Insights
into
key
market
performance
and
economic
trends
from
Dan
Kemp,
Morningstar’s
global
chief
research
and
investment
officer.
The
first
half
of
2024
closed
with
the
news
that
inflation
has
continued
to
fall
in
line
with
expectations,
as
the
core
PCE
measure
of
inflation
fell
from
2.8%
to
2.6%
over
the
last
12
months.
While
this
news
would
be
expected
to
encourage
bondholders,
prices
fell
on
Friday
as
the
yield
on
the
10-year
Treasury
rose
to
4.4%.
This
again
reminds
us
that
the
link
between
economic
data
and
short-term
price
movements
is
not
predictable.
Small-Cap
Stocks
Struggle,
Stay
Undervalued
The
Morningstar
US
Market
index
finished
the
week
flat,
having
risen
14.07%
over
the
first
half
of
the
year.
Although
smaller
companies
stock
prices
rose
over
the
week,
the
sharp
bifurcation
in
US
equities
remains,
with
the
Morningstar
US
Small
Companies
index
up
1.85%
in
2024
so
far
and
remains
deep
in
undervalued
territory
according
to
Morningstar’s
equity
analysts.
This
demonstrates
that
while
valuation
can
be
a
good
guide
to
the
relative
long
term
returns
of
equities,
it
is
typically
a
poor
guide
to
timing
investments
and
tends
to
confound
those
who
use
it
for
this
purpose.
Earnings
Season
Approaches
As
we
approach
a
new
earnings
season,
two
key
points
are
noticeable.
First
that
earnings
expectations
are
high
but
falling
with
year-on-year
profit
growth
expected
to
be
8.8%
for
Q2
compared
to
9%
three
months
ago,
according
to
FactSet
Earnings
Insight.
Second
that
companies
that
disappoint
investors
are
being
treated
harshly,
as
evidenced
by
Nike,
which
fell
20%
on
Friday
having
posted
results
below
expectations.
You
can
read
what
Morningstar’s
Nike
Analyst
David
Swarz
thought
of
the
results
here.
A
combination
of
high
expectations
and
weaker
results
is
fertile
ground
for
volatile
prices
and
so
it
may
be
important
to
remember
that
successful
investing
is
dependent
upon
remaining
invested
when
others
are
reacting
to
news.
European
Elections
Loom
Equity
markets
outside
the
US
have
made
good
progress
this
year
but
have
continued
to
trail
in
the
wake
of
larger
US
companies,
evidenced
by
the
Morningstar
Developed
Markets
ex
US
index
which
is
up
4.76%
over
the
first
half.
Investors
in
French
stocks
have
had
an
especially
torrid
time
following
the
announcement
of
a
snap
parliamentary
election
with
Morningstar
France
index
falling
7.69%
over
the
last
month.
Geopolitics
and
specifically
the
economic
impact
of
elections
are
likely
to
dominate
the
minds
of
commentators
this
week
with
results
from
both
the
French
and
the
UK
elections.
The
risks
for
investors
of
these
events
along
with
broader
geopolitical
trends
were
highlighted
by
Ian
Bremmer
(founder
and
president
of
the
Eurasia
Group)
at
the
Morningstar
Investment
Conference
in
Chicago
last
week.
You
can
read
more
about
the
views
Ian
expressed
here.
US
Employment
Back
in
the
Spotlight
As
we
enter
a
shortened
trading
week,
the
big
economic
news
is
likely
to
be
the
US
employment
report
on
Friday.
Economists
are
expecting
the
unemployment
rate
to
remain
steady
at
4%
and
earnings
growth
to
fall,
according
to
MarketWatch.
In
a
week
when
many
market
participants
will
be
away
from
their
desks
on
July
4,
an
outcome
that
varies
significantly
from
those
expectation
could
lead
to
volatility
but
is
unlikely
to
require
a
change
in
strategy.
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