Q2 2024 Economic Commentary

Hello,

I hope all is well and that you are enjoying a safe and joy-filled beginning to 2024! It is hard to believe we are almost to the halfway point of 2024!

The positive momentum that drove markets in 2023 has continued into 2024, albeit in recent weeks volatility has returned. The S&P 500 stock indexai is up 6.76% year-to-date as of April 23rd, 2024[1]. The tech-heavy Nasdaq 100 is up 3.84% year-to-date as of April 23rd, 2024[2]. The small company Russell 2000 index remains under pressure, returning -1.78% YTD as of April 23rd, 2024[3], and the bond markets have continued to struggle during this ongoing inflation battle, with the iShares Core U.S. Aggregate Bond Index returning -2.78% YTD[4]. Since the S&P 500 reached an all-time intraday high of 5,264.85 on March 28th, the index has dropped nearly 4%. This has been a recurring theme across major indexes, with the Nasdaq giving back nearly 6% during the second quarter. While we are not yet in a correction, it is helpful to understand why the markets have responded this way in recent weeks. The answer is simple: inflation. The CPI (inflation rate) had come down from 9.1 in June of 2022 to 3 in June of 2023. The euphoria generated by this decline initially instilled significant confidence in the markets, with sentiment shifting towards avoiding a recession, the potential for a lowering of the Fed Funds rate, and a return to steady growth across corporate America. In January of 2024, the CPI began increasing, jumping from 3.1 to 3.5 in March[5]. This unexpected jump has led to an expectation that it is less likely the Fed will lower rates anytime soon.

So, where do the markets go from here? Many assume that the 2024 elections will have an outsized impact on market performance. Yes- it is true that government policy and certainty are core to market performance; however, historical data suggests that economic and inflation trends actually have more a more consequential impact on market returns. In general, rising economic growth and falling inflation have been associated with above-average market returns, while falling growth and rising inflation have corresponded to positive but below average market returns[6]. This confirms that inflation will continue to be the critical factor for a return to normal economic times and more stable markets.

Because inflation remains higher than anticipated, we are buckled in for continued volatility into the election. One bit of positive news in the most recent inflation report was prices for groceries were unchanged for a second month in a row and up only 1.2% from a year ago[7]. Oil, which had increased to $87.01 a barrel with the conflict in the Middle East, has stabilized and dipped back towards $83 recently, but overall has increased 16.36% over the past year[8]. This hurts as most everything we use is either shipped, driven, or sent via railway. To put this in perspective, when the markets were booming in 2023, oil had dropped as low as $66.74 a barrel. The good news is that oil futures contracts going out to the end of 2025 are trading in the mid-80s, painting a picture of improved stability in the coming quarters.

Ultimately, the recipe for continued market success is getting inflation down and maintaining strong corporate growth. This is a fluid situation, and I remain optimistic we are trending in the right direction on this front. As we have historically, I believe we will continue persevering through the adversity!

I remain steadfast in my belief in long-term planning, preparation, and proper diversification, while aligning your portfolio to your comfort level for risk. Time and time again, it is proven that markets cannot be timed. No one has a crystal ball, and no one knows what major world event will occur next. Our best strategy is to be well-diversified across asset classes and remain optimistic and vigilant during times of fear and panic. Our companies remain some of the best in the world, providing goods and services to every corner of the earth. Our people are some of the brightest and hardest-working people in the world. I believe in the long-term trajectory of the U.S. and global economy!

Thank you for the opportunity to serve you. My priority remains and always will be to ensure that you continue to receive high-quality guidance and a client service experience second to none. While I continue to reach out via phone and e-mail, please know that I am available via Zoom, FaceTime, any other digital technology you prefer, and in person if you would like to meet. I am happy to meet with you at any one of my offices or at your home or near your home, whatever you prefer and with whatever you are most comfortable.

Wishing you, your family, friends, colleagues, and community continued hope, health, and positivity in the coming weeks, months, and beyond!

Thank you!

[1] S&P 500 YTD Return (slickcharts.com)
[2] Nasdaq 100 YTD Return (slickcharts.com)
[3] RUT | Russell 2000 Index Overview | MarketWatch
[4] iShares Core U.S. Aggregate Bond ETF (AGG) Performance History - Yahoo Finance
[5] Historical Inflation Rates: 1914-2024 (usinflationcalculator.com)
[6] How Presidential Elections Affect the Stock Market | U.S. Bank (usbank.com)
[7] Kiplinger Inflation Outlook: Strong Report Puts Fed on Pause | Kiplinger
[8] Crude Oil Prices - 70 Year Historical Chart | MacroTrends