Topic: Market Outlook

  • Stock Market Recap: March 2024

    Month in Review

    • Stock and bond markets rallied during March, with broadening of results- large cap value stocks (+5.0%, Russell 1000 Value TR Index), small cap stocks (+3.6%, Russell 2000 TR Index), and international stocks (+3.3%, MSCI ACWI Ex-USA NR Index) finished the month ahead of large cap growth stocks (+1.8%, Russell 1000 Growth TR Index).
    • Economic data continues to look strong in the United States. The Federal Reserve also confirmed their forecast of three 0.25% interest rate cuts in 2024.

    Time to Look Beyond Cash?

    Last month we discussed the difficulty in forecasting changes in interest rates. During March, investors spent the month aligning their outlook with the Federal Reserve’s guidance, which remains some level of interest rate cuts sometime later this year. While the exact timing cannot be known, we do know that historically there have been opportunities to shift out of cash investments near peak interest rates.

    Going back to the six previous cycles since 1984, investors have been better off investing in bonds, US stocks or a balanced portfolio compared to staying in cash during the 12-months following the peak level of interest rates. Forecasting the exact time of peak interest rates/rate cuts is fruitless, but for long-term investors there is an opportunity to look beyond cash.

    Source: Bloomberg, FactSet, Federal Reserve, Robert Shiller, J.P. Morgan Asset Management. The 60/40 portfolio is 60% invested in S&P 500 Total Return Index and 40% invested in Bloomberg U.S. Aggregate Total Return Index. The S&P 500 total return figure from the 1984 period was calculated using data from Robert Shiller. The analysis references the month in which the month-end 6-month CD rate peaked during previous rate hiking cycles. CD rate data prior to 2013 are sourced from the Federal Reserve, whereas data from 2013 to 2023 are sourced from Bloomberg. CD subsequent 12-month return calculation assumes reinvestment at the prevailing 6-month rate when the initial CD matures.

    What’s on Deck for April?

    • The Federal Reserve meets at the end of April, they are expected to hold interest rates constant. Investors will look for updates around the timing of interest rate cuts and balance sheet changes during the presentation. 
    • The inflation report and jobs report for March will be watched by investors for signs of continued progress on the inflation front, and for any weakening in the jobs market.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
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    March-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: April 2024

    Month in Review

    • April saw major bond and stock markets decline due to a shifting interest rate outlook, following higher-than-expected inflation data. The S&P 500 had its first 5% or greater drop since October 2023 in April.
    • In the equity market – areas with greater sensitivity to high interest rates lagged, such as small cap stocks (-7.04%, Russell 2000 TR Index). Large cap stocks also declined, with value stocks down -4.27% (Russell 1000 Value TR Index) and growth stocks down -4.24% (Russell 1000 Growth TR Index). Emerging market equities bucked the trend and finished in positive territory (+0.45% MSCI Emerging Market NR Index).
    • As of April 30th, investors were no longer pricing a cut to the Fed Fund rate for 2024, leading major bond markets to 2024 lows (-2.53% in April, Bloomberg Barclays Aggregate Bond TR Index).

    Looking Beyond Narrow Equity Market Leadership

    Large growth companies continue to drive a large portion of the US equity market’s results during the past three and five years – April was no different. The S&P 500 (weighted by the size of the companies in the index) has outperformed the equal-weighted S&P 500 (representing the results of the average company) by an increasingly wide margin over the past 18 to 24 months.

    This has been driven by fast-growing technology companies: technology stocks represent roughly 30% of the market-cap weighted S&P 500, compared to 14% weight in the equal-weighted S&P 500. However, it is important to adopt a longer perspective during these unusual periods. Over the past 15- and 20-year periods, as well as since 2003 – the equal weighted S&P 500 index is ahead or in-line with the market cap weighted S&P 500. On a calendar year basis, the equal-weighted S&P 500 has finished ahead 12 out of 21 years through 2023.

