Insights into key market performance and economic trends from Dan Kemp, Morningstar’s global chief research and investment officer.
The Morningstar US Market index rose 0.67% with lower-growth sectors such as financials and energy typically outpacing companies expected to generate more rapid profit growth.
The fixed income markets showed small movement in yields, credit spreads or expectations for future interest rates. Government bonds continue to offer high real (i.e. net of inflation) yields for investors relative to that available in the recent past. It is not surprising that investors are continuing to ‘pile into bond funds’ in the words of Morningstar analysts Adam Sabban and Ryan Jackson in their latest fund flow report.
Investors Keen on Corporate Bonds
Investors are also enthusiastic about corporate bonds, despite the higher expected correlation with equity prices and unusually skinny credit spreads. As ever with fixed income investing, it is important to be clear about why you own the investment as confusion on this point can lead to expensive mistakes during periods of market volatility. You can access Morningstar’s latest fund flow report here.
Story Stocks Plummet
The market was not quiet everywhere with some investors experiencing a painful reminder of what happens when investing is divorced from financial analysis and instead used as a proxy for a political or cultural view. Both GameStop (GME) (down 17%) and Trump Media & Technology Group (DJT) (down 25%) are example of companies whose owners appear to be are more focused on supporting a view rather than maximizing long-term returns. To help investors avoid these situations, Morningstar Wealth’s Danny Noonan unpacks this challenges of mixing politics and investing here.
Beyond Nvidia
Market leader Nvidia (NVDA) fell 4% over the week having briefly become the most valuable company listed on the US markets. Following extraordinary growth in the adoption of generative AI over the last 18 months, this topic continues to dominate the minds of investors. While Nvidia has become the default way of investing in this area, Morningstar’s technology equity analysts William Kerwin and Brian Colello believe that there are other companies that should also be considered by investors wishing to access this industry. Their report is available here.
PCE Inflation Due
Inflation is back on the menu next week with the Fed’s preferred measure of price change: the Personal Consumption Expenditures index (PCE), expected to show a further decline in inflation to an annualised rate of 2.6% in May at both the headline and core levels (source: MarketWatch).
If the outcome matches this expectation of a continued slow decline in inflation, we can expect investors to become more confident in the current consensus. In which case the market may continue to be quiet allowing investors to focus on long term opportunities rather than responding to market noise.