Market Musings June 2024
In the words of Robert Frost, “I’m not confused, I’m just well mixed.”
The markets continue their (albeit muted) move upwards following the retracement in April. All this while the data is, well, confusing.
In a recent article penned by Craig Basinger, the Chief Market Strategist at Purpose Investment Inc., he wrote that we are in a very unique market mood when bad news is good news. He was referring to April, when bond yields rose and pushed negative sentiment into the equity market. The market recovered early in May, following a weaker-than-expected Non-Farm payroll labour report (?). Since then, the economic data has been weakening, and yet, U.S. equity prices continue to rise.
On the flip side, on May 2, 79% of companies on the S&P 500 have beaten earning estimates thus far. And the market’s performance is no longer dominated by the Magnificent Seven as it was in 2023, when those seven stocks added 15.9% to the S&P 500 return, with the remaining 493 companies accounting for only 8.3%. In 2024, the returns are relatively more broad based (healthier distribution).
The U.S. Conference Board Leading Economic Indicators index is clearly in territory where, historically, it signaled a recession, or that a recession is imminent. But, while the consumer remains resilient (but more discerning certainly), and unemployment is very low, consumption (2/3 of domestic GDP) remains sound.
U.S. savings as a % of disposable income is below the three-year average (pre-Covid average). This may indicate that the Covid money that the government sent out to consumers is all but spent.
One noted prognosticator (Jurrien Timmer of Fidelity) suggested this week that the market was into the seventh inning (baseball analogy). This is farther ahead than his previous comments suggested.
David Kelly, the Chief Global Strategist at J.P. Morgan Asset Management, wrote this week about the normalization of the jobs market in the U.S., and how, after significant unemployment, we then lived through labour shortages, to now be looking at a normalized job market. This does mean a slowdown. It can indicate a low inflation environment, but beware, he says, as this is very fertile ground for market bubbles to form, so watch equity valuations.
As per this month’s title, not confused, just mixed up.
Choppiness in the index is to be expected, but while good volatility (upside jerkiness) is welcome, the alternative downside jerkiness is not. Diversification is very important, and FOMO is your enemy (FOMO stands for “Fear of missing out,” aka artificial intelligence today, and so many other thematics in the past).
Politics: A quick reminder that the outcome of elections, while attracting significant attention at the time, has no real lasting effect on what we do for you. We mention this as we appear to be in an election year: Russia, India, U.K., U.S., France (CAD?). There may be some short-term volatility following results, but the results rarely have a lasting impact on your portfolios.
In other office news, Raymond James Ltd. recently wrapped up RJ Cares month. Our team was active in this respect, preparing meals at Ronald McDonald House for a day while Laurent will be leading the Raymond James charge in the bike ride to cure cancer on July 7. More information on our charitable implication can be found on our website.
Please share any questions and comments that you may have.
Thank you,
Erik and Guillaume
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Erik Moisan and Guillaume Desjardins-Tessier are Portfolio Managers with Raymond James Ltd. The views are those of the authors, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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