    Although the market has been very top heavy, with the fast-growing technology companies driving the market, markets are cyclical, and longer-time horizons highlight the balance over time.

    Source: Raymond James, FactSet. Data as of 2/29/2024. Since inception date of the equal-weighted is 1/3/2003.

    What’s on Deck for May?

    • Inflation data will be top-of-mind given the recent hot streak in data. Federal Reserve commentary around the data will also be closely watched by investors.
    • First quarter 2024 earnings will wrap up in May. Through the end of April, earnings have finished ahead of expectations for S&P 500 companies that have reported. 
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    April-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: May 2024

    Month in Review

    • Markets rebounded after the first 5% drop in April, with all major stock and bond markets finishing May in positive territory.
    • Technology powered large cap growth higher (+5.99%, Russell 1000 Growth TR Index), leading all equity markets higher during the month. Small cap stocks rebounded during the month of May, with the Russell 2000 rising +5.02% (Russell 2000 TR Index). Outside the United States, developed international and emerging market equities both rose in May.
    • Major bond markets also rallied higher in May as investors’ outlook for interest rate cuts stabilized. The Barclays Aggregate Bond TR Index rose +1.70% in May.

    Improving Fundamental Picture

    Equity markets are off to a strong start to 2024, despite surprising persistence of inflation and higher-for-longer interest rates.

    What has been driving markets higher through these headwinds?

    This year has been characterized by improving fundamentals, both with corporate earnings and dividends rising above expectations. First quarter earnings for the S&P 500 have risen nearly twice the estimates from earlier in 2024, and investors have also increased 2025 earnings growth estimates to nearly +14%. Increased investments in technology, along with the supporting infrastructure, appear to have been underestimated by investors heading in 2024. Estimates for growth in 2024 and 2025 have also increased for US small cap stocks and international stocks.

    Sources: Capital Group, FactSet. Earnings growth refers to annual change in earnings per share. As of May 14, 2024.

    Dividends are also tracking ahead of expectations, thanks in part to an increase in dividend payments among technology companies. S&P Dow Jones estimates the S&P 500 dividend to increase by 6% in 2024, compared to a 5% increase in 2023. Over the long-run, stocks will follow fundamentals, and corporate earnings and dividends have been a positive surprise in 2024.

    What’s on Deck for June?

    • No rate cuts are expected, but investors will continue to focus on inflation data and Federal Reserve communication throughout the month.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    May-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: June 2024

    Month in Review

    • Mega-cap growth companies rallied sharply higher in June, pushing the S&P 500 higher during the month (+3.59, S&P 500 TR Index). 
    • The rally in mega-cap growth companies opened a wide gap between growth and value in June: large cap growth rose +6.74% (Russell 1000 Growth TR Index), while large cap value fell -0.94% (Russell 1000 Value TR Index).
    • Interest rates fell as data showed a drop in the rate of inflation, which pushed bond markets higher during the month (+0.95%, Barclays US Aggregate Bond TR Index)

    Mega Concentration

    The outlook for corporate earnings has shifted higher- analysts now expect S&P 500 earnings to have grown +9% year-over-year the previous quarter. The increased growth expectations are driven in large part by a belief in the continued growth of investment in technology and alternative intelligence.

    This reacceleration of growth expectations has resulted in the mega-cap companies representing a large portion of the S&P 500’s value: the top 10 companies in the S&P 500 make-up 37% of the index’s value, the largest weight since the index was created. The impact of the increased concentration in the top 10 companies can be seen in the difference between the index (+15.3% YTD, S&P 500 TR Index) and the average stock (+5.1% YTD, S&P 500 Equal Weighted TR Index).

    There are high expectations for future growth in the top 10 companies of the S&P 500: their contribution to earnings over the last 12 months stands at roughly 27%, compared to a weight of 37%. This is a reminder for investors to maintain a diversified approach; markets such as US small cap stocks and international stocks offer lower valuations with an improving fundamental outlook.

    Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. The top 10 S&P 500 companies are based on the 10 largest index constituents at the beginning of each month. As of 5/31/2024, the top 10 companies in the index were MSFT (7.0%), AAPL (6.3%), NVDA (6.1%), AMZN (3.6%), META (2.3%), GOOGL (2.3%), GOOG (1.9%), BRK.B (1.7%), LLY (1.5%), JPM (1.3%), and AVGO (1.3%). The remaining stocks represent the rest of the 492 companies in the S&P 500.

    What’s on Deck for July?

    • Earnings season starts on July 12th; investors expect second quarter earnings to have grown +9% year/year. If earnings growth finishes that high, it would be the strongest quarterly growth rate since 2021.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    May-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: July 2024

    Month in Review

    • Major reversals across the equity market, with small cap stocks and value stocks outpacing the large-cap and growth peers sharply in July.
    • Catalyzed by decelerating inflation data, small cap stocks (Russell 2000 TR Index, +10.16%) finished significantly ahead of large cap stocks (S&P 500 TR Index, +1.22% and large cap growth stocks (Russell 1000 Growth TR Index, -1.70%).
    • Additionally, the S&P 500 had its first daily drop greater than 2% in July, the first time in over 350 trading days. This was the longest such streak of low daily volatility in over 15 years.

    Equity Market Rotation

    Last month’s monthly update discussed the record levels of concentration in the S&P 500 – a factor that likely played a role in the significant shift equity markets saw in July.

    After the June inflation (CPI) report was released, investors shifted expectations to a much higher likelihood of a rate cut in September. Generally, small cap stocks have a greater sensitivity to interest rates, given the use of more floating rate debt compared to large cap stocks. This factor, combined with improving earnings fundamentals, resulted in the Russell 2000 outperforming the NASDAQ by over 5% the day of the inflation report. This represents the largest single day outperformance of small cap stocks versus technology stocks in over 40-years (chart below)

    Source: JPMorgan Asset Management, Bloomberg, as of July 21, 2024

    Small caps kept up the momentum of July, along with large cap value stocks (Russell 1000 Value TR Index, +5.11%).

    July represented an important reminder to long-term investors about the benefits of maintaining a diversified approach

    What’s on Deck for August?

    • Earnings season wraps up in August: as of 7/29/2024, 40% of S&P 500 companies have reported earnings, and 76% are beating expectations for the second quarter.
    • The Federal Reserve is expected to use August to signal its intentions around cutting interest rates during its September meeting. The Federal Reserve last hiked in July 2023 and has held rates constant since.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    May-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: September 2023

    Month in Review

    • Stocks had their worst month since December 2022 and bonds fell for the fourth straight month. 
    • Rising Treasury yields were the primary catalyst – the 10-year Treasury yield hit a 16-year high during September.
    • Restrengthening inflation data and the prospect of additional interest rate hikes by the Federal Reserve are the main catalysts for the pressures.

    Bond Yields Return to Average

    Despite nearly a decade of low interest rates, the 10-year Treasury yield typically averages 3% to 5% yield, going back to the late 1800’s. For the first time since 2007, the 10-year Treasury rose to 4.5%, comfortably returning to long-term averages. Recent inflation data was stronger than expected, contributing to the increase in yield, along with the prospect of additional rate hikes from the Federal Reserve. The increase in yields reduces the value of bond investments in the short-term, and higher yields present a more attractive alternative to stocks – two reasons stocks and bonds struggled in August and September.

    What’s on Deck for October?

    • Outside of fundamentals, there are headwinds from the on-going autoworkers’ strike, and a potential shutdown of the US government. Both events historically have not had lasting impacts on the economy and markets.
    • The surprisingly strong labor market was the primary reason the predicted 2023 recession did not happen – investors will be watching job creation and unemployment claims data closely for any softening.
    • An additional interest rate hike in November or December is very much up in the air. Inflation data had strengthened somewhat, along with energy prices increasing sharply since June. It is unclear if this is enough for the Federal Reserve to hike one more time.

