iShares June Road Report: top advisor questions of the month

May brought momentum: indices reached fresh all-time highs, inflation cooled, and earnings remained firm.

Our team was largely focused on our Q2 outlook last month, outlined in our Spring Investment Directions. But this month on the road we were dealt a whole new set of questions. Here are our views on our top FAQs: earnings, gold, and even meme stocks.

As the reporting window closes, Q1 results impress both relative to forecasts and historical averages. The S&P 500 touts a healthy 78% beat rate, with the magnitude of beats at its strongest level since the third quarter of 2021.¹ Under the hood, weaker top line numbers prove companies are more adept at protecting margins rather than expanding sales. In turn, the market response to solid beats was largely muted, with an exception for names that eked out beats on both top and bottom lines, which many were rewarded with a positive pop in price action.

Here are our two quick-hit takeaways:

• Index-level strength was largely fueled by resilience in big tech earnings growth. Nvidia results loom, but broadly, the rest of the Magnificent 7 cohort met, or cleared, lofty expectations. The S&P 493 EPS growth is tracking at -2% YoY, the fifth quarter of consecutive negative growth, a sharp juxtaposition to the Mag 7 ex-NVDA’s +48% YoY.²
• Cracks in the strength of the consumer underscored guidance, especially lower income. Starbucks, McDonald’s, and KFC all warned of a shrinking pool of customer dollars, a potential flag of waning consumer power.

Gold remains in the spotlight, and top of advisor minds, as prices hover near all-time highs after climbing 15% YTD.³ Panning through the reasons for the rally, central bank demand is a large driver: the past two full years saw record amounts of additions to central bank reserves, and the trend remained firm in the first quarter of 2024.

Still, the market paring back rate cut expectations, in our view, delivers a poor macro backdrop for gold. During periods of high rates, investors are tempted to swap out non-yielding gold for exposures with higher yields and fixed returns. Prices have leveled off recently, and gold-linked equity products have been in outflow-mode, both signaling a reversal in investor sentiment. As the risk of broad-scale geopolitical conflict largely subdues and inflation tames, the gold-as-a-hedge trade may continue to wane, and we expect the price of gold to remain rangebound or lower from here.

May saw quite a few catalysts of volatile price action: a cooling CPI report, blockbuster (or lackluster) earnings announcements, and a social media revival from Keith Gill, a trader by the handle ‘Roaring Kitty’ who led a pandemic-era meme stock tear.

After a three-year hiatus, Roaring Kitty’s post on X caused GameStop’s stock to double in a single day, while AMC Entertainment and obscure cryptocurrencies felt a similar swell.⁴ Retail investors led the charge, and hedge funds were largely caught in the squeeze as HF Longs vs. Shorts fell 6% with a considerable amount of covering from the fast money community. On Tuesday, AMC and GameStop landed among the top 10 stocks purchased by retail investors, gathering $51mn and $16mn from investors respectively.⁵ Still, the volatility lasted roughly 48 hours – after two trading days, sharp swings have largely fizzled out.