Monthly Market Report – June 2024
Fixed income managed to moderate its performance during June, although it closed the month far from the minimum IRR levels reached. For its part, Wall Street continues to completely ignore the macroeconomy and managed to score new all-time highs.
In the first week of the month, the ECB met expectations and cut rates by 25 basis points, bringing the reference level to 4.25% after holding them at 4.50% for 9 consecutive months. Lagarde's subsequent speech was not particularly accommodating for market interests after indicating that this first cut did not imply the beginning of a programmed roadmap for future rate cuts.
For its part, the Fed kept rates unchanged at 5.5%, a level that has been repeated over the last 12 months. There is a clear division among the different members of the institution, as some were in favor of keeping rates unchanged this year, while others consider it appropriate to make between 1 and 2 cuts. On the positive side, the conviction to cut rates significantly during 2025 and 2026 (100 basis points per year) stands out.
The outcome of the European elections triggered a sharp increase in volatility, especially affecting French assets. Le Penn's ultra-right party obtained more votes than that of current President Macron, which led to the call for early elections. The French financial sector was particularly hard hit, while the risk premium on French debt rose sharply.
On June 20, the S&P-500 reached 5,505 points, a new all-time high for the index. However, the rises are occurring with very little market breadth; while the most concentrated stocks are rising sharply, the vast majority of the market is rising little, not at all or even falling for the current 2024.
The high concentration of the indexes skews their performance. At the end of June, the 10 largest stocks in the S&P-500 accounted for 37% of the entire index. In terms of performance, the so-called Superb 7 alone account for nearly 2/3 of the +14.48% that the S&P-500 has achieved in the first half of 2024.
NVIDIA's performance continues to stand out, as the market's current appetite for artificial intelligence is at its peak. The U.S. technology company's shares accumulated a +150% appreciation in the first half of the year. During some sessions in June, it became the company with the largest market capitalization in the world, exceeding 3 trillion dollars. By way of comparison, there are only seven countries in the world with a GDP greater than NVIDIA's current capitalization.
U.S. inflation came in lower than expected, which acted as a bullish catalyst for debt. Both the European and US curves experienced declines in yields. Price rallies became significant, with the US 10-year benchmark reaching an IRR of 4.22%. However, a much better-than-expected US employment figure slowed down the buying spiral. Finally, the curves managed to close June below where they started the month, but were far from the minimum IRR levels reached. The aforementioned 10-year US benchmark ended the month at 4.40%.
The volatility registered by oil was also relevant. The commodity fell sharply during the first sessions of June to a four-month low of $72.5 per barrel for the WTI benchmark. However, during the rest of the sessions, the price of the barrel rebounded uninterruptedly, closing June at $81.54, which represents a monthly appreciation of +5.91%. For the time being, the market is ignoring the possible repercussions that an increase in energy costs may have on inflation, an aspect that in months such as last April was a clear generator of volatility.
