June was a good month for markets, with most indices up in the low- to mid-single digits. The S&P 500 and Nasdaq hit new highs during the month, and bond returns were positive due to falling interest rates. International markets were more mixed in June, as developed markets fell on rising political uncertainty while emerging markets were up for the month. Solid fundamentals and an improving economic backdrop helped support returns in June.
Inflation slows. The positive market returns reflected a supportive economic environment during the month. The May inflation reports showed signs of softening inflation, with year-over-year consumer and producer inflation slowing more than expected during the month. This marked two consecutive months of slowing inflation, which was welcomed by investors and economists. Further improvements are expected in the months ahead, which should pave the way for rate cuts later this year.
Hiring stabilizes. While the Fed and investors continued to examine inflation updates, the labor market was also worth monitoring. Hiring slowed in June, as 206,000 jobs were added during the month following a downwardly revised 218,000 jobs in May. This represented a solid month of hiring on a historical basis but was down from the torrid pace of hiring we saw earlier in the year. This result was encouraging for economists and investors as it signaled continued hiring growth and calmed fears of a potentially overheating economy.
Future earnings growth. While the economic backdrop is expected to remain supportive in the months ahead, market fundamentals are also projected to show signs of further improvement. Earnings season for the S&P 500 is set to start at the end of the week, and analysts expect to see solid high-single-digit growth for the quarter. If estimates hold, this would mark four consecutive quarters of year-over-year earnings growth. Over the long run, fundamentals drive market performance, so continued earnings growth would be a boon for markets.
Rising political risks. As my colleague Peter Roberto recently wrote on the blog, several global elections have increased political uncertainty throughout 2024. This uncertainty is expected to rise as we approach the U.S. federal elections in November. While it’s too early to forecast who will win in November, the increased uncertainty could weigh on markets. For example, the high-profile elections in France and the United Kingdom in early July contributed to the market volatility for international developed stocks in June.
Ultimately, when looking at the whole picture, we remain in a good place as we head into the second half of 2024. The economic backdrop is supportive, with healthy growth and slowing inflation expected ahead. Fundamentals continue to improve, which should support stocks in the second half of the year. And while there are risks, the markets and economy remain impressively resilient so far this year.
For now, we believe the most likely path forward is continued growth and market appreciation, with the caveat that short-term setbacks may occur along the way.