Stock Market Back on Track

Nicolet Wealth Management Monthly Newsletter 6.4.24

April Showers Bring May Flowers

After a sharp stock market swoon in April, some markets returned to all-time highs last month. The fear of an inflation reacceleration retreated during the month, prompting investors to take a more constructive view of risk assets. Large U.S. companies, represented by the S&P 500 index, advanced by 5%, small U.S. companies, represented by the Russell 2000 index, rose 5%, and international companies, represented by the MSCI EAFE index, increased by 4%. Small company performance was predominantly driven by information technology, comparable to its large-company counterpart. Small technology stocks advanced by 4.8% in May, while large-company technology stocks increased 10.1%.

Inflation Reacceleration Fears Subside

Notable attention has been placed on monthly inflation readings this year as the path of interest rates is seemingly dependent on price growth returning to the Federal Reserve’s long-term target of 2%. Since the Consumer Price Index (CPI), a gauge of prices in the U.S. economy, bottomed at 3% in June 2023 on a year-over-year basis, prices have stagnated at an average level of 3.4% since. The impetus for price growth stagnating at an average level of 3.4% can be explained by services growth. The largest weight in CPI and services, owners’ equivalent rent (how much money a property owner would have to pay in rent to be equivalent to their cost of ownership), saw its level ease only slightly to 0.42% from 0.44% and primary rents only fell to 0.35% from 0.41%. Shelter costs remain the biggest contributor to price growth.

Higher Rates Weigh on Housing in April

Rising interest rates is one of the largest costs of purchasing or building a home. It’s no surprise that when rates increase, there’s an immediate response from consumers. Housing permits (the intent to build a home) declined and April housing starts grew slower in response to the industry average 30-year mortgage rate advancing by 0.25% from March. Housing permits declined 3% month-over-month in April, after falling 5% in March. Housing starts advanced to a seasonally adjusted annual rate of 1.36 million, below the average annual adjusted rate of nearly 1.5 million homes built through 2022-2023. The 30-year industry-average mortgage rate increased from 3.25% at the start of 2022 to just above 7.25% at the end of May.

NVIDIA Holds All the Chips

NVIDIA, whose chips are integral to the growth and development of artificial intelligence computing, reported another exceptional quarter of revenue and upped forecasted revenue growth. The day following the earnings announcement, shares of NVIDIA advanced about 9% or about $220 billion in value, which exceeds the total valuation of Intel Corp.! For the year, shares have advanced about 121.4%. The company’s CEO Jensen Huang said that demand for its products has outpaced supply and expects that trend to continue into next year, which underscores its dominant and exceptional position in the technology landscape. Growth is expected to evolve from traditional technology buyers into consumer internet companies, carmakers, and health-care companies. For example, Tesla Inc. is using NVIDIA’s chips for its self-driving vehicles.

NVIDIA's the Third-Largest S&P 500 Company
Source: Bloomberg, 5/31/2024

Interest Rates Decline from April’s Highs

The 10-year Treasury yield bounced in a 0.30% range last month, between a level of 4.6% and 4.34%. Investors continue to assess inflation expectations, the path of the Federal Reserve’s target policy, and economic activity. Initially comforted by better-than-expected inflation pointing to an improvement in trend, the concern of persistent strong growth and inflation has kept the viewpoint of higher rates for longer on the table. Bond indexes with credit and interest rate risk performed the best: the Bloomberg U.S. Corporate index advanced 1.9%, while the Bloomberg Treasury index increased 1.5%. Both indexes have similar sensitivity to changes in interest rates, however the corporate bond index typically performs better when the market is willing to accept risk.

Index. Source Bloomberg 5.31.2024

Although we believe it to be reliable as of the publication date and have sought to take reasonable care in its preparation, all information provided is FOR INFORMATIONAL PURPOSES ONLY and we make no representations or warranties regarding its accuracy, reliability, or completeness and assume no duty to make any updates in the event of future changes. Past performance may not be indicative of future market results. Any examples used (including specific securities) are generic and meant for illustration purposes only and are not, and should not be interpreted as, offers to buy or sell such securities. To the extent indices are referenced, please note that you are not able to invest directly in an index.

Nicolet Wealth Management is a brand name that refers to Nicolet National Bank and certain of its departments and affiliates that provide investment advisory, trust, retirement planning and insurance services. Investment advisory services offered through Nicolet Advisory Services, LLC (dba Nicolet Wealth Management), a registered investment advisor.

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