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June 29, 2024 Market Update

A new reading from the Fed’s preferred inflation measure - Personal Consumption Expenditures (PCE) index, which excludes volatile food and energy prices, indicated a 2.6% annual growth in May, levels not seen since March 2021, when it first rose above the Fed’s 2% target during this inflation cycle.

Notwithstanding the boost from the inflation report, the U.S. equity markets marked an uneventful week.   The S&P 500 Index and the Dow were essentially flat for the trading week ending June 28th, while the Nasdaq continued its upward trend with a modest 0.24% gain.  That being said, Friday June 28th also marked the last trading day for the first half of 2024.  Fueled by strong corporate earnings and optimism over AI, all three U.S. equity indexes that we track posted new record highs since the beginning of this year.

The bond markets continued to experience volatility as a result of ongoing economic uncertainties and monetary policy adjustments.  The 10-year treasury yields ticked up 9 bps in a somewhat surprising move.   Consequently, the U.S. bond market as measured by the Vanguard Total Bond Market ETF (BND), a proxy for investment-grade corporate and government fixed-income securities, dropped by 0.65%.

Thursday’s debate between President Biden and former President Trump has triggered concerns in many voters’ minds about the upcoming presidential election.  However, it is important not to let these concerns dominate your investment decisions.

Elections can significantly affect the U.S. stock market due to the uncertainty and potential changes in policies that may result from a change in administration or control of Congress.  Pre-election uncertainty, market sentiment and confidence, legislative and regulatory changes, and increased political disfunction can all have a negative impact on the stock market.

Although the impact presidential elections have on the stock market can be significant, those effects are usually limited to short-term market movements.  Historically, the stock market has been higher 12 months after a presidential election approximately 80% of the time.  In comparison, non-election years have seen the stock market higher about 71% of the time.  This suggests that the market tends to react positively following elections, due to the resolution of uncertainty.  

That said, in the long-term, market performance is driven by broader economic fundamentals, corporate earnings, and global events.  While elections can create short-term volatility, they rarely decide long-term market performance.  The overall economic environment tends to stabilize as new policies are clarified and implemented, and the markets tend to adjust accordingly.

In short, while it is prudent for investors to be aware of and understand the potential impacts of political outcomes on their investments, drastic portfolio changes based solely on political events are generally not advisable.  A balanced, well-diversified, and long-term-focused investment strategy is typically more effective in navigating political uncertainties.

That’s all for now.  Please note that there will not be a Market Update posted next weekend.  Have a great weekend and 4th of July holiday and invest wisely my friends.