Markets Last Week - 06/12/2024

Mixed Week for Major Indexes
U.S. stock indexes ended the week with mixed performance. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite reached new record highs, while the Russell 2000 declined after two strong weeks of outperforming larger-cap indexes. Growth stocks, as measured by the Russell 1000 Growth Index, outpaced value stocks by a significant 5.53 percentage points, marking the largest margin since March 2023.

Sector Performance Highlights
Sector performance varied widely:

• Winners: Consumer discretionary, communication services, and information technology sectors each gained over 3%.
• Laggers: Energy, utilities, and materials stocks fell more than 3%, reflecting weaker value-oriented segments.

Labor Market Data Spurs Optimism
Labor market updates dominated the economic narrative:

• Nonfarm Payrolls: The U.S. added 227,000 jobs in November, exceeding expectations and rebounding from October’s weaker results. The unemployment rate edged up slightly to 4.2%.
• Job Openings: October saw an increase to 7.74 million, alongside a rise in voluntary job quits to 3.3 million, a signal of worker confidence.
• Private Employment: ADP reported 146,000 private sector jobs added in November, with annual pay growth of 4.8%.

Federal Reserve in Focus
Investors remained attuned to Federal Reserve signals ahead of the December meeting:

• Fed Commentary: Governor Christopher Waller leaned toward a December rate cut, barring unexpected data. Chair Jerome Powell expressed caution, highlighting the U.S. economy’s strong position.
• Market Expectations: Futures markets increasingly priced in a 0.25% rate cut in December.

Treasury Yields and Fixed Income Performance
Bond yields fell across the Treasury curve, buoyed by Friday’s labor report. Tax-exempt municipal bonds outperformed Treasuries, while investment-grade corporate bonds also saw strong demand, with many new issues oversubscribed.

Key Takeaway: Growth stocks led the charge, while labor market strength and dovish Fed commentary bolstered market optimism. However, caution remains amid mixed sector performance and geopolitical uncertainty.Top of Form

Index	Friday's Close	Week's Change	% Change YTD
DJIA	44,642.52	-268.13	18.45%
S&P 500	6,090.27	57.89	27.68%
Nasdaq Composite	19,859.77	641.61	32.30%
S&P MidCap 400	3,331.37	-34.81	19.77%
Russell 2000	2,408.99	-25.73	18.84%

The Bank of England (BoE) has suggested the possibility of four interest rate cuts in 2024, contingent on the UK economy's performance. Governor Andrew Bailey highlighted that inflation had fallen more rapidly than anticipated, with October’s consumer price inflation dropping to 2.3% from a high of 11.1% in late 2022. Despite the significant decline, Bailey emphasized that the BoE remains cautious, particularly due to persistent inflationary pressures in the services sector. As a result, the central bank has moved carefully in reducing borrowing costs, trimming the benchmark rate twice this year to 4.75%.

While the BoE’s latest economic forecast signals further cuts, Bailey underlined that these would be gradual and dependent on the evolving economic landscape. The market’s expectation of four quarter-point cuts next year aligns with the BoE's cautious outlook, reflecting a delicate balancing act between supporting growth and ensuring inflation continues to fall. The central bank’s priority remains maintaining price stability, while managing risks associated with sticky inflation in areas like services. Adding to the mixed economic picture, the OECD has forecast that the UK will experience faster growth in 2025, although it also expects high inflation to persist, posing further challenges for policymakers.

In local currency terms, the pan-European STOXX Europe 600 Index rose by 2.00%, buoyed by easing concerns over political instability in France and expectations of faster policy easing by the European Central Bank (ECB). Major stock markets also posted gains: Germany’s DAX surged 3.86%, Italy’s FTSE MIB advanced 4.00%, and France’s CAC 40 climbed 2.65%. Meanwhile, the UK’s FTSE 100 edged up 0.26%.

French Government Collapse
In France, Prime Minister Michel Barnier’s minority government fell after Parliament passed a no-confidence motion introduced by the National Rally (NR) and the left-wing New Popular Front, aimed at blocking the proposed 2025 deficit-reduction budget. Following this, the yield spread between German 10-year bunds and French 10-year OATS—a key indicator of political and financial risk in the eurozone—spiked to 90 basis points (bps), the highest level since 2012, before easing below 80 bps. This reversal came after President Emmanuel Macron pledged to appoint a new prime minister in the “coming days” and to work with political leaders from across the spectrum to form a “government of general interest.”

Weakening German Industry and Declining Eurozone Retail Sales
Economic data indicated a slowdown in Europe’s economy during the fourth quarter. Eurozone retail sales volumes fell by 0.5% in October, reversing a 0.5% gain in September, driven by declines in non-food products and auto fuel sales. In Germany, industrial performance disappointed, with a 1.0% month-over-month decline in output, falling short of expectations for a 1.2% rebound. Factory orders also dropped by 1.5%, with machinery and equipment demand showing the sharpest decrease.

ECB May Shift Policy Focus
The ECB appears to be reconsidering its data-dependent strategy, according to Chief Economist Philip Lane. Speaking on a Financial Times podcast, Lane emphasized that future policy decisions should focus on forward-looking risks rather than past data, especially as inflation trends toward the bank’s 2% target.

BoE Signals Potential Rate Cuts
Bank of England Governor Andrew Bailey suggested in an interview with the Financial Times that there could be up to four interest rate cuts next year if the economy evolves as projected in the central bank’s outlook.