Markets Roundup: Inflation is back in the spotlight

Insights into key market performance and economic trends from Dan Kemp, Morningstar’s global chief investment and research officer.

The Morningstar U.S. Market Index rose 0.67% with lower-growth sectors such as financials and energy typically outperforming companies expected to generate faster earnings growth.

Investors interested in corporate bonds

Fixed income markets showed little movement in yields, credit spreads or expectations for future interest rates. Government bonds continue to offer high real (ie net of inflation) yields for investors compared to those available in the recent past. Not surprisingly, 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 are also enthusiastic about corporate bonds, despite the expected higher correlation with stock prices and extremely weak credit spreads. As ever with fixed income investing, it’s 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.

The stakes of the story drop

Some investors experienced a painful reminder of what happens when investing is divorced from financial analysis and instead used as a proxy for a political or cultural viewpoint. Both GameStop GME (down 17%) and Trump Media & Technology Group DJT (down 25%) are examples of companies whose owners seem more focused on supporting a point of view than maximizing long-term returns. To help investors avoid these situations, Danny Noonan of Morningstar Wealth breaks down these challenges of mixing politics and investing here.

Beyond Nvidia

Market leader Nvidia NVDA fell 4% on the week, briefly becoming the most valuable company listed on US markets. After the tremendous growth in adoption of generative AI over the past 18 months, this topic continues to dominate investors’ minds. While Nvidia has become the default way to invest in this area, Morningstar technology equity analysts William Kerwin and Brian Colello believe there are other companies that should also be considered by investors looking to enter the industry. Their report is available here.

Inflation in the spotlight

Inflation is back on the menu next week with the Fed’s favorite measure of price change: the Personal Consumption Expenditure (PCE) index, expected to show a further decline in inflation to an annual rate of 2.6% in May, as at the main level as well as at the base level. (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 on the path to lower interest rates.

This Week’s Market Highlights and Investment Events

• Tuesday, June 25: June Consumer Confidence Survey
• Wednesday, June 26: May New Home Sales
• Thursday, June 27: May Standing Orders, Nike NKE Earnings
• Friday, June 28: May Personal Income and Spending, PCE Price Index

Check out our full weekly calendar of economic reports, consensus forecasts and corporate earnings.

For the Trade Week ending June 21

• The Morningstar US Market Index rose 0.65%.
• The best-performing sectors were consumer cyclicals, up 2.15%, and energy, up 1.80%.
• The worst performing sector was utilities, with a decrease of 0.74%.
• Yields on 10-year US Treasury notes rose to 4.25% from 4.20%.
• West Texas Intermediate crude oil prices rose 2.78% to $80.63.
• Of the 702 companies listed in the US by Morningstar, 477, or 68%, were increasing, 0 were unchanged and 225, or 32%, were decreasing.

What stocks are up?

Chewy CHWY, Spirit AeroSystems Holdings SPR, PENN Entertainment PENN, Toast TOST, Sirius XM Holdings SIRI.

Which stocks are down?

AMC Networks AMCX, SolarEdge Technologies SEDG, ChargePoint Holdings CHPT, Enphase Energy ENPH, CRISPR Therapeutics CRSP.