Cary Street Partners recognized by USA TODAY for second consecutive year.  |  Read More

Street SMARTS: June Commentary 2024

By Thomas O. Herrick
Chief Market Strategist, Managing Director

Risk assets rebounded over the month of May, with significant stock averages returning to high water marks. Equity markets remain in a solid long-term uptrend characterized by increasing risk appetite. Supporting the uptrend recently have been stellar earnings for momentum factor companies, as well as some other heavyweights that do not fall into that momentum group. Microsoft and Nvidia are examples of momentum stalwarts that came through with quarterly results and guidance. Alphabet is an example of a heavyweight that also came through but is not in the momentum crowd. The bottom line is that these stocks are essential to major average performance. Others increasingly accompany them in terms of performance, but this group cannot be absent.

Yields were somewhat lower in May as bond prices rallied in response to a better CPI (Consumer Price Index) report for the month of April. Given that corporate earnings are largely behind us and there are some signs of short-term exhaustion for equities, another pullback is not out of the question at this juncture. Yields remain a paramount consideration for risk assets. While the direction of yields is certainly important, lower volatility in the bond market is at least as important. Direction and volatility are related but not the same. Volatility will increase with higher moves in yield that are dramatic. We wrote about this at the end of the first quarter, during which yields increased slightly, but volatility was overall lower. This is an important dynamic to keep an eye on for equities.

The trend in bond volatility is very supportive, as seen below in the MOVE Index (Merrill Lynch Option Volatility Estimate). The MOVE Index is essentially an index of bond volatility similar to the VIX Index (CBOE Volatility Index) for stocks. Said another way, it’s an indicator of fear that yields might go higher. The takeaway for this index is that a lower volatility cycle is underway following a higher volatility cycle in 2021-2023. The lower low made in March is noteworthy.

The trend in bond volatility is very supportive

MOVE index graph shows a spike between 2021 and 2023.

Source: Fairlead Strategies

Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training. Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
Fixed income investments have several other asset-class specific risks. Inflation risk reduces the real value of such investments, as purchasing power declines on nominal dollars that are received as principal and interest. Interest rate risk comes from a rise in interest rates that causes a fixed income security to decline in price in order to make the market price-based yield competitive with the prevailing interest rate climate. Fixed income securities are also at risk of issuer default or the markets’ perception that default risk has increased.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment related services. There is no assurance that any securities discussed herein have been included in an account’s portfolio, will remain in an account’s portfolio at the time you receive this report, or that securities sold have not been repurchased. The securities discussed do not represent an account’s entire portfolio and, in the aggregate, could represent only a small percentage of the portfolio’s holdings. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable, or that the investment recommendations or decisions made in the future will be profitable or will equal the investment performance of the securities discussed herein. A complete list of every holding’s contribution to performance during the period, and the methodology of the contribution to return, is available by contacting Cary Street Partners Marketing.
The Merrill Lynch Option Volatility Estimate (MOVE) Index reflects the level of volatility in U.S. Treasury futures. The index is considered a proxy for term premiums of U.S. Treasury bonds (i.e., the yield spread between long-term and short-term bonds). CSP2024104

Start a Conversation
with a Financial Advisor