June 2024 Market Update: And So, It Begins?

Despite modestly lower inflation data for May, the Federal Reserve indicated that inflation is not down to levels where they would consider a rate cut appropriate, for the moment. According to the dot plot, which forecasts interest rates, the Federal Reserve’s median expectation is for one rate cut in 2024. With inflation seemingly on the right trajectory, and probabilities for multiple rate cuts in 2024 down dramatically from the start of the year, one could assume that rates really have peaked. Time will tell, as interest rate prognostications have historically been difficult.

The markets, meanwhile, had mixed performance in the month and quarter, with positive returns for large cap growth, which continues to dominate both U.S. and non-U.S. market performance. However, bonds had a positive month and eked out a positive quarter across most sectors domestically.

Equity markets

The AI-driven, growth-oriented equity backdrop continued in the month of June, with growth beating value by over 700 basis points (Russell 1000 Growth 6.4 percent, Russell Value -1.0 percent) and the quarter having an even wider spread at 8.8 percent for the growth index versus -2.2 percent for the value index. Small and mid-capitalization stocks also performed poorly in the month (Russell 2000 -0.9 percent, Russell Midcap -0.7 percent) and quarter (Russell 2000 and Russell Midcap both at -3.3 percent) as the higher-for-longer environment has a greater impact on smaller companies.

Outside of the U.S. performance in the month was also negative for Developed markets (EAFE -1.6 percent), but emerging markets had a strong month and quarter due to the Asia-related tech hubs of Korea (8.9 percent in the month) and Taiwan (12 percent in the month) leading the index higher, as well as the continued strong performance of India this year (7.0 percent in the month, 10.4 percent for the quarter) as it benefits from the China divestment story.  

Fixed income

The Bloomberg Aggregate was positive for the month at 0.9 percent and for the quarter at 0.1 percent, the first positive quarter for bonds so far in 2024. Fixed income assets around the globe provided a positive return in the month of June. With the exception of non-U.S. fixed income and longer-dated bonds, fixed income assets were also positive in the quarter. The markets seems to be adjusting to the higher-for-longer narrative and is instead focused on the positives of resilient growth and real yields. 

Of note

Commercial real estate prices have continued to decline this year, albeit at a slower pace, while income has remained steady (see chart below). In contrast, U.S. housing prices increased until the most recent month (second chart below). This dichotomy points to the current environment for real estate assets, namely that there are haves and have-nots. This is true by type of real estate and by location.