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Economic Update 7-08-2024

  • On a holiday-abbreviated week, economic data included ISM manufacturing and services both falling and ending June in contraction. The employment situation report was strong on a headline level, but less so under the surface, with the unemployment rate rising by a tenth of a percent.
  • Equities gained ground worldwide last week, in both developed and emerging markets. Bonds also rallied as yields fell, especially in foreign markets as the U.S. dollar declined. Commodities fared well as the price of oil rose by a few percent.

U.S. stocks gained last week, with large cap growth outperforming, while small caps lagged with a decline. Fed Chair Powell’s speech at the ECB Forum on Central Banking in Portugal was taken well by markets, noting the growth in “two-sided” risks in achieving employment and inflation goals, which was a “big change” compared to a year ago. By week’s end, the June employment situation report was nuanced enough to show weakening at the edges, which was seen as potentially moving toward the path of at least some Fed easing becoming appropriate sooner than later. Earnings releases for Q2 are beginning this week, to likely take over investor attention.

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Economic Update 7-01-2024

  • Economic data for the week included the final release of Q1 U.S. GDP being revised up slightly, flattish durable goods orders, rising home prices, and lower new home sales. On the inflation side, core PCE continued to decelerate lower.
  • Equities were mixed last week, with flattish results in the U.S., except for small cap, which gained, and varied results abroad. Bonds generally lost ground as yields rose. Commodities were little-changed with a slight rise in the price of crude oil.

U.S. stocks were mixed last week, with large caps little changed, and small caps seeing gains. The end of the quarter has tended to be an unusual time, due to a variety of portfolio clean-up, ‘window dressing,’ and index rebalancing issues as considerations, leading to movements in both directions. It’s also possible that President Biden’s perceived poor performance in the first candidate debate caused another cloud to form over the election, with markets disliking uncertainty more than anything. By sector, energy led with gains of nearly 3% (with rising odds of a Trump victory pointing to better prospects for fossil fuels rather than green energy), followed by a slight gain in communications. On the lagging side, materials and utilities lost about a percent. Real estate gained despite interest rates ticking higher.

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Economic Update 6-24-2024

  • Economic data for the shortened week included some gains in retail sales and better results for industrial production, while existing home sales and housing starts fell back.
  • Equities saw further gains globally, led by international more than U.S., where value outpaced growth. Bonds were mixed to lower as yields ticked higher. Commodities were also mixed, with declines in grains offset by a rise in crude oil.

U.S. stocks saw moderate gains in the four-day trading week, with mixed economic data to react to. By sector, consumer discretionary, energy, financials, and industrials all saw gains of at least a percent, which led to sharper ‘value’ outperformance over ‘growth’ for a change. Utility and technology (mostly due to Nvidia and Apple) stocks lagged the pack with negative returns, with the aside that Nvidia overtook Apple and Microsoft as the largest stock in the world, as measured by market cap. Real estate also fell back by nearly a percent with yields moving higher.

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Economic Update 6-17-2024

  • Economic data for the week included the Federal Reserve meeting ending with no policy change, as expected, with continued hawkish views compared to earlier this year. Consumer and producer price inflation metrics both showed positive signs of slowing this week, albeit driven by volatile energy prices. Consumer sentiment remained weak.
  • Equities were mixed globally, with gains in the U.S. and emerging markets, while Europe and Japan experienced declines. Bonds rallied upon lower inflation and resulting lower yields. Commodities gained due to strength in crude oil.

U.S. stocks saw gains, led by improved inflation numbers mid-week, and subsequent drop in interest rates, as well as seemingly continued optimism over artificial intelligence (particularly as related to new Apple products). By sector, technology again led the way, up 6% percent with strength from several members, including Apple, Microsoft, Nvidia, and Adobe. The majority of other sectors ended in the red, led by -2% declines in financials and energy. One of the more volatile stocks was Tesla, which finally ended in the positive after Elon Musk’s massive pay package was approved by shareholders. Real estate also saw gains of over a percent in response to falling yields.

Fed Note - 6-12-2024

6/12/2024 brad

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The Federal Reserve Open Market Committee (FOMC) kept the federal funds rate unchanged at 5.25-5.50% in their June meeting, continuing the range set since July 2023 without any dissenting votes. The formal statement was only slightly adjusted to reflect "modest" progress towards their inflation goal. The June Summary of Economic Projections (SEP) updated the Fed funds rate estimates for the end of 2024, 2025, and 2026 to 5.1%, 4.1%, and 3.1%, respectively. This marks an increase of 0.5% for 2024 and 0.2% for 2025 from the March estimates. The FOMC's "dot plot" now suggests 1-2 rate cuts this year, down from the three expected in March.

