Markets Move Higher For Q2, But Breadth Remains A Concern

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Not all market sectors were created equal last week and market breadth is becoming more of a concern.  Of the top ten holdings of the S&P 500 Index, their weighted return is +31.7% year-to-date, while the total return for the Index is only +14.5%. How can that be? Well, just under 200 S&P 500 holdings are down for the year, so the top 10 holdings are driving the index's return for the year. Another way of looking at it, the S&P 500 Equal-Weighted Index is under-performing the S&P 500 Cap-Weighted Index by more than 10% year-to-date. Portfolios that are well diversified will naturally under-perform in this kind of environment.

Meanwhile, the economic backdrop is still on solid footing for the time being.  While the labor market is showing signs of cooling, jobless claims have dipped for two consecutive weeks.  The Fed's preferred measure of inflation, PCE Price Index, showed no change in May while Personal Spending and Personal Income increased in May.  If we break down GDP by state, only 4 state economies show flat or contracting growth.  Corporate bankruptcies are not trending any higher than one year ago.  All eyes will be on the Jobs Report this week as the labor market is one of the key indicators the Fed is closely watching for future action on interest rates.  Multiple Fed speakers, including Chairman Powell, may give us some clues as to a potential rate cut in September.

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general. 

Past Performance does not guarantee future results.