Weekly Market Commentary: June 9-15, 2024
One and done
Last week, we got word from the Federal Reserve that we might only get one rate cut before the end of 2024 and it will probably be in November or December. Consumer Price Index (CPI) and Producer Price Index (PPI) numbers were softer, adding to the narrative that the economy is slowing and prices are still rising, just not as quickly. The May jobs numbers were the only fly in the ointment as far as the recent data is concerned, especially if we are looking for the Fed to potentially put rate cuts on the table sooner than November.
We have often discussed how expectations for rate cuts have declined from six or seven at the beginning of the year, to two or three and now to one. The market has been extremely optimistic every time we’ve had discouraging news on the rate cuts front (more on markets below). At some point, markets will have to realize that until we see an actual rate cut, talking about rate cuts is just that: talk.
We were certain the Fed would be unable to keep rates higher for longer and would cave — whether from pressure in an election year or, more likely, due to economic decline — and initiate rate cuts. The fact is after considerable progress against inflation from mid-2022 to mid-2023, we have been stuck above 3% since then. The problem now for the Fed is how to get that final 1% of inflation down without wrecking an already anemic economy. The Fed waited too long to move as money flooded into the economy during and after the pandemic as the government spent money on things we did not need and called inflation “transitory” or blamed it on supply chains. The truth is all that money could have been used to shore up programs like Social Security and Medicare.
Because the Fed waited too long and failed to account for all that extra money, it now has to play catch-up for longer. The longer rates stay where they are, the more likely the economy will stumble. Companies have gotten used to charging more because people were willing to pay more, and that’s why earnings have been decent. This can only continue for so long.
Inflation has not budged for almost a year and looks a little better recently because fuel prices have declined in the past few months. Falling prices for gasoline accounted for nearly 60% of the decline in the cost of last month. That can just as quickly reverse due to energy policies and events in the Middle East. In the meantime, the consumer is being challenged by higher interest rates, housing costs continue to climb while mortgage rates still hover around 7% for a 30-year loan and the economy barely has a pulse.
The Fed was widely split at last week’s meeting with some calling for cuts, staying put or raising rates in the months going forward. It finally settled on one cut as we approach year-end. However, the Fed may be forced to cut sooner because the economy, at its current pace, will begin to sputter and the Fed is way more afraid of driving us into a recession than it is of 3% inflation.
No cuts? No problem.
The S&P 500 and Nasdaq notched new records last week, buoyed by continued optimism around AI (led by the recent run-up of Nvidia and the excitement of its stock split), good earnings and wishful thinking that we’ll see more cuts than what the Fed is stating.
The Dow, which pierced 40,000 back on May 17, has been slipping, thanks mostly to Boeing, Intel and McDonald’s. Please remember that the Dow 30 consists of, well, 30 stocks and is not a broad-based index, but it makes great news when it’s up or down 1,000 points because people like big, dramatic numbers.
The S&P 500 is a far better measure of the markets; the market has indeed been very narrow this year and the inclusion of high flyers like Nvidia and all the surrounding hype have provided a lot of the lift and have made up for the rest of the names that are having a pretty bland year. In a way, it’s a strong argument for the power of diversification. The Nasdaq is more specialized and benefits from being skewed toward technology, and right now, technology is in favor (as it has been in recent years). So, three cheers for the S&P 500 and the Nasdaq on new records — and here’s to the rest of the stocks catching up to the Nvidias of the world!
Coming this week
Now that the Fed has finished up its June meeting, Fed officials will hit the speaking circuit. Given the lack of consensus and opposing views on where rates should go next, these speeches may contain some useful information.
Markets will be closed for the Juneteenth holiday on Wednesday, June 19.
Thursday will feature the usual weekly initial unemployment claims, plus housing starts, building permits, MBA mortgage applications and the Philly Fed manufacturing survey.
On Friday, we’ll get another take on inflation with the S&P flash U.S. services and manufacturing PMI readings. We’ll also see existing home sales and U.S. leading economic indicators to close out the week.
Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor.
California Insurance License #0L72568
AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM.
Information regarding the RIA offering the investment advisory services can be found at https://brokercheck.finra.org/.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information and opinions contained herein, provided by third parties, have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management.
This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product. 6/24-3619288-3
