The month of June brought an onslaught of economic data releases to which the markets gyrated numerous times only for the overall market to continue its march higher.
The US yield curve is a graphical representation of the interest rates on debt for a range of maturities. It shows the relationship between short-term and long-term interest rates of US Treasury securities. A normal yield curve slopes upward, indicating that long-term interest rates are higher than short-term rates. An inverted yield curve, on the other hand, shows the opposite, with short-term rates higher than long-term rates. The shape of the yield curve is closely watched by many economists and investors as it can provide insights into future economic conditions and potential recessions although with a lag.
The curve has been inverted since early July 2022. As of today, June 17, 2024, this inversion has surpassed the longest one on record, which lasted 624 days in 1978. While an inverted yield curve has often been followed by a recession, the effects of the FED and policy may have inadvertently warped this indicator, but as always time will tell.
Moving onto the wider markets; the US continues its dominant outperformance compared to the international markets on the equity front drive primarily by the magnificent seven technology stocks, with the poster child being Nvidia (NVDA) having benefited tremendously from the artificial intelligence hype. You can check out our NVDA breakdown in earnings/growth in our last quarterly update here.
If we take a deeper look at the overall sector composition in the US, it becomes clear that a few select companies are having an outsized impact on not just the sector level but the index level. Technology as a sector is the highest weighted sector we’ve seen for the S&P 500 since records began. Real estate remains the standalone sector seeing negative return on a YTD basis, partly owed due to the ongoing crisis in commercial real estate and higher cost of capital due to rates.
Finally moving onto the portfolio breakdown; First Trust NASDAQ® Cln Edge®StGidIfsETF (GRID) was the best performer for the month of June followed closely behind by the overall S&P 500 as markets continued higher after Apple’s recent debut of AI into their suite of products. First Trust NASDAQ Cybersecurity ETF (CIBR) took a slight pull back after having enjoyed a nice run-up earlier in the year.
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