US Markets
Following a rocky start, stocks finished the second quarter higher as investors remained optimistic the Fed will manage interest rates with inflation trending lower.
For the quarter, the Standard & Poor’s 500 Index rose 3.92%, and the Nasdaq Composite picked up 8.26%. By contrast, the Dow Jones Industrial Average fell 1.73%.1
Rocky Start in Q2
Stocks lost ground in April as investors struggled with mixed economic news and mixed signals from the Fed.
Fresh Consumer Price Index data showed that March inflation was hotter than expected, However, retail sales for March suggested consumers were spending despite rising inflation.
Fed Chair Jerome Powell possibly unsettled investors when his tone appeared to shift from confident to cagey about interest rate cuts.
Also, tensions in the Middle East continued to rattle the markets.2,3,4
Goldilocks Economy
Markets turned in May, however, rallying around upbeat Q1 corporate reports and signs that the economy remained strong.
Some market watchers called it a “Goldilocks” economy, which is defined by economic activity that is neither too hot nor too cold.
For example, the 175,000 jobs created in April was less than the 240,000 economists expected but still considered a solid showing.5,6
The Fed Remains in Focus
This momentum, along with news that inflation rose less than expected in May, bolstered investor sentiment. Enthusiasm was tempered, however, following the Fed’s policy meeting in which only one rate cut for the year was penciled in, versus the three previously communicated in March.7,8
What Investors May be Talking About in July
Early in the month, Companies will begin to give updates on business conditions in Q2 with some sharing their outlooks for Q3 and beyond.
As these companies enter what is referred to as “earnings season,” FactSet research is estimating an (year-over-year) earnings growth rate for the S&P 500 at 8.8%. That would be the highest year-over-year growth rate since Q1 2022 (9.4%).10
Remember, forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.
Along with business conditions, investors will be looking for updates on companies’ efforts with artificial intelligence. Of the S&P 500 companies, 199 cited the term “AI” during their earnings calls in Q1 2024.
Will that number increase or decrease in Q2? By comparison, 219 companies mentioned the phrase “inflation” when discussing business conditions with shareholders in Q1, which was down from 303 a year earlier.11,12
The Fed meets once more before the fall season, July 30–31. At the conclusion of the June meeting, Fed Chair Powell said, “Inflation has eased over the past year but remains elevated.”
Fed officials adjusted their outlook and said they anticipate cutting short-term interest rates just once this year.
Just a few months earlier, the Fed seemed prepared to cut rates three times in 2024. Investors are expected to react if the Fed adjusts its outlook for short-term rates again in July.13
World Markets
Much like the Dow Industrials, the MSCI EAFE Index fell 1.48% during the second quarter. Political uncertainty in Europe and investor concerns over Japan’s monetary policy contributed to the decline.14
Among European markets, France dropped 8.63%, Italy fell 4.59%, and Germany slipped 1.39%. By contrast, the UK rose 2.66% for the three-month period.15
Elsewhere, India picked up 7.31% while China’s Hang Seng index rose 7.12%. But Mexico lost 8.59%, Brazil fell 3.28%, and Australia dipped 1.64%.16
The Fed
The Fed left interest rates unchanged at both Federal Open Market Committee (FOMC) meetings held in the second quarter.26
Minutes from the April/May meeting stated that some Fed officials worried about the lack of progress on inflation.
After the June 11-12 meeting, some investors were unsettled after learning Fed officials had shifted their outlook based on continued stubborn inflation data, and now only penciled in a single rate cut for the rest of the year. Back in March, the majority of Fed officials had indicated as many as three cuts were possible this year.
The next FOMC meeting will be July 30-31.
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1. WSJ, June 28, 2024
2. WSJ.com, April 4, 2024
3. WSJ.com, April 16, 2024
4. CNBC.com, April 15, 2024
5. CNBC.com, May 15, 2024
6. CNBC.com, May 3, 2024
7. WSJ.com, June 12, 2024
8. APNews.com, June 27, 2024
9. Sectorspdrs.com, June 30, 2024
10. Insight.FactSet.com, June 21, 2024
11. Insight.FactSet.com, May 24, 2024
12. Insight.FactSet.com, May 17, 2024
13. CNBC.com, June 12, 2024
14. MSCI, June 30, 2024
15. MSCI, June 30, 2024
16. MSCI, June 30, 2024
17. BureauofEconomicAnalysis.gov, June 27, 2024
18. WSJ.com, June 7, 2024
19. CNBC.com, June 18, 2024
20. IndustryWeek.com, June 18, 2024
21. Marketwatch.com, June 20, 2024
22. National Association of Realtors, June 21, 2024
23. Reuters, June 26, 2024
24. WSJ.com, June 12, 2024
25. BankingJournal.aba.com, June 27, 2024
26. WSJ.com, June 12. 2024
27. Wikipedia.com, July 2, 2024
28. ESPN.com, May 14, 2024
29. Olympics.com, July 2, 2024
30. Forbes.com, April 24, 2024
31. EuroNews.com, January 31, 2024
32. NBC.com, June 23, 2024
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