June was a positive month for diversified, long-term equity investors, with the recent rally continuing amid hopes for rate cuts. Various economic data reports throughout the month indicated signs of easing inflation, supporting market optimism.

Major Stock Indexes

The stock market rally in June was driven by the technology and artificial intelligence (AI) sectors. Tech & AI giant Nvidia played a significant role in propelling broader averages, including the S&P 500 and Nasdaq 100, higher.

• S&P 500: Increased by 3.47%
• Nasdaq 100: Rose by 6.18%
• Dow Jones Industrial Average: Went up by 1.12%

Payroll Whopper

The employment report for May, released in June, showed a surprising increase in job numbers, with 272,000 new jobs created, surpassing the estimated 190,000. This was a significant jump from the 175,000 jobs added in April. The primary job gains were in healthcare, government, and leisure and hospitality sectors. These trends signal a strong economy, although they also raise questions about the timing of potential interest rate cuts.

Supportive U.S. Inflation Data

June brought positive news for investors hopeful for rate cuts, with inflation-busting optimism in full swing.

• Consumer Price Index (CPI): May's month-over-month pricing showed no increase, with a 3.3% year-over-year increase, both below market expectations. The Core CPI rose by 0.2% compared to April, falling below the predicted 0.3%. The annual core CPI rate unexpectedly decreased to 3.4% from 3.6% in April.
• Producer Price Index (PPI): For May, the PPI for final demand fell by 0.2% on a monthly basis, contrary to expectations of a 0.1% increase. Core PPI remained unchanged in May and decreased to 2.3% year-over-year.

The S&P 500 and Nasdaq 100 reacted positively to this softer inflation data, trading near all-time highs by the end of June.

Fed Rate Decision & Outlook

As anticipated, the Federal Reserve kept rates unchanged at its June policy meeting and hinted at a more aggressive stance on future rate policy. The Fed indicated that it is considering one rate cut in 2024.

“We believe that policy is restrictive. And we believe that if you maintain policy at a restrictive level, you will eventually see a real weakening in the economy,” stated Powell. He also noted that while rate hikes are not ruled out, they are not the most likely scenario.

Treasury Yields

Treasury yields were slightly lower in June compared to May. The 10-year Treasury Note Yield closed the month near 4.342%, about 17.3 basis points lower than May’s closing level of 4.515%. This steady to slightly lower rate was welcome news for mortgage borrowing activity.

The Takeaway

June featured a continuation of the rally that began in November, driven by excitement surrounding AI, steadier interest rates, solid economic data, and a supportive Fed outlook. The market expects rate cuts beginning in September, contingent on further evidence that inflation has cooled sufficiently.



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