rising and falling arrows going up and down

Market Commentary

Diamond Capital Management's Market Commentary

June 2024

Darren T. Nyce, CFA

Vice President, Senior Portfolio Manager


Executive Summary:

  • May’s inflation data indicates a sluggish movement toward the Fed’s 2% target.
  • Economic growth continues, though slowing, leading to recession chances continuously dropping.
  • The stock market shook off April’s pullback to set new all-time highs in May.
  • Both stock and bond markets react impulsively to any data that might cause the Fed to change interest rates.

Inflation continues to be the lead economic story so far in 2024. As both the stock and bond markets anticipate the tailwinds of lower interest rates, the Federal Reserve has said that it will maintain the status quo until inflation is more certainly on a path to 2%. Auto insurance and housing costs are components that have remained stubbornly high. Although May’s data didn’t make much progress toward their target, certain pockets showed improvement and the overall trend of declining inflation remains intact.  Consensus has now shifted to a “higher for longer” view with expectations now for just one or two interest rate cuts in 2024. 

While the Q1 GDP numbers were a bit soft, the economy remains in growth mode thanks to continued demand by the U.S. consumer. The average economist now assesses the likelihood of an imminent recession at 30%, down from over 60% a year ago.

Labor markets are still tight, with unemployment at 4%, but have been showing signs of weakening. The four-week average of jobless claims rose to the highest it has been since last September while the gap between the number of job openings and job seekers continues to narrow. A deteriorating job environment would provide the Fed with additional rationale to begin cutting interest rates.

 
After cooling in April, the S&P 500 Index resumed its upward trend to set new all-time highs in May. A substantial factor in this performance continues to be Nvidia stock, as the demand for AI chips have increased exponentially. While market valuations have crept higher than their historical averages, the fundamentals have been supportive of current prices.  The challenge for bond investors has been balancing the higher yields available in the short-term with prudent longer-term positioning. We remain neutral weighted between equities and bonds. 
 
     
 
    

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