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Market Recap – July 1, 2024

Keel Point

July 1, 2024

The big economic news last week was that core PCE inflation and consumer spending both increased more slowly than expected.  The S&P 500 and All-Country World Index are up 3.5% and 2.0% respectively for June and up 14.5% and 11.4% respectively YTD.      

  • The core Personal Consumption Expenditures deflator – the Fed’s preferred measure of inflation – increased only 0.08% in May, the lowest monthly increase since March 2021, bringing the annual core PCE inflation rate down to 2.57% from 2.78%. There is a good chance that it will fall further in June.
  • Consumer spending increased only 0.3% in May and is now estimated to grow only 1.6% (annualized) in the second quarter (April – June), reflecting consumer reactions to higher prices. As a result, second quarter GDP growth forecasts are being revised down to 1.8%.
  • Higher jobless claims last week are signaling lower non-farm job gains in June which will be reported this Friday, with the consensus being 180,000 job gains compared to the 272,000 gains in May. The unemployment rate is expected to remain at 4%.
  • These three factors working together increase the likelihood that the Fed will begin cutting interest rates in September which would provide the tailwind for U.S. equity markets to capitalize on projected earnings per share growth and increasing stock buybacks.

The first round of presidential debates may have shifted voter impressions, but there is still a long way to November. Besides, who occupies the White House hasn’t had a big impact in U.S. stock prices historically.  The economy and corporate earnings do. 

  • Both current candidates have been President. From Donald Trump’s election in 2016 to Joe Biden’s election in 2020, U.S. large cap equities were up 15.6% (annualized), and from Joe Biden’s 2020 election until last week the same market basket was up 12.4% (annualized).
  • Policies and politics do have an impact on the economy and earnings, however. So, it matters that both candidates are for higher tariffs on imported goods and neither shows an interest in reducing fiscal deficits, both of which contribute to inflation.
  • Fears of continuing or higher inflation after the November elections could force the Fed to keep interest rates restrictively high, thereby increasing the risk of recession.

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SIPC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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