Market expectations, as seen in the CME Fed funds futures, had nearly guaranteed no change in rates for the June meeting, with odds for July ranging between 80-90% for no change. September odds for a quarter-percent cut have risen to over 60%, while December expectations hover around two cuts. Projections for September 2025 indicate rates might fall to approximately 4.00%, implying 5-6 cuts from current levels.

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Economic Update 6-10-2024

  • Economic data for the week included gains in ISM services coupled with a decline in ISM manufacturing. The monthly employment situation report came in stronger than expected.
  • Equities earned positive results globally last week, led by the U.S. growth sector. Bonds also fared positively, as interest rates broadly declined. Commodities fell across the board last week.

U.S. stocks fared positively again last week, with investors digesting the mix of economic data. Interestingly, despite a weaker start Fri., stocks shrugged off the strong May employment report, although the strength implied a longer timeline for a Fed pause. By sector, leaders were technology (with strength in Nvidia, helped by the release of a new generation of chips, and perhaps also by a 10-for-1 stock split) and health care, with gains of 4% and 2%, respectively, followed by communications and consumer discretionary; utilities and energy lagged with declines of over -3%. Real estate was little changed, despite the fall in interest rates during the week. Large caps outperformed small caps.

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Economic Update 6-03-2024

  • For the short holiday week, economic data included U.S. GDP growth being downgraded a few tenths, continued improvement in lower PCE inflation, higher home prices, and improved consumer sentiment.
  • Equities were mixed globally, with developed markets down a bit on net, while emerging markets fell further. Bonds were little changed domestically, while foreign markets saw mixed results. Commodities fell back across a variety of sectors.

U.S. stocks fell on the shortened week, but ended May with solid gains to offset weakness from the prior month. By sector, energy and utilities led the way with gains upward of 2%, while technology fell back by over -2% (as a positive week for some stocks was offset by weakness in Salesforce, Adobe, and Microsoft). Real estate also gained, with Friday’s ‘less bad’ inflation news providing a boost.

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Economic Update 5-28-2024

  • Economic data for the week included stronger PMI activity surveys for manufacturing and services, and durable goods orders, while housing sales data came in weaker.
  • Global stocks were mixed last week, with the U.S. faring a bit better overall, while foreign stocks lagged, especially in emerging markets. Bonds fell mildly along with higher interest rates during the week, as the chances of the Fed and other central banks easing policy sooner faded. Commodities were mixed, with agriculture higher, and energy and metals lower.

U.S. stocks were mixed last week, with technology closing with gains over 3% (leading the Nasdaq to more all-time highs), while all other sectors fell back, led by the largest losses from energy and financials. The earnings report for the Magnificent 7 member Nvidia was closely-awaited on Wed., which resulted in another strong report, in addition to a dividend raise and 10-for-1 stock split, and 15% return on the week. Real estate also fell back by nearly -4% along with higher interest rates, which punished the ‘value’ segment in general. Small cap stocks also underperformed large caps.

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Economic Update 5-20-2024

  • In a busy week for economic data, most of which was keyed in on inflation, consumer and producer prices continued strong in April, but showed signs of stabilization. Retail sales and industrial production were little changed, while housing data was mixed.
  • Equities rose globally with eased U.S. inflation and government stimulus in China. Bonds fared well as yields declined, especially in foreign markets due to a weaker dollar. Commodities were generally higher, led by metals and crude oil.

U.S. stocks experienced positivity all week, with the S&P 500 and Nasdaq back to new record highs, based on slow downward progress in inflation reports taken well by financial markets, in addition to mixed economic data that could be seen as pushing the Fed in a more dovish direction. Nearly every sector experienced a gain last week, led by technology up 3% (Apple and Nvidia, but also others), followed by health care and communications; on the other end, industrials lost a fraction of a percent last week. Real estate also fared positively, as interest rates fell back. The Dow Jones Industrial Average achieved the milestone of 40,000, which is not meaningful in and of itself due to the unusual and antiquated structure of the index, but the media often reports on these round numbers when reached. In a bull market, that may provide an extra sentiment boost, fueled by some ‘fear of missing out,’ for investors who haven’t been paying as much attention.

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Economic Update 5-13-2024

  • In a light week for economic data, jobless claims ticked higher, while consumer sentiment dropped sharply.
  • Equities saw gains in the U.S. and Europe, with marginal economic data keeping hopes alive for lower rates. Bonds were little changed in the U.S. on net, while foreign bonds were held back by a strong dollar. Commodity gains were led by precious metals and agriculture, while crude oil was little changed.

U.S. stocks saw a positive week, the third in a row, with price levels inching back toward all-time highs. This was in keeping with low volume, with little new economic data during the week. By sector, utility stocks led the way again, up over 4% on the week, followed by solid gains of over-2% in financials, materials, industrials, and consumer staples. Consumer discretionary lagged with minimal gains for the week, largely due to a sizable drop in Tesla shares. The somewhat surprising strength of lower-beta utility stocks has been seemingly led by strong earnings showings in Q1, hopes for lower rates later this year, and perhaps most importantly from sentiment, with an expected ramp-up in electricity needs from artificial intelligence in coming years.

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Economic Update 5-06-2024

  • Economic data for the week included the FOMC meeting ending in no action, as expected, with dovish undertones at the press conference. Both ISM manufacturing and services fell back into contraction, while the employment situation report came in weaker than expected. Home prices continued their stretch of gains by several measures.
  • Stocks gained ground globally last week, with strong corporate earnings, but also weaker economic data that pointed to interest rates eventually dropping down the road. Bonds fared positively along with lower yields. Commodities fell back sharply, as oil prices declined for a variety of market and geopolitical reasons.

U.S. stocks turned the corner on a negative April, with gains last week. Softness early in the week appeared related to poor consumer sentiment and the looming Fed decision, as well as the attached message. On Wed., after the Fed meeting, markets had started down nearly a percent but completely reversed to up a percent by the time the press conference had started, before reversing backwards again. The discussion took on a more dovish tone than expected, highlighted by the answer of rate hikes ‘not really on the table’—removing a key tail risk markets had been worried about. The rally Fri. was directly related to a weaker-than-expected jobs report, and moderating wage pressures, that also restrained the ‘too hot’ economy risk and kept hopes for rate cuts alive.

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Economic Update 4-29-2024

  • Economic data for the week included U.S. economic growth coming in positively for Q1, but not as robust as expected, in addition to rises in durable goods and new home sales, while consumer sentiment remained challenged.
  • Equities were positive globally last week, with stronger corporate earnings and positive economic data abroad. Bonds were mixed as yields were stable to a bit higher across the yield curve. Commodities were also mixed, with energy higher and metals lower.

U.S. stocks rebounded last week, as the busiest week of the quarterly earnings season took more of the market’s attention. Per FactSet, nearly half of S&P 500 firms have now reported results, with over 75% with a positive earnings surprise, and 60% with a positive revenue surprise. The blended year-over-year earnings growth rate for the quarter also improved to 3.5%.

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Economic Update 4-22-2024

  • Economic data for the week included gains in retail sales and industrial production, as well as for several regional manufacturing indicators. However, the index of leading economic indicators turned downward again, as did existing home sales and housing starts.
  • Equities fell around the world last week, as higher-for-longer expectations for interest rates and geopolitical conflict in the Middle East put a damper on the mood. Bond prices also fell, being negatively impacted by the rise in rates. Commodities were mixed, with metals prices sharply up, and oil down as geopolitical tensions eased by the end of the week.

U.S. stocks fell back for the third straight week, as the mood soured over concern around rising Middle East tensions and possibly higher-for-longer interest rates. By Friday, the measured response of Israel toward Iran appeared to calm markets a bit, after initially fearing a more robust escalation. Fed chair Powell implied that inflation has indeed been stickier than expected, noted by the comment, “It’s likely to take longer than expected to achieve that confidence,” and it may take the Fed longer than expected to hit its target (which was no surprise to markets). However, this was taken as another sign that the number of cuts assumed for this year may need to be rethought. Additionally, the New York Fed president implied that higher rates could be considered “to achieve their goals” if the data warranted that, while the Atlanta Fed president indicated policymakers wouldn’t be able to cut until year-end. Markets are obviously especially sensitive to interest rate policy semantics at this point. A variety of well-watched economists/strategies have extended their timeline for the first Fed cut from June to July or even September, but not all have.

