June 2024 Market Commentary

It was a lackluster month for the markets in June, as the TSX slipped -393.33 points to close before the long weekend at 21,875.79, while the S&P 500 rose +182.97 points to finish the month at 5,460.48. Although the month of June was relatively quiet, the S&P 500 index was up nearly 15% in the first six months of 2024, setting a new record close for the first time in more than two years in January. Since then, it has achieved 31 fresh all-time highs, averaging a new record close on roughly one of every three trading days, according to a team of Comerica analysts. Additionally, a Morningstar report suggests U.S. stocks could rise another 10% by the end of 2024 after a strong first half, as history shows. In June, the broader U.S. index was led once again by tech, although darling mega cap semiconductor, Nvidia, cooled from its’ previous high of $135.58 on June 18. Shares of Nvidia rallied after its 10-for-1 stock split on June 7, but the share price began to slide over the last couple of weeks to close at $123. 54 on June 28, the last trading day of the month.

 

Meanwhile, the Bank of Canada (BoC) and European Central Bank (EoC) were the first central banks to cut a quarter point in June. Just as the market was getting comfortable with the idea of a couple rate cuts from the Fed later this year, the surprising U.S. job report pushed the first full cut late into the year. In Canada, there is a view that the BoC could be leaning toward a follow-up move in July, but it’s still too soon to say, as the market sees it as a close call. The consistent message from central banks is that they will be guided by incoming inflation reports. While inflation has been coming down and finally showing signs of getting closer to normal, Governor Macklem cautions that “Canadians shouldn’t spend too much time thinking about neutral interest rates,” suggesting “they can’t be gauged precisely.” Perhaps, the widely held ‘neutral’ estimate of 3% is something different? If only they could let us know what their final target is exactly.

 

Regardless of central bank rate policy, its obvious to us that amid this bull market cycle investors continue to demonstrate their preference for growth stocks as opposed to the broad-based value strategies, which have significantly under-performed. Does this mean investors should avoid value stocks all together? Perhaps this conversation should be saved for a more in-depth analysis, but our research shows that valuation-based strategies can still deliver favourable price returns. As Brain Belski has so eloquently said, “relative price performance has reached historically extreme levels of under-performance.” Coupled with the fact that the BoC has proactively entered the easing cycle ahead of the Fed, Brian suggests the TSX could very well be the “catch-up” trade, which will benefit many of the under-performing areas of the equity market. This is something to watch for in the second half of the year.

 

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