June Market insights

U.S. large-cap stocks rose in June, though markets were mixed overall. U.S. large-cap stocks (S&P 500) gained 3.59% while small caps (S&P 600) fell 2.28%. On the international front, developed-market international stocks (MSCI EAFE) lost 1.61% while emerging-market stocks (MSCI Emerging Markets) rose 3.94%. The Bloomberg U.S. Aggregate Bond Index, a broad measure of bonds, edged up 0.95%.*

WHY IT HAPPENED

Large-cap stocks rose in June amid growing anticipation that the Federal Reserve will cut its interest rates this year to maintain economic growth. Also fueling large-cap gains was a very specific but no less impactful factor: growth prospects for AI-related companies, specifically Nvidia’s. Nvidia’s stock accounted for more than 20% of the S&P 500’s rise during the month.

However, excitement over AI can’t eclipse the importance of the economy to the market, which has been chugging along even with the Fed’s key interest rates at their highest level since 2001.

For example, the government’s monthly jobs report showed that hiring continues at an unexpectedly strong pace with wage growth also remaining intact. Yet, monthly retail sales data continued their lackluster trend from the month before, raising the prospect that the Fed may use rate cuts to try to help the economy stay on track. Concerns about the economy may have hurt small-cap stocks, which tend to have more domestically driven businesses.

Two key inflation gauges, the Consumer Price Index and the Personal Consumption Expenditure Index, increased the market’s rate-cut hopes through the month as both indexes moved toward the Fed’s 2% inflation target on an annualized basis.

Amid June’s economic news, the market’s expectations for rate cuts have once again shifted to the possibility of two this year after going down to one earlier in the month – underscoring how quickly expectations can change month to month.

WHat should You be thinking about

The markets will continue to react to economic news about inflation and jobs. Good or bad surprises may arise, and they may affect the expected pace of interest rate changes. As we know, those rate changes have knock-on effects on stock and bond prices. Think of this as short-term volatility, not something that changes long-term expectations that should underpin your investment strategy.

Similarly, elections in France, the U.K., and come November, elections in the U.S., may also create short-term volatility, but they likely don’t change the long-term direction of global stock markets either.

We believe staying invested is critical for the success of a retirement portfolio because it is the best way to benefit from any market gains over the long term. Remember that, although past performance is not a guarantee of future results, the market has typically had a long-term upward bias.

* Index return data provided reflects “total return,” which includes income generated by securities held within the index, such as dividends and interest. Because it includes income, index total returns can differ from index price returns that only consider prices.