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Economic Update 4-15-2024

  • Economic news for the week was dominated by inflation, for which consumer prices disappointed by remaining sticky on the services side, while producer price inflation came in far cooler. Consumer sentiment fell back a bit.
  • Global equities fell back with the negative influences of higher U.S. inflation and increased risk of conflict in the Middle East. Bond prices also declined as yields rose, along with the inflation report and assumed impact on the Fed. Commodities were mixed, with energy down and precious metals up.

U.S. stocks suffered a down week largely due to persistent inflation pressures, as well as some escalating fears of conflict in the Middle East, with reports of a planned retaliatory Iranian attack on Israel (which occurred over the weekend, albeit being mostly neutralized). The drawdown on Wed. of over a percent was solely led by the CPI inflation number coming in ‘hotter’ than expected, disappointing markets that saw this as a sign that rate cuts might not begin in June as is the current base case, or that there might be fewer cuts this year (three being the base case). Friday’s poor showing was tied to weakness for some big banks (due to lower interest margins, particularly coupled with negative comments from JPMorgan’s management, particularly about inflation) that started off the Q1 reporting season. By sector, financials fared the worst, down nearly -4%, followed by declines of around -3% in materials and health care. Technology fared best, only suffering a minimal decline. Real estate also lost nearly -3% for the week, due to rising yields.

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Economic Update 4-08-2024

  • Economic data for the week included ISM manufacturing improving into expansion, while ISM services/non-manufacturing slowed a bit, but remained in expansion as well. Nonfarm payrolls came in stronger than expected again, while job openings data has steadily flattened.
  • Equities fell back in the U.S. and most of the developed world, while emerging markets saw small gains. Bonds generally fell back as yields rose. Commodities fared well across the board, with strong gains in both energy and metals.

U.S. stocks fell back last week, seeing more volatility than in the recent few months. By sector, energy stocks rose 4%, followed by communications up over a percent. The majority of other sectors lost ground, oddly led by normally defensive health care and consumer staples, down up to -3% each, with the former reacting to Medicare rates unchanged from the initial estimate. Real estate also fell -3%, hampered by higher long-term interest rates.

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Economic Update 4-01-2024

  • On a week shortened by the Good Friday holiday, economic data included the final U.S. GDP growth number for the 4thquarter being revised slightly higher. Recent monthly data included gains in durable goods orders, and mixed house price and home sales data, as well as mixed results in consumer confidence.
  • Equities fared positively around the world last week, with some economic improvements abroad and continued hopes for rate cuts mid-year. Bonds fared decently with a small decline in yields. Commodities saw gains, primarily in crude oil and gold.

U.S. stocks continued their run of positive weeks, with the S&P 500 again reaching record highs. However, breadth has improved, with outperformance from the equal-weight version of the index and small caps outperforming mega-caps. Value and more defensive parts of the market led, with the largest gains spread between utilities, energy, financials, and healthcare—all near or over 2%. Technology was one of only two sectors with negative returns for the week, down over a percent. Real estate saw gains of over 2% for the week as well.

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Economic Update 3-25-2024

  • Economic data for the week included the Federal Reserve keeping interest rates unchanged, coupled with a continued balanced narrative. The index of leading economic indicators ticked up for the first time in years, coupled with stronger housing data, including improved existing home sales, starts, and homebuilder sentiment.
  • Equities saw gains again around the world, led by strength in the U.S. and Japan. Bonds gained in the U.S. with a broad drop in yields, while foreign bonds were mixed, along with a stronger dollar. Commodities were little changed for the week with minimal price movement in crude oil.

U.S. stocks continued a run of positivity, with the mid-week FOMC decision of leaving rates unchanged being far from a surprise, but the dovish press conference commentary boosted market sentiment, relative to the more hawkish tone that had been expected. Nearly all sectors saw gains last week, led by communications and consumer discretionary, up several percent each, while defensives health care rose a fraction of a percent. Real estate fell a fraction of a percent as well, despite improvements in interest rates. Sentiment in tech remained high, specifically with AI and trend leader Nvidia, as well as rumors of a possible Google-Apple AI-related partnership. Apple, however, was also held back by the U.S. government’s new lawsuit on anticompetitive grounds, with the claim that the iPhone prevented other firms from offering competitive services (via apps). This is not overly surprising, in a string of suits, including Google last year and separate investigations by the FTC against Amazon and Meta. Over the weekend, the President signed a $1.2 tril. government funding package, which avoids the possibility and uncertainty of a partial government shutdown.

