Stocks around the globe retreated in the holiday-shortened trading week. After reaching new year-to-date highs last week, the S&P 500 was lower by about 1% in early trading this week. On the year, the S&P 500 index is higher by more than 15% in total return and sits just 6% below all-time highs. Overseas, the MSCI EAFE (international developed index) is higher by about 13% so far this year.
It’s been quite a year for the mega-cap growth stocks in the U.S., which have driven the majority of returns year-to-date. As of last month-end, the average YTD return for Amazon, Apple, Google, Meta, Microsoft, NVIDIA, and Tesla was nearly 84%. On the other hand, the average YTD return for the rest of the S&P 500 was just 3.7% (JPMorgan). The breadth of the market rally has been broader overseas, where the indices are less top-heavy. For example, the top five companies in the S&P 500 represent more than 20% of the index. On the contrary, the top five holdings in the MSCI EAFE represent just 8% of the index.
Looking forward, market participants will continue to focus on the Federal Reserve and the future path of interest rates. After electing to hold interest rates steady at the June policy-setting meeting, the markets are expecting the central bank to raise the benchmark interest rate by 25 basis points at the next meeting in late July. In prepared remarks on Wednesday, Fed Chair Jerome Powell noted “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year”.
Source: GSAM, CNBC, JPMorgan
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