.webp)
< Back
The Surge of Treasuries, Stocks Resilient Amid Market Turbulence in 2024
Dr. Mahnoosh Mirghaemi
June 16, 2024
5 min read
Modest Market Pullbacks: Despite economic challenges, 2024 has seen minimal market pullbacks, reflecting strong underlying momentum.
High Yields vs. Equities: While short-term bonds offer high yields, equities have significantly outperformed, highlighting the importance of diversification.
Sector Rotation: The broadening of market leadership beyond tech stocks suggests a healthier market environment.
Stocks experienced volatility last week, initially stumbling due to rising interest rates and pockets of persistent inflation. While inflation readings were inline with expectations, disappointing corporate earnings weighed on the market.However, a significant buy program late in the trading session lifted most of the S&P 500, resulting in a notable surge. The S&P 500's recent performance underscores the market's resilience despite economic uncertainties. The index saw a broad-based rally, with many stocks gaining over 1% in the last half hour of trading, highlighting strong institutional buying power.
Treasuries are set to post their best month of 2024, driven by the core personal consumption expenditures (PCE) price gauge meeting expectations and showing the smallest gain this year. This has spurred a bond rally, although upcoming ISM reports and May PMI data could test this trend if inflationary pressures persist. Notably, the bond market is reacting to April’s PCE deflator data,which prompted significant bond purchases. However, real-time data from May’s PMI could challenge this sentiment, especially if manufacturing prices remain elevated.
So far, 2024 has seen remarkably modest market pullbacks, with the largest intra-year decline being only 5.5%. Historically, this is an anomaly, with only four years since 1984 experiencing smaller maximum draw downs. Despite inflation, interest rate hikes, and geopolitical tensions, the stock market has maintained relative stability, reflecting strong underlying economic momentum.This year’s stock market has also been characterized by low daily volatility,with only one day of a 2% or more move compared to an average of 21 such days per year since 2018.
Investors have been gravitating toward high short-term yields in bonds and CDs, but it's crucial to maintain diversified long-term strategies. Since the 2-year Treasury yield crossed 4.5% in October 2022, the stock market has gained over 50%. This highlights the importance of equities in outperforming fixed-income investments, even amid rising yields. Allocations to these high-yielding,low-risk investments are part of a sound diversification strategy but should not replace long-term equity investments, which have shown robust returns.
The narrative of 2023 was dominated by the "Magnificent 7" and AI-related stocks. However, recent trends show a broadening of market leadership, with utilities outperforming technology stocks. This shift aligns with our expectations of laggards catching up and contributing to the bull market.Year-to-date gains have diversified, reflecting a healthy expansion beyond mega-cap tech. Utilities, energy, and other sectors like financials, industrials, and healthcare have shown solid performance, indicating a broadening of the market rally.
Gold's status as a portfolio diversifier is strengthening, particularly as the long-term correlation between stocks and bonds breaks down. With geopolitical risks and potential interest rate cuts on the horizon, gold continues to attract investors seeking uncorrelated returns. The metal's appeal is further bolstered by its function as a hedge against inflation and geopolitical instability, alongside strong demand from global central banks and non-commercial investors.
The Stoxx Europe 600 Index typically declines in June, but resilient corporate earnings and economic outlook provide reasons for optimism. Despite technical indicators suggesting potential corrections, low valuations and improving fund flows support a positive outlook for selective investments in Europe. European equities are benefiting from historically low valuations, resilient corporate earnings, and potential rate cuts from the ECB, which could attract more investor interest.
We monitor ISM and PMI data for real-time insights into inflation and economic health, next week. In our view, Diversification with precious metal is a key to hedge against inflation and geopolitical risks. We explore European equities, focusing on sectors with strong fundamentals and growth potential. As always, investors needs to be informed and have a diversified portfolio in order to navigate the current market complexities and capitalize on opportunities.
