Our sincerest apologies, it seems there was an issue with our original video file upload that caused it to end prematurely. Here is an updated version with the full video. 

Noteworthy Numbers

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The S&P 500 Technology Sector was positive by 9.3% in June and is the leading S&P sector for the month, quarter, and year. 

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The US Unemployment rate reached 4% for the first time since January of 2022. 

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Only 2 S&P 500 sectors have outperformed the broader index year-to-date, Technology and Communication Services. 

Our Take

By Bobby Moyer, Advisor & Sandy Wiggins, Managing Director

Growth stocks continue to lead the market month after month, and June was not any different as the S&P 500 Growth Index was up 6.98% and is now up 23.56% year-to-date. The S&P 500 Index as a whole was only up 3.59% for the month and 4.3% for the quarter as the S&P 500 Value Index was negative by 65 basis points in June and negative by 2.1% for the quarter. Mid and Small Caps both struggled in June as the S&P 400 Mid Cap Index was negative by 1.58% and the S&P 600 Small Cap Index was down even further by 2.28% and both indexes were negative by over 3% for the 2^nd quarter. The tech heavy Nasdaq had a strong month in June and was positive by 6.03%. The MSCI Emerging Markets Index was positive by 4.01% for the month while the International Developed Markets Index, the MSCI EAFE, was negative by 1.59%.

The 10-year treasury started the month yielding 4.51% but fell to 4.36% by the end of the month. This movement pushed bond prices higher as the Bloomberg US Aggregate Bond Index was up by 0.95% for the month but the bond index remains negative by 0.71% for the year. Shorter term bonds were also positive for the month as the Bloomberg US 1-3 Year Bond Index was up by 56 basis points and is positive by 1.38% year-to-date.

From an S&P 500 sector perspective, Technology stocks led the way up by 9.32% and Tech is now the leading sector for year, up 28.24%. Consumer Discretionary and Communication Services both also had strong months and were up 4.89% and 4.80% respectively. The Utilities sector was the worst performing sector in June, down 5.51%. This comes after Utilities had been performing well over the previous few months and remains positive 9.44% year-to-date.

On the surface, returns in June, for the quarter, and for the year, for that matter, look strong but under the surface it isn’t all such a rosy picture. Yes, the S&P 500 was positive by 3.59% in June, but the Equal Weighted S&P 500 was negative by 0.45% and was negative by 2.6% for the quarter. The point of this comparison is to show that a lot of the return of the S&P 500 was driven by the Mega Cap companies that make up a large weighting of the index and of each S&P sector. When you move past the S&P 500 you see that Mid Cap and Small Cap stocks continue to struggle under the shadow of higher interest rates. The same can be said of bonds with the Aggregate Bond Index negative year-to-date. You can make the case in many ways that these Mega Cap companies are the strongest companies in the current market environment and potentially the most defensive companies in the market. They are growing and they have strong cash flows and are not as reliant on borrowing as smaller companies.

As already mentioned, the 10-year treasury rate came down during the month falling from 4.51% to 4.36%. This coincided with the average 30-year mortgage rate moving down from 7.03% to 6.86%. However, supply of homes for sale is growing and prices are declining as consumer demand in the housing sector has yet to reaccelerate.

The Federal Reserve kept rates unchanged during their June meeting, but the probability of a rate cut in September is rising. According to the CME FedWatch Tool there is about 65% probability that rates will be lower after the September meeting. Much of this expectation is coming from the tamer inflation readings during June as the Fed’s preferred inflation measure Core PCE came down to 2.56%. There is also evidence of a potentially slowing economy. GDP for Q1 came in at 1.4% and the model for the Atlanta Fed GDP Now is showing 1.7% growth for the second quarter as of July 1^st. This number has been shifting as it was under 2% in early June then jumped to over 3% and has now come back down below 2%. The unemployment rate also ticked up to 4%, the first time the unemployment rate has reached this level since January of 2022. Weekly Initial Unemployment Claims reached 243,000 on June 8^th, the highest number of initial jobless claims since August of last year.

When the Federal Reserve finally starts cutting interest rates, we may finally see the breadth of the market expand and other areas of the market do well. For now, June was another month for Mega Cap Growth and Technology stocks. It could be tempting to pour money into these areas of the market, but this run won’t go on forever and when the trend changes you will want to be diversified and have other positions poised to perform well.