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June Newsletter

Jun 27, 2024


In its June meeting, the Federal Reserve decided to leave policy rates unchanged, reflecting a cautious approach amidst mixed economic signals and persistent inflation concerns. Despite a softer-than-expected core CPI print in May, the Fed remains focused on bringing inflation closer to its 2% target. However, with inflation expected to remain sticky above this level, the Fed’s path to rate cuts remains uncertain.

Fed Chair Jerome Powell outlined two potential triggers for rate cuts: significant labor market weakening or sustained inflation drop to 2%. Although the labor market remains strong, recent data shows a slight uptick in unemployment. Meanwhile, consumer spending remains robust, but inflation has stalled near 3%, reflecting the Fed’s cautious approach due to persistent inflationary pressures.

Fed Chair Jerome Powell said, “We believe that our policy rate is likely at or near its peak for this tightening cycle. Given how far we have come, we can afford to be careful in assessing the incoming data and its implications for the economic outlook.”

Despite the Fed’s measured tone, markets are still hopeful for rate cuts later this year. However, any cuts will likely be less than currently expected, given ongoing inflation challenges. We are watching for shifts in the Fed’s long-term policy rate estimates, which could signal upward pressure on bond yield even if short-term cuts occur.

Impact on Consumer Borrowing & Spending

The decision to maintain rates has significant implications for consumer borrowing costs, particularly for mortgages and credit cards. Higher borrowing costs are likely to continue weighing on consumer spending and housing market activity in the near term.

Uncertainty about the Fed’s future moves has increased market volatility. Investors closely monitor economic indicators like unemployment rates and inflation metrics to gauge the Fed’s next steps. This underscores the Fed’s delicate balance between fostering economic growth and controlling inflation.

MARKET BREADTH: Analyzing the Narrow Advance in U.S. Stocks

What is Market Breadth?

Market breadth is a technical analysis tool that gauges the overall market’s direction and momentum by considering the number of advancing versus declining stocks within an index providing a broader perspective beyond headline index numbers. Market breadth helps investors understand the market’s underlying health. If a few large-cap stocks drive the index higher while most stocks decline or stagnate, it indicates weak market breadth, signaling potential market vulnerability due to narrow participation.

Advancing stocks are those whose prices are moving up, while declining stocks are those moving down. The advance-decline line is a cumulative measure of the number of advancing stocks minus the number of declining stocks. A rising advance-decline line suggests broad market strength, whereas a declining line indicates widespread weakness.

Current Market Situation: Narrow Advance Now Worrisome

Since mid-May, U.S. stocks have been relatively stagnant, with notable gains in large-cap technology and communications services driving the S&P 500 to an all-time high in mid-June. Despite this peak, indexes have struggled to make substantial progress due to volatile trading, rapid sector rotation, and low correlation among individual stocks.

It is important to monitor the market’s narrow advance. Recently, the S&P 500’s gains have been predominantly driven by a few large-cap stocks. In 2023, just seven stocks contributed to more than 62% of the index’s return. In 2024, five stocks account for over 50% of the index’s return so far. The technology and communications services sectors have significantly outpaced the rest of the market on the enthusiasm and growth outlook for Artificial Intelligence (AI), and now comprise over 40% of the S&P 500 index.

The S&P 500 Equal Weight Index, which treats each stock equally regardless of market cap, has gained less than 5% this year. This underperformance relative to the capitalization-weighted S&P 500 Index suggests a cautious outlook, as history shows that bull markets driven by a few sectors tend to be short-lived.

With the June-quarter earnings season set to start in mid-July, the broad market’s reaction to earnings reports will be crucial. Improvement in market breadth, indicated by a rising advance-decline line and broader sector participation, would be a positive sign for the market’s health.


The next 6-12 months are expected to see a broadening of global growth momentum, which means that some non-U.S. equity markets might offer better investment opportunities than solely investing in the U.S. While the U.S. has been a strong performer, especially in the tech sector, high valuations suggest that growth expectations may be overly optimistic. Including some exposure to global equities portfolio offers us an opportunity to benefit from the potential of broadening growth.

Opportunities outside the US:

· Euro Area: Benefiting from improving economic momentum and global trade, with thriving pro-cyclical sectors like industrials, and financials. Modest ECB rate cuts should support growth and sentiment.

· Emerging Markets: Showing healthy earnings growth outside China and large export-sensitive sectors. Attractive valuations and appreciating currencies enhance returns.

· Japan: Gaining from global trade recovery with strong performance in industrials, consumer discretionary, technology, and financials. The weak yen boosts profitability for overseas operations.


Let’s dive into what’s happening in the housing market lately. Amid higher interest rates, the U.S. housing market is facing some headwinds. Inventory levels have been climbing, and with 30-year mortgage rates staying above 7%, we’re seeing a slowdown in home purchases and refinancing activities. The National Association of Realtors reported a 0.7% decline in existing home sales in May, a 2.8% drop from a year ago. Despite this, the median price of existing homes rose by 5.8% year-over-year to $419,300, the highest on record.

Higher mortgage rates have reduced housing affordability, making it tougher for first-time buyers and slowing home sales, especially in high-cost regions like California and New York. New single family home sales also declined by 11.3% in May, falling short of expectations and down 16.5% from a year ago. Builders face higher construction costs and labor shortages, delaying projects and increasing prices.

Existing home sales fell 0.7% in May to a 4.110 million annual rate, down 2.8% from a year ago. The median price rose to $419,300, up 5.8% year-over-year. Inventory levels increased, with existing unsold homes growing by 6.7% month over-month, equating to 3.7 months of supply.

The housing market remains under pressure from high mortgage rates and rising prices. The “mortgage lock-in” phenomenon, where homeowners are reluctant to sell their low-rate mortgages, is affecting existing home sales. However, increased inventory levels and rising home prices provide a mixed outlook.

As we move into the second half of the year, the housing market’s trajectory will largely depend on the Federal Reserve’s actions and overall economic conditions. Keeping an eye on inflation, interest rates, and employment data will be crucial for understanding where the market is headed.


The Federal Reserve’s cautious stance, the narrow advance in U.S. stocks, and the global opportunities in equities all point to a dynamic market environment. We’ll continue to remain vigilant as we navigate the complex economic environment.

Stay tuned for more updates, and don’t hesitate to reach out with any questions.