Market Movers & Shakers

Markets experienced continued strength throughout the first few weeks of June as the S&P 500 logged its third consecutive weekly gain, up for the eighth week in the past nine. The benchmark index closed higher by 0.61% last week, bringing its month-to-date advance to 4.71%. Recent positive performance adds to the remarkable run the index has had so far in 2024. The S&P 500 has gained 15% year-to-date while logging 31 record closing highs. We discussed in the previous edition of Notes from the Trading Desk how the S&P 500’s gain this year has mostly been driven by the Information Technology and Communication Services sectors, with outsized performance coming more specifically from the largest stocks in those sectors and in the market (Nvidia, Microsoft, Apple). And while this is certainly still the case for 2024, last week saw welcomed outperformance from the equal-weighted S&P 500 relative to the market-cap weighted index for market participants who have become increasingly concerned with the lack of breadth and narrowness of the market. Consumer Discretionary, Energy, Financials, and Industrials were the top performing sectors last week, while Utilities, Information Technology, and Real Estate were the biggest laggards.

Nvidia, which has epitomized the euphoria around artificial intelligence that has propelled stocks to new highs, surpassed $3 trillion in market-capitalization early last week and briefly topped Microsoft as the most valuable public company in the world. However, following the mid-week Juneteenth holiday, Nvidia shares came under pressure amid rising growth sustainment concerns on Thursday and Friday, snapping an 8-week winning streak in which the stock rallied nearly 75%. U.S. Treasuries moderated across the curve last week following a relatively volatile period to start the month. The benchmark 10-year U.S. Treasury yield closed the week at 4.25% while the shorter-dated 2-year U.S. Treasury closed at 4.73%. The U.S. Dollar Index has experienced some strength of late and is now hovering near levels last seen in October 2023 and April of this year – both of which happened to coincide with a drawdown in equity markets.

May’s nonfarm payrolls report was released earlier this month. The report showed the U.S. economy added 272,000 jobs during the month of May, well above consensus estimates for 180,000-185,000, and up from the 165,000 jobs added in April. The unemployment rate rose to 4% for the first time since January 2022 against expectations it would remain steady at 3.9%. The labor force participation rate decreased by 0.2% down to 62.5%, while the household survey showed a bigger drop in employment with the level of people reported holding jobs falling by 408,000 during the month. Average hourly earnings came in hotter than anticipated, up 0.4% month-over-month and 4.1% from a year ago against estimates of 0.3% and 3.9%, respectively. Market participants will shift their attention to the release of May’s personal consumption expenditure (PCE) inflation data which is set to be released on Friday morning. Consensus estimates are looking for core PCE to increase just 0.1% month-over-month, which brings the annualized rate down to 2.6% from the most recent 2.8% reading – which would be the lowest year-over-year increase since March 2021.

Updates & News*

The continued ascent of U.S. equity markets to record highs has been marked by notably low volatility at the headline level. The S&P 500 has gone 377 days without a selloff of 2.05% or more, which is the longest period since the Great Financial Crisis, per CNBC. It has not only been downside volatility that has remained muted, the index has also not experienced a single day gain of 2.15% or more during the same time period. Tandem’s Co-Chief Investment Officer, Billy Little, Jr., CFA discussed the lack of index level volatility in the June 2024 edition of Observations:

“The persistent strength of the Magnificent 7 has allowed the S&P 500 to trudge higher with relative ease. However, when you look under the hood, it’s anything but the case… Only once in the past 25 years have stocks swung about like this while the overall market stayed so placid… At Tandem, this has translated to higher transaction activity despite extremely low levels of headline index volatility. In the past, during periods of such low index volatility, we would be hard pressed to find opportunities to buy or sell stocks. So far this year, that has not been the case.”

As volatility at the individual stock level has remained elevated, so has the opportunity to put money to work across new accounts and accounts with recently deposited cash. Accounts that have been under Tandem’s management for ~2 weeks are nearly 50% of the way transitioned into our strategies, while those that have been with us for a month are ~60% in-line with our strategies. The back-half of the transition remains at a much slower clip than the front-half as our quantitative investment process suggests a number of core holdings remain unsustainably overvalued at current prices.

On the earnings front, financial data provider FactSet Research Systems and consulting giant Accenture had their quarterly earnings reports cross the wires last week. FactSet posted revenue figures that were mostly in-line with consensus estimates while beating on the earnings front as operating margins expanded to 39.4% from 36.0% a year ago. The company also raised its full-year earnings per share guidance as it noted an increase in sales to private equity, venture capital, and wealth management clients. Accenture posted a mixed quarter, with revenue and earnings coming in slightly below analyst forecasts. A bright spot of the report was the $21.1 billion in new bookings Accenture logged during the quarter, a 22% increase year-over-year. Accenture noted that generative AI new bookings are seeing significant growth, with a nearly 50% jump in GenAI related new bookings quarter-over-quarter. Accenture’s management team highlighted its significant focus on GenAI as a key growth-driver and discussed plans for further expanding the company’s AI capabilities.

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new accounts and new money, not the composite or firm-wide level. New accounts and new money are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

Disclaimer: Tandem Investment Advisors, Inc. is an SEC registered investment advisor.

This audio/writing is for informational purposes only and shall not constitute or be considered financial, tax or investment advice, or an offer to sell, or a solicitation of an offer to buy any product, service, or security. Tandem Investment Advisors, Inc. does not represent that the securities, products, or services discussed in this writing are suitable for any particular investor. Indices are unmanaged and not available for direct investment. Please consult your financial advisor before making any investment decisions. Past performance is no guarantee of future results. All past portfolio purchases and sales are available upon request.

All performance figures, data points, charts and graphs contained in this report are derived from publicly available sources believed to be reliable. Tandem makes no representation as to the accuracy of these numbers, nor should they be construed as any representation of past or future performance.