Fed Note - 3-20-2024

3/20/2024 brad

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At their March meeting, the Federal Reserve Open Market Committee kept the Fed funds range unchanged at 5.25-5.50%, where it’s been since last July. There were no dissents. The formal statement today was barely changed from January, when it was updated to a narrative depicting a more ‘balanced’ set of risks. Today, job gains were described from ‘moderated’ to ‘remain strong.’

Based on CME Fed funds futures markets, the probability of no action for March had risen to 99%, being in the high 90’s over the past month. For June, the chances of at least one 0.25% rate cut have run about 55-60% over the last few weeks. For September, the highest odds point to two cuts, and by December, the base case is three cuts to 4.50-4.75%. For Sept. 2025, the furthest-out estimate, the highest odds are for 5-6 cuts to around 4.00%. The number of assumed rate cuts has fallen over the last few weeks, as today’s sentiment reflects the narrative of improved growth and still-sticky inflation.

The Fed’s quarterly Summary of Economic Projections (SEP) included the ‘dot plot’—a chart that features committee member opinions of future Fed funds rates. One question has been whether the long-term neutral rate estimate would rise from its long-standing 2.5% level, reflecting more persistent inflation, larger fiscal deficits and debt, and perhaps the Fed’s reaction with a higher neutral rate level. Compared to December, the expected Fed funds rate was unchanged at 4.6% for 2024, up 0.3% to 3.9% in 2025, up 0.2% to 3.1% in 2026, and the long-term rate up a tenth to 2.6%. Though seemingly small changes, they represent an evolution in the thinking of the Fed about the prospects for long-term inflation and their ability to control it.

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Economic Update 3-19-2024

  • Economic data for the week included a rise in retail sales, and a small increase in industrial production, while consumer sentiment fell back. U.S. consumer and producer inflation both came in a bit sticky on a monthly basis, but still well down from levels in prior months.
  • Equities were mixed, with little change on net in U.S. and foreign markets, despite some divergences on a regional basis. Bonds fell back with rising yields, related to higher recent inflation readings. Commodities gained, driven by energy and industrial metals.

U.S. stocks were mixed last week, with little change in large caps and declines for small caps. Tuesday’s CPI release didn’t provide the hoped-for sharper deceleration, but didn’t deteriorate further, which may have provided some relief, although interest rates continued to rise on an expected longer runway for the current Fed policy pause. Friday was a triple-witching day, which happens four times a year, featuring a compilation of option expirations and typically enhancing volatility. By sector, energy rose nearly 4% followed by materials, while consumer discretionary fell back about a percent. Real estate also declined by nearly -3%, being sensitive to rising yields during the week.

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Economic Update 3-11-2024

  • Economic data during the week included the ISM services falling back a bit but remained in expansion. The employment situation report was mixed, with decent February growth offset by prior month revisions.
  • Equities fell back in the U.S., saw decent performance abroad. Bonds gained as yields fell across the curve. Commodities were mixed, with a drop in energy and a rise in metals.

U.S. stock sentiment was seemingly again driven by the back-and-forth of whether Federal Reserve rate cuts would be coming sooner rather than later. Fed Chair Powell’s testimony to Congress last week included that the short-term rate was ‘likely at its peak for this tightening cycle,’ with dialing back policy restraint this year, while also noting the risks of reducing interest rates too soon, as evidence showed the economy is growing, not moving towards recession. At the same time, greater confidence is still needed that inflation has been beaten, although they’re ‘not far’ from that place. This was taken by markets as another sign of around June as the starting point for policy easing, based on action seen in Fed funds futures markets.

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Economic Update 3-05-2024

  • Economic data for the week included a minimal revision downward for 4thquarter U.S. GDP growth, strong personal income results and continued decelerating PCE inflation, stronger home prices and new home sales, but weaker durable goods orders and ISM manufacturing data.
  • Global equities saw gains, led by continued strength in the U.S., with sentiment prompted higher by restrained inflation. Bonds fared well for the same reasons which produced falling yields. Commodities gained as well, led by energy supply considerations.

U.S. stocks continued a trend of gains last week, with small caps outgaining large caps. ‘Growth’ again outperformed ‘value,’ with optimism over artificial intelligence continuing to drive near-term sentiment. By sector, technology and consumer discretionary each gained over 2%, followed by increases in energy and materials. By contrast, defensives health care, utilities, and consumer staples lost ground. Real estate also rose several percent along with falling yields.