Markets Brief: Meme Stocks Return

Plus:  US jobs boom, small-cap stocks underperform and the case for bonds

Dan Kemp 10 June, 2024 | 9:55AM
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Insights into key market performance and economic trends from Dan Kemp, Morningstar’s global chief research and investment officer.

Meme stocks were back in the headlines last week as GameStop (GME) first rose 101% and subsequently fell 39% on Friday to finish flat on the week. This followed the announcement of a 29% decline in year-over-year sales and the second capital raising in a month. This reminds us that while capital markets are designed to enable investment, they are often used for speculation and investors can be confused between the two. The essential difference is that Investment is always focused on the long term, supported by research, and enjoys a positive expected return. Speculation is any activity that does not comply with those rules. To understand why we get drawn into speculation and how to avoid it, check out this article by Morningstar behavioural scientist Danielle Labotka.

Small-Cap Stocks Struggle

Elsewhere, the price of US equities rose sharply with the Morningstar US Market index up 1.06% over the week. The path of larger, growth-oriented companies differed sharply from smaller, value-orientated companies as evidenced by the Morningstar Small Value index which fell 2.88%. In such an environment, it is worth digging deeper into the opportunities provided by a market. Morningstar’s new sector pages can help you do this.

US Job Boom

The US employment report on Friday showed revealed higher growth than expected, with 272,000 new jobs created in May. While commentators made much of this news and the impact of the future path of interest rates, investors were nonplussed, as indicated by the CME FedWatch tool which shows that interest rate expectations for December were virtually unchanged over the week. To put these latest results in a longer-term investing context read Philip Straehl, Morningstar wealth’s chief investment officer for the Americas’ comments on the release here.

Don’t Ignore Bonds

In contrast to equities, core bond prices have changed little this year as investors have vacillated about the direction of the economy and interest rates. Following a period of falling prices, this lackluster outcome for bondholders can encourage investors to ignore this asset class. However, with higher yields and lower inflation, it is a good time to consider the contrarian view. To help you do this, Morningstar writer Danny Noonan presents the case for bonds in this article.

All Eyes on the Fed this Week

The focus of market commentators will be firmly fixed on the outcome of the Federal Reserve Open Market Committee (FOMC) this week. While few expect any change in interest rates, chairman Powell’s comments at the subsequent press conference will be closely parsed for any hint of the future path of interest rates. While gazing into a crystal ball can be entertaining, it is unlikely to yield useful information for investors. For those who are serious about reaching their financial goals, the virtues of patience, independent thought and the hard work of fundamental research remain the best indicators of success.


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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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