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Weekly Market Update for June 21, 2024

by Jared Plotz, Director of Research

The S&P 500 squeaked out a weekly gain of +0.61%, with the Nasdaq index flat and the Dow Jones rising +1.45%. Economic growth concerns were topical after the May retail sales report disappointed. Meanwhile, market breadth (the proportion of stocks making new highs) has been notably weak as index performance remains concentrated among the largest companies. The Technology sector continues to outperform, but gains among the AI stocks were more muted than in previous weeks. The 10-Year Treasury yield rose 4 basis points to 4.25%.

Fixed income investors aren’t the only group who would like interest rates to come down soon. The US government would also benefit from paying lower yields on what has been a rapidly rising level of national debt. Updated forecasts by the Congressional Budget Office (CBO) this week now assume a larger 2024 fiscal deficit, of $1.9 trillion versus $0.4 trillion previously. The CBO also increased their forecasts for US GDP growth and inflation. They now believe that annual interest expense on the national debt exceeds spending on defense in 2024; when just last year, that was not anticipated to happen until 2028. Additionally, they project national debt held by the public will total over $50 trillion by 2034, or 122% of GDP, up from their forecast of 116% in February. Lower rates should increase the value of fixed income securities while reducing the interest expense burden on government debt.

Economic data was mixed this week. New housing construction has slowed, although there was an uptick in existing home sales and inventories of homes for sale. May retail sales were softer than expected, partly driven by falling gasoline prices, and April sales were revised downward. On the other hand, industrial production and manufacturing indices positively surprised, and with less associated price increases.

As regular readers of our weekly newsletter know, our equity strategies have been riding the AI boom. On Tuesday, portfolio holding Nvidia briefly topped Microsoft to become the most valuable company in the world, before retreating later in the week. Just a year ago, Nvidia was the sixth-largest company by market capitalization. JP Morgan now forecasts that industry data center spending by the top 4 cloud providers will rise just shy of 40% in 2024, representing a $40 billion increase (vs. a more typical $10 billion rise), of which over 70% will be AI-server related investments. This jump in data center expenditures is driving the extraordinary growth seen at companies like Nvidia, Super Micro Computer, Vertiv, and others.

Next week will bring some more housing data, consumer sentiment readings, an additional inflation (PCE) report, and the final Q1 GDP estimate. Recall, annualized Q1 GDP was initially estimated at +1.6%, before being revised down to 1.3% last month. Core PCE (ex- food, energy) is expected to rise 2.6% after similar readings of CPI & PPI last week increased 3.4% and 2.3%, respectively. The Fed will continue to assess these growth and inflation readings in making future rate decisions.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors.

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