considered most relevant because the Fed aims for maximum employment and stable prices. Softer labor market data and lower inflation are viewed as pulling forward rate cuts, while stronger labor market data and higher inflation delay the expected timing of rate cuts.

In early April, the Labor Department reported that the U.S. added 315,000 jobs in March, causing unemployment to fall to 3.8%. A few weeks later, data showed Core CPI, which measures inflation excluding energy and food, held steady at 3.8% year-over-year. The combination of lower unemployment and unchanged inflation signaled a strong labor market and sticky inflation, leading investors to lower interest rate cut expectations.

In May, the latest labor market and inflation data signaled the opposite. The U.S. added 175,000 jobs, the slowest pace since October 2023, and unemployment rose to 3.9%. Inflation data revealed that Core CPI fell to 3.6% year-over-year, the lowest reading since April 2021. These data points marked a shift from the previous month, signaling a softer labor market and easing inflation. After lowering rate cut expectations in April, the market increased them in May. Treasury yields declined, and stocks traded higher.

As April and May showed, monthly economic data can be noisy. It can signal a strong trend one month and then the opposite trend the next month, causing investors to abruptly shift their views. This market volatility could continue over the summer until there is more certainty around Federal Reserve policy, inflation, and economic growth.

Leave a Reply

Your email address will not be published. Required fields are marked *

Definitions

Annualized Return: The rate at which an investment grows each year over the period to arrive at the final valuation.
Bear Market: A decline of at least 20% from the market’s high point to its low.
Beta: A measure of how an individual asset moves when the overall stock market increases or decreases.
Correlation: A measure of the extent to which two variables are related.
Dividend Yield: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend
payments divided by its market capitalization, assuming the number of sharesis constant.
Developed Markets: A country that is most developed in terms of its economy and capital markets. The country must be high income, but this also includes openness
to foreign ownership, ease of capital movement, and efficiency of market institutions.
Emerging Markets: A country that has some characteristics of a developed market but does not fully meet its standards. This includes markets that may become
developed marketsin the future or were in the past.
GrowthFactor Stocks: Growth stocks are companies expected to grow sales and earnings at a fasterrate than the market average.
LargeCap Stocks: Shares of publicly traded corporationswith a market capitalization of $10 billion or more.
LTM: An acronymfor”Last Twelve Months”or the past one year.
NTM:An acronymfor”Next Twelve Months” or the next one year.
Price Return: The rate of return on an investment portfolio, where the return measure takes into account only the capital appreciation of the portfolio, not including
income generated in the form of interest or dividends.
Total Return: Return on a portfolio of investmentsincluding capital appreciation and income received on the portfolio.
Small Cap Stocks: Small-cap stocks are shares of companieswith a market capitalization of less than $2 billion.
Standard Deviation: In statistics, the standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates the
valuestend to be close to the historical average of the data set, while a high standarddeviationindicatesthe current value is outside of the historical average range.
Value Factor Stocks: Stocksthat are inexpensive relative to the broad market based on measures of fundamental value (e.g., price to earnings or price to book).

Disclosures and Legal Notice

DISCLAIMER:

Futures, stocks and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, stocks and options may
fluctuate, and, as a result, clients may lose more than their original investment. The impact of seasonal and geopolitical events is already factored into market prices. The
highly leveraged nature of futures trading means that small market movements will have a great impact on your trading account and this can work against you, leading to
large losses or can work for you, leading to large gains.

• If the market moves against you, you may sustain a total loss greater than the amount you deposited into your account. You are responsible for all the risks and financial resources you use and for the chosen trading system. You should not engage in trading unless you fully understand the nature of the transactions you are entering into and the extent of your exposure to loss. If you do not fully understand these risks you must seek independent advice from your financial advisor. All trading strategies are used at your own risk.

• Any content on TradesTrending.com should not be relied upon as advice or construed as providing recommendations of any kind. It is your responsibility to confirm and decide which trades to make. Trade only with risk capital; that is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to meet your financial obligations. Past results are no indication of future performance. In no event should the content of this correspondence be construed as an express or implied promise or guarantee.

• TradesTrending.com is not responsible for any losses incurred as a result of using any of our trading strategies. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Information provided in this correspondence is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Disclaimer

• None of the content published on TradesTrending.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.

Free newsletter

Market Research & Analysis

 

By submitting your information you agree to our Terms of Service and our Privacy Policy