Insights
into
key
market
performance
and
economic
trends
from
Dan
Kemp,
Morningstar’s
global
chief
research
and
investment
officer.
Economic
data
was
sidelined
last
week
as
politics
dominated
the
headlines.
However,
the
latest
jobs
report
on
Friday
was
of
interest
to
investors.
Although
the
June
numbers
met
expectations,
downward
revisions
to
the
May
and
April
data
gave
the
impression
of
a
slightly
weaker
economy,
raising
expectations
of
an
earlier
interest
rate
cut.
This
was
reflected
in
data
from
CME
FedWatch,
which
rated
the
probability
of
two
or
more
0.25%
interest
rate
cuts
by
year-end
at
77%,
up
from
63%
a
week
ago.
Tom
Lauricella delves
deeper
into
the
job
numbers and
Morningstar
chief
US
economist Preston
Caldwell’s
view
of
them.
US
Large-Cap
Stocks
Outperform
Equity
markets
rose
across
the
globe
over
the
week.
However,
there
was
a
sharp
bifurcation
between
the
largest
technology
companies
and
the
rest.
While
the Morningstar
US
Large
Cap
Index rose
2.55%,
the Morningstar
US
Small-Mid
Cap
Index fell
0.53%,
increasing
their
valuation
disparity.
Technology
stocks
continued
to
drive
returns
among
large
companies,
with
Apple (AAPL),
Microsoft (MSFT),
Meta
Platforms (META),
and
Alphabet (GOOGL) especially
strong.
This
reminds
us
how
difficult
it
is
to
find
good
value
investments
in
a
market
driven
by
strong
sentiment.
Morningstar’s
behavioural
insights
team
has
advice
to help
investors
distinguish
between
short-term
sentiment
and
long-term
risk
tolerance.
Earnings
Season
Kicks
Off
The
company
reporting
season
gets
underway
at
the
end
of
this
week.
Banks
are
among
the
first
companies
to
report,
and
they
are
likely
to
set
a
disappointing
tone,
with
profits
expected
to
fall
10%
compared
with
a
year
ago,
according
to
FactSet
Earnings
Insight.
Despite
these
downbeat
expectations,
the Morningstar
US
Banks
Index has
risen
strongly
this
year.
This
apparent
contradiction
reflects
the
high
concentration
in
the
industry,
with
JPMorgan
Chase (JPM) accounting
for
34%
of
the
index.
While
Morningstar’s
analysts
believe
JPMorgan
is
a
little
overpriced,
a
deeper
dive
into
the
industry
reveals
plenty
of
opportunities.
Morningstar
banking
analysts
believe
50%
of
the
companies
they
cover
are
undervalued.
All
Eyes
on
the
June
CPI
Report
Inflation
will
likely
be
back
in
the
headlines
this
week,
with
the
latest
data
on
consumer
prices
due
to
be
published
on
Thursday
and
producer
prices
(as
a
measure
of
input
costs
for
companies)
published
on
Friday.
This
data
will
be
accompanied
by
several
speeches
by
Federal
Reserve
Chair
Jerome
Powell
and
other
central
bank
officials.
Following
the
weaker
job
numbers,
we
can
expect
financial
commentators
to
infer
much
from
both
the
commentary
and
inflation
data.
However,
it
is
important
to
remember
that
the
link
between
short-term
economic
shifts
and
long-term
returns
is
seldom
strong.
Investors
should
instead
remain
focused
on
the
twin
pillars
of
successful
investing:
quality
and
value.
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