Daily market snapshot

• Stocks start the second half of 2024 higher – Stock markets closed modestly higher on Monday to kick off the new month and the second half of 2024. The tech-heavy Nasdaq outperformed both the S&P 500 and Dow Jones. This was the same trend in the first half of 2024, as the Nasdaq was higher by over 17%; followed by the S&P 500, up over 14%; and the Dow Jones lagged, up just over 4%*. Meanwhile, bond yields also climbed higher, with the 10-year Treasury yield up on Monday by about 0.08%, to 4.48%, well above recent lows of around 4.22%*. Markets will be watching the Fed, inflation, and labor-market data closely in the second half of the year as key drivers of the economy and equity markets. In our view, if inflation moderates and the labor market cools, the Fed remains poised to begin rate cuts by year-end, which should be supportive of both stocks and bonds.
• All eyes turn to U.S. labor-market data: This Friday, the U.S. nonfarm-jobs report for the month of June will be released, and the expectation is for an addition of 190,000 new jobs, below last month's 272,000 jobs added*. The unemployment rate is expected to remain steady at 4.0%, while the labor-force participation rate is forecast to tick higher, from 62.5% to 62.6%. The average hour earnings figure is expected to modestly cool, from 4.1% year-over-year to 3.9%*. In our view, the labor market will be a key driver of both consumer spending and services inflation. We are starting to see signs of a cooling in the labor market, with more supply of labor being added, while demand for labor is softening. If we continue to see a cooling and not a rapid deceleration in the labor market, this should be supportive of easing consumption and lower inflation, and it should give the Fed more confidence to begin a rate-cutting cycle.
• Markets continue to expect two Fed rate cuts this year: The next Federal Reserve meeting will be held on July 31, and markets expect the Fed to keep rates on hold at 5.25% - 5.5% at this meeting**. However, according to CME FedWatch, market expectations are for two rate cuts in 2024, most likely at the September and December meetings. We believe one or two Fed rate cuts this year are a likely scenario, especially if we see inflation continuing to move lower toward the Fed's 2.0% target. Inflation may continue to moderate as the shelter and rent components of inflation play catch-up to real time data that show easing, and if the labor market cools and wage growth moderates. In our view, the Fed may adopt a quarterly cadence of rate cuts because it is more systematic and removes some uncertainty and potential volatility as the Fed gradually brings rates to a more neutral level over the next several quarters.

Mona Mahajan
Investment Strategist

^{*FactSet ** CME FedWatch}

• Stocks close lower - Major equity indexes closed lower on Friday, with large-cap stocks trailing small- and mid-cap stocks*. Sector performance was mixed, with real estate and energy leading to the upside, and with communication services and consumer discretionary among those that were lower *. In global markets, Asia was up on stronger-than-expected Japan industrial-production growth of 2.8%. Europe was broadly lower as investors evaluated new inflation data. The U.S. dollar was down modestly versus major currencies. In the commodity space, WTI oil and gold traded lower.
• Key inflation measures edge lower: The Fed's preferred inflation measure, the core personal consumption expenditure (PCE) price index, which excludes food and energy prices, rose 2.6% year-over-year through May, as expected, and is down from 2.8% the prior month**. Headline PCE was also in line with estimates at 2.6% over the past 12 months, compared with 2.7% the prior month**. Consumption expenditures rose 0.2%, up modestly from April's reading of 0.1%**, but still reflecting that consumers are pulling back on spending. While core PCE remains above the Fed's target of 2%, we expect inflation to continue to moderate in the back half of the year, driven in part by lower shelter inflation and slower wage growth. Government measures of shelter inflation, including CPI and PCE, have been lagging market-based measures, such as Zillow's Observed Rent Index***, which show housing costs rising at a slower rate. Labor markets are also gradually cooling, reflected in fewer job openings and slowly rising unemployment.
• Bond yields rise - Bond yields were up, with the 10-year Treasury yield at about 4.39%. Bond markets continue to price in expectations for two Fed rate cuts this year following the PCE report, which reflected that inflation is slowing in line with estimates. Our expectations are that continued signs inflation is moderating should keep the Fed on track for one or two rate cuts later this year, which would be favorable for the economy and markets broadly.

Brian Therien, CFA
Investment Strategy

^{*FactSet ** U.S. Bureau of Economic Analysis *** Zillow}

• Stocks tick higher ahead of tomorrow's inflation report: Stocks logged modest gains on Thursday, with the S&P 500 rising by 0.1% while the Nasdaq logged a 0.3% gain.* The consumer discretionary and real estate sectors of the S&P 500 were today's top performers, while the defensive consumer staples sector lagged.* On the economic front, initial jobless claims came in slightly lower than consensus expectations, while headline durable goods orders rose by 0.1% in May, above expectations for no change.* Overseas, Asian markets were mostly lower overnight in response to sluggish industrial profit growth in China, while European markets finished lower following a lower-than-expected eurozone economic-sentiment reading.* Bond yields ticked down today, with the 10-year Treasury yield finishing just below the 4.3% mark, while the 2-year yield closed around 4.72%.* In the commodity space, oil prices closed higher, rising to just below $82 per barrel, while gold prices rose by 1%.* Looking ahead, market focus will shift to inflation data, with personal consumption expenditures (PCE) inflation out tomorrow.  
• Markets eye inflation data and its implications on monetary policy: Market focus will shift to inflation with the release of PCE inflation for May out tomorrow morning. Expectations are for headline PCE to be flat on a month-over-month basis and rise by 2.6% year-over-year.* Core PCE, the Fed's preferred measure of inflation, is expected to rise by a modest 0.1% month-over-month and 2.6% year-over-year. Earlier this month, consumer price index and producer price index inflation came in lower than expectations, providing markets with confidence that the trend in inflation remains lower after three consecutive months of higher-than-expected inflation readings to begin the year. In response, markets are now pricing in roughly two Federal Reserve interest-rate cuts in 2024 compared with only one at the end of April.** In our view, two rate cuts from the Fed in 2024 are a reasonable expectation but far from a certainty. In order to gain the confidence necessary to begin lowering rates, we expect the Fed will need to see several more consecutive months of lower inflation data. Perhaps more important to markets than the exact timing of rate cuts is the direction of policy rates, which we expect will be lower over the coming years. In our view, a multiyear rate-cutting cycle from the Fed in the absence of a recession should be supportive to stock and bond markets.
• Jobless claims hold steady: Initial jobless claims for last week were 233,000, below expectations for 235,000 and below the prior reading of 239,000.* With today's reading, the four-week moving average rose to 236,000, which, while low by historical standards, is the highest reading since September 2023.* The modest uptick in jobless claims is consistent with our view that labor-market conditions will loosen in the months ahead. We would, however, reiterate that while we expect the labor market to cool, we don't expect a meaningful uptick in firing or unemployment. Rather, we'd expect the strong pace of job creation in recent months to potentially slow as the imbalance between supply and demand for labor normalizes. A healthy albeit easing labor market should provide support to consumer spending and help extend the economic expansion.

Brock Weimer, CFA
Associate Analyst

^{*FactSet **Bloomberg}

• Stocks close mostly higher: Equity markets finished modestly higher on Wednesday, with the S&P 500 gaining 0.2% and the Nasdaq rising by 0.5%. Sector leadership was narrow, with the consumer discretionary sector of the S&P 500 gaining roughly 2%, driven by strong gains in Tesla and Amazon, while most other sectors finished flat to lower.* Overseas, Asian markets closed higher overnight, while European markets closed lower following a consumer-confidence reading from Germany that was lower than consensus expectations.* On the corporate front, shares of FedEx closed higher by over 15% in response to strong earnings results after the market close yesterday, with the company exceeding earnings estimates for the quarter.* Treasury yields finished higher, with the 10-year yield ticking up to above the 4.3% mark, while the 2-year Treasury yield was little changed at around 4.75%.*  
• Large-cap stocks and bonds are tracking for another positive month: With only two trading days left in June, U.S. large-cap stocks and investment-grade bonds are following up a strong performance in May with more gains this month. The S&P 500 is higher by roughly 3.7% this month, aided by ongoing strength in mega-cap technology stocks.** The information technology and communication services sectors have both risen by over 5.5% this month and are the only two sectors outperforming the broader S&P 500 month-to-date.** Looking down the market-cap, returns have been less favorable for small- and mid-cap stocks, with the Russell 2000 Index lower by 2.2% for the month and the Russell Mid-cap Index lower by 0.6%. On the fixed-income side, the Bloomberg U.S. Aggregate Bond Index is higher for the month by roughly 1.7%.** Bond returns have been boosted by a pullback in Treasury yields stemming from a lower-than-expected U.S. inflation reading earlier this month. The 10-year Treasury yield has pulled back from roughly 4.5% at the end of May to around the 4.3% mark today.*
• Housing data in focus: Housing-market data is back in focus today with the release of new home sales for May. New home sales were at a seasonally adjusted annualized rate of 619,000 in May, modestly below expectations for 648,000.* The median sales price of new homes in May was $417,400, which was below the April reading of $433,500. Despite higher borrowing costs and selling prices near all-time highs, new home sales have fared reasonably well, with the May reading of 619,000 only moderately below the 10-year average of about 640,000.* However, existing home sales, which were released last Friday, have shown meaningful weakness in the face of higher borrowing costs. Last week's data showed that existing home sales were at a 4.1 million annualized rate in May, well below the 10-year average of roughly 5.3 million and lower by 0.7% from the prior month, marking the third consecutive month-over-month decline.* We'd equate the divergence between new and existing home sales to existing homeowners showing reluctance to put their homes on the market and forfeit lower mortgage rates that were locked in at lower rates. This reaction from homeowners is also evidenced in the inventory of existing homes for sale, which is at the low end of its 10-year range, compared with new homes for sale, which have risen steadily over the past year. Tight housing inventory has likely been a driving factor behind the resilience in home prices despite higher borrowing costs and lower home affordability. To the degree that lower interest rates bring additional supply of housing to the market in the form of existing homes for sale, potential rate cuts from the Fed could potentially slow the pace of rising home prices.

Brock Weimer, CFA
Associate Analyst

^{*FactSet **FactSet, total return in local currency through 6/25/2024}