    Download the September 2023 Market Recap below:

    Market-Recap-Sept-2023Download
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Stock Market Recap: August 2024

    Month in Review

    • Broad-based gains during the month of August, with US large cap stocks finishing the month up +2.43% (S&P 500 TR Index). In the US, large cap value (+2.68%, Russell 1000 Value TR Index) finished ahead of large cap growth (2.08%, Russell 1000 Growth TR Index) for the second consecutive month.
    • US small cap stocks took a breather after a strong July, finishing August down -1.49% (Russell 2000 TR Index). Outside the US, developed international equities benefitted from a weakening US dollar, rising +3.25% in August (MSCI EAFE NR USD).
    • Bond markets rose for the fourth straight month in August, with the Barclays US Agg Bond TR Index finishing the month +1.44%.

    What Happens Next: Soft or Hard Landing?

    The Federal Reserve is poised to cut interest rates in September, the first interest rate cut since they began increasing interest rates in March 2022. Investors are now pondering, “what happens next?”: a “soft” or “hard” landing for the economy.

    While not officially defined, a soft landing would be a continued decline in inflation and interest rates, without growth slowing down enough to enter a recession. Hard landing would be the opposite – a continued increase in unemployment and a slowdown in economic growth, resulting in a recession. Soft landings are historically less common, with the most recent (and classic case) being the 1994-1995 period.

    Inflation has fallen closer to the Federal Reserve’s target rate, while unemployment has also begun to increase, prompting the likely rate cut in September. However, other signs indicate continued strength in the economy: for example, estimates for GDP growth this quarter stand at +1.5%. With no clear forecasts for a soft or hard landing, investors have priced in three to four rate cuts by the end of 2024, indicating expectations that the Federal Reserve will start and continue rate cuts in September.

    Sources: Capital Group, Bureau of Economic Analysis, FactSet. Figures for Q1:20, Q2:20, and Q3:20 are –5.5%, –31.6%, and 31.0% respectively, and are cut off by the y-axis given the extreme fluctuations associated with the COVID-19 pandemic. Estimate for Q3:24 is based on the mean consensus estimate from FactSet. As of August 22, 2024.

    What’s on Deck for September?

    • With  earnings season wrapped up in August, investors will be watching the Federal Reserve’s FOMC meeting closely for color around a potential rate cut. 
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    August 2024 Market RecapDownload

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    William Winkeler

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  • Market Update from Confluence Financial Partners – Sept. 2022

    It is difficult to turn on the news and not be overwhelmed by negative headlines: bear markets, recession, political partisanship, to name a few.

    In times like these, we believe it is key to focus on actions that you can control. Hear from Greg Weimer, CEO, and Bill Winkeler, CFA, CFP®, Director of Investments, on what we at Confluence are thinking about and executing for our clients.

    Confluence Wealth Services, Inc. d/b/a Confluence Financial Partners is an SEC-registered investment adviser. Registration of an investment adviser does not imply any level of skill or training. Please refer to our Form ADV Part 2A and Form CRS for further information regarding our investment services and their corresponding risks.

    Additional information about Confluence Wealth Services, Inc. is available on the Investment Adviser Public Disclosure (IAPD) website at: www.adviserinfo.sec.gov.

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    William Winkeler

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  • Market Update from Confluence Financial Partners – June 2022

    So far, 2022 has been a challenging year for investors. The market has faced several headwinds including inflation, rising interest rates, supply chain disruptions, and labor market shortages, to name a few. Join us as we discuss these challenges and our perspective for the future.

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    William Winkeler

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  • Market Update from Confluence Financial Partners – May 2022

    Though the market changes, our commitment to clients does not. Our Chief Executive Officer, Greg Weimer and Director of Investments William R. Winkeler Jr., CFA, CFP® give you an update on the current market and share insights on how to navigate these times.

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    William Winkeler

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