Market Outlook

Last week was characterized by a resurgence of narrow market leadership as domestic large-cap equities outpaced other major asset classes. The S&P 500® experienced its widest outperformance over the MSCI World ex USA Index in more than two years, due to both the outcome of the June 12 Federal Open Market Committee (FOMC) meeting as well as elections in the European Union that highlighted political risk in France.

The contrasting market reactions to last week’s Consumer Price Index (CPI) and Producer Price Index (PPI) reports highlight the bifurcated market. While the CPI report came in weaker than consensus expected, allowing interest rates to fall and smaller, value-oriented stocks to outperform, the PPI report was also weak, which enabled large-cap growth to ultimately outperform. This week’s retail sales report should provide further insight into consumer health, a key driver of the business cycle.

Chart of the Week

Last week’s FOMC meeting forced consensus to once again readjust the timing of interest rate cuts, given the Federal Reserve’s (Fed's) updated “dot plot” of interest rate projections.

While the Fed’s median expectation is now for just one interest rate cut in 2024, compared to three cuts in its prior projection, we believe forward guidance for policy easing remains supportive of financial conditions overall.

As the “higher-for-longer” interest rate environment extends, we believe quality allocations remain attractive.

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