Inflation, stubborn as a mule?
Persistent inflation led to stock and bond market volatility to start the 2nd Quarter (Q2) 2024. The prospect of the Federal Reserve lowering interest rates proved to be elusive. Investors continued to be concerned about the probability of ongoing inflation. Markets moved on the expectation that the Federal Reserve would pare back their projections for interest rate cuts slotted for 2024. April’s higher than expected inflation readings were the trigger to send the stock and bond markets selling off. By May signs of inflation cooling began to trickle down through the markets, and by June stocks and bonds began to reclaim their traction. The question is, will interest rate cuts before the end of the year fend off stifling the U.S. economy and avoid a recession?
The strongest sector of the economy in Q2 of 2024 was big technology stocks that benefit from Artificial Intelligence (AI). These stocks continued their 2023 advance. A wider market rally evaded investors’ hope. Communications Services were a far 2nd in performance followed by Utilities and Consumer Staples. The remaining sectors of the economy put up negative returns this quarter.
Fixed income yields moved higher as price performance declined, blessing the saver with a bigger monthly paycheck for the interest earned on their cash holdings; like Savings Accounts, Certificates of Deposits (CDs) Money Markets and Short-Term Bonds.
Gold prices continued their rally, pushing commodity prices higher as inflation persisted and the dollar strengthened ahead of June’s inflation numbers.
International markets posted positive gains this quarter, led by developed international large cap and emerging market stocks. European stocks continued trading at a discount to U.S. stocks however, they have kept pace with the performance of the S&P 500. In June, Canada and the European Union, prompted by slow economic growth and lower inflation, lowered interest rates by 0.25%. Lower interest rates in Europe may help drive a recovery in manufacturing and other cyclical sectors that benefit from monetary liquidity.
China has been aggressively combating recessionary pressures caused by COVID policies that stifled economic growth and caused a real estate crisis. The results of China’s recent fiscal stimulus, lower interest rates and smaller reserve requirements for banks, have brought about a positive shift in their markets which helped accelerate growth in the emerging market sector this quarter. Despite growth in this region of the world, a strong U.S. dollar continues to be a headwind for emerging market stocks. When the Federal Reserve hints it’s willing to lower interest rates, this may weigh on the U.S. dollars strength, aiding the performance of emerging markets stocks in the future.
But wait! As I write this market overview, unemployment data has ticked higher, consumer spending is plateauing, and inflation data is hinting to lower interest rates at some point in the near-er future. These indicators would allow the Federal Reserve to maintain its key metrics for increasing economic growth and cool inflation. Whispers of this have sent the markets rallying. We advise allocating appropriately for the market conditions that lie ahead. If you are uncertain about your situation and how it may be impacted by market movements, please do not hesitate to contact us.
At Renew Family Wealth, we believe in building long-term trusting relationships by partnering with those we serve in evaluating the conditions affecting their lives and providing solutions for their circumstances. If you are uncertain about your current life or investment plan, we welcome the opportunity to partner with you to determine if you are planning appropriately for your needs and goals. Please contact us to set up a meeting to discuss how we may be useful to you. Thank you for the opportunity to serve you.
Sincerely,
Scott Miller
