Markets Brief: 4 Stocks Made Up 80% of the Gains. Can it Last?

Plus: When to expect a rate cut, Musk’s payday, and more Fed talk

Dan Kemp 18 June, 2024 | 11:22AM
Facebook Twitter LinkedIn


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

Last week, the latest inflation data and the Federal Reserve’s decision to leave interest rates unchanged dominated conversation among market participants. Subsequent commentary fuelled investor optimism and increased expectations of more than one interest rate cut this year, according to the CME FedWatch tool. You can read about how Morningstar Wealth portfolio managers are incorporating this news into their decisions and how this fits into a broader economic context.

Equity Market Gains Are Very Narrow

Although the Morningstar US Market Index rose sharply (1.44%) over the week, these gains were unusually concentrated, with only the technology, communication services, consumer cyclical, and real estate sectors making gains. Technology was the key driver of the overall market return, rising 5.8%. Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), and Broadcom (AVGO) accounted for approximately 80% of that gain.

The breadth (or narrowness) of contributors to market movements is often a gauge of the sustainability of the current price trends, with narrow market leadership seen as an indication of a future reversal. While following such predictions can often lead to disappointment, diversification in these trends provides opportunities for those willing to undertake research, think independently, and focus on the long term.

Musk’s Big Payday

One big surprise last week was Tesla (TSLA) shareholders acquiescing to the circa $50 billion compensation package for Elon Musk, designed to address the perceived risk that he may lose interest in a company where he currently has an investment of $100 billion. The belief in an individual’s ability to provide sufficient value to overcome such a high cost is reminiscent of the investment industry’s “star fund manager” culture at the start of the century. This climate was undone by passive investment firms like Vanguard, which demonstrated the importance of minimizing costs. Vanguard’s support of Musk in this latest vote is a fascinating reminder that costs migrate with changing fashions, and investors must remain vigilant.

The Week Ahead: More Fed Talk

Comments from Fed officials will likely dominate the week to come. While such comments are typically watched carefully in the hope of understanding future Fed policy, investors’ current consensus will not be easily dislodged. A strong consensus can push prices far from their fair value, requiring unusual patience from those with a long-term, valuation-driven approach. However, the market consensus often feels strongest when a change is underway.

More Insights ...

From Dan Kemp Here

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.

Facebook Twitter LinkedIn

About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures