June 3rd, 2024
When looking at raw economic data – such as GDP, unemployment, corporate profits, and the deceleration of inflation – one might assume that Americans would be overwhelmingly upbeat about our economy. The US is among those who have the most economic growth, lowest unemployment, highest living wage, and lowest inflation – relative to the rest of the world. Yet, if you ask the average American what they think about our financial state they often feel we are in dire straits.
There’s no doubt that inflation has put tremendous pressure on the majority of Americans. There often seems to be a cast of blame for this projected onto one’s opposing political party. Yet, inflation has been a product of monetary policy by both administrations – and the blame should rest on the shoulders of both political parties. Your vote later this year is meaningful. But neither candidate will ‘fix it all’.
That said, we are in a great economic position relative to the rest of the world, and things are improving, even if they don’t feel like it. The aspects of the economy that are experiencing tightening should hopefully help shift the Federal Reserve toward interest rate cuts later this year, which will be an improvement for us all. And now, your Monthly Market & Economic Update by the numbers.
Warmly,
Mark S Sauer
Market Update
Global Equities: Despite the slight shift to ‘risk off’ among allocators, stocks recovered very well in May – sending values back up to all-time-highs. The S&P 500 finished the month up 4.51%, the Dow Jones Industrial Average gained 2.3%, and the Nasdaq ended up 5.8%. US Small Caps were up 5.04% and Developed International stocks kept up with domestic gaining 4.66%, while Emerging markets trailed as they gained 2.16% during the month.
Economic Update
PCE Inflation: The Federal Reserve’s preferred inflation metric, the Core Personal Consumption Expenditures (PCE) index, showed inflation still rising, but at a more modest pace of 0.2% in April. The annual Core PCE rate came in at 2.75%, a three-year low. The data was in line with estimates and is unlikely to alter the Fed’s trajectory for rate cuts.
In the realm of Tech, Salesforce (CRM), missed on revenue for the first time since 2006 – shares plunged -20%. All turned to Nvidia (NVDA), on May 22nd, the leading supplier of GPUs used for artificial intelligence applications has had a high bar to clear after blowing away earnings forecasts for the past year. They did not disappoint, Nvidia reported:
- Record quarterly revenue of $26.0 billion, up 18% from Q4 and up 262% from a year ago
- Record quarterly Data Center revenue of $22.6 billion, up 23% from Q4 and up 427% from a year ago
- Ten-for-one forward stock split effective June 7, 2024
- Quarterly cash dividend raised 150% to $0.01 per share on a post-split basis
Charts of the Month
S&P 500
Our chart of the month shows a two-month view of the market-cap-weighted S&P 500 (blue line, SPY) compared to the equal-weighted version of the index (orange line, RSP). RSP had been keeping pace with SPY through April, but SPY has once again outperformed, thanks in no small part to record earnings from Nvidia (NVDA), which has ballooned to a 6.2% weighting in SPY. NVDA is now the third largest holding in SPY and nearly double the weighting of the fourth largest, AMZN (3.7%). The uptick in interest rates this week also helped push investors towards the largest companies with the most secure balance sheets, leading to further outperformance for the market-cap weighted index. Nvidia’s rapid growth is due to the mega caps – Apple, Google, Microsoft, and Meta – among others, purchasing hundreds of billions of dollars worth of GPU processors for their investment into artificial intelligence and the opportunity to be a leader in the space.
