Broker Check

Market Insights – Week Ending May 31, 2024

June 02, 2024

Market Summary 

The S&P 500 ended the shortened trading week slightly below its recent all-time highs as investors favored profit-taking and consolidation after a monthly gain of nearly 5% for May – primarily led by mega cap stocks, notably Nvidia (NVDA), which increased 27% for the month. Enthusiasm for AI has continued to carry market momentum but remains particularly concentrated in a handful of tech-centric names (Chart of the week). Inflation and employment data will remain top-of-mind for market participants as we near the Fed’s next FOMC meeting on June 12. While Fed Chair Powell noted that another rate hike is likely off the table at the last meeting, the idea has not completely left the market’s mind; especially if inflation continues to stagnant absent any impact from the long and variable lags of restrictive Fed policy.  Uncertainty also remains around the timing of rate cuts, which the market is pricing in 1-2 before year end. We believe growth-oriented segments of the market will continue to drive equity strength with the expectation for near-term fluctuations in response to Fed policy and elevated bonds yields.

On the economic front, core PCE inflation data (the Fed's preferred measure for inflation) for April remained unchanged from March, rising 2.8% on a yearly basis. The takeaway is that inflation remains sticky, elevated above the Fed’s 2% target and unlikely to spur confidence for the Fed to begin cutting rates. Still, the metric did not worsen and received a relatively positive market reaction.

Core PCE Inflation

(Trading Economics)

Notable Earnings Reports:

Salesforce (CRM) – The cloud-computing leader reported disappointing results after falling short of revenue expectations and issuing weaker Q2 guidance. The revenue miss was largely due to measured buying behavior for professional services – a topic that has been continuously mentioned by management. The knee-jerk sell-off was more likely due to overly high expectations perpetuated by excitement over AI and the industry. Overall, we believe CRM continues to show strong momentum and fundamental strength and we see the stock’s recent drop as an opportunity.

Costco (COST) – The premier membership wholesaler traded lower despite reporting strong earnings and revenues above expectations. The newly minted CEO, Ron Vachris, noted improved sales for discretionary products and reiterated the company’s focus on improving its digital capabilities to enhance the customer experience and ultimately drive sales. COST is consistently held to a high standard and investors saw enough reason to take some profits – likely in response to broader retail-specific headwinds and the desire by investors for the company to raise its membership fees, which it has yet to do.

Chart of the Week

Strength in the Magnificent 7 stocks continues to drive index returns with  Nvidia (the Magnificent 1) doing most of the heavy lifting.  Excitement over AI and anticipation for eventual loosening of Fed policy has driven gains for well-over a year now. Equity markets will need other areas of the market to continue to advance along with the Mag 7 to support a continuation of the recent rally.

(Bloomberg, LP)


As always, if you have any questions or comments please do not hesitate to reach out.

 

Respectfully,

Michael Neill, CFA