Economic Update 5-19-2025

Economic news last week included inflation metrics showing improvement on both a consumer and producer level. Also, data included slightly higher retail sales and housing starts, unchanged industrial production, but weaker consumer sentiment that continues a negative trend.

Equities gained globally, as U.S.-China trade negotiations lowered chances of economic slowing. Bonds were mixed, with yields higher but credit spreads tighter. Commodities were also mixed, with crude oil and industrial metals higher.

U.S. stocks earned strong returns last week, beginning with the S&P 500 rising over 3% on Monday with news from the prior weekend of substantial progress with China on a de-escalation of trade tensions. This included a suspension of earlier tariff rates for 90 days for a continuation of talks, with U.S. tariff rates on China falling from 145% down to 30% (and China-on-U.S. tariffs reduced from 125% to 10%). Cooler inflation also helped sentiment a bit, although many see those prior-month figures as being on borrowed time if/when tariff impacts creep through. Every sector ended positively last week, led by substantial gains of nearly 8% in both technology (led by Nvidia) and consumer discretionary (led by Tesla), while normally-defensive health care gained only a few tenths of a percent (completely due to weakness in UnitedHealth). Real estate also gained about a percent, despite higher yields.

Economic Update 5-12-2025

Last week, the Federal Reserve kept policy interest rates unchanged, as expected, along with mixed economic data. Within the minimal data released last week, ISM services rose a bit, further into expansion.

Equities were mixed last week, with declines in the U.S. large cap offset by gains in small cap and in Europe. Bonds pulled back with higher interest rates, with falling recession fears. Commodities were also mixed, with gains in energy and precious metals.

U.S. large cap stocks fell back last week, while small caps saw gains. Sector results were mixed, with gains of a percent in industrials and consumer discretionary offset by a -4% drop in health care from several disappointing quarterly reports. Real estate also fell back by nearly a percent, due to higher yields. These results came along with an improvement in sentiment surrounding apparent progress the U.S. administration is making toward lowering quoted maximum tariffs last month. This included a Thursday announcement of a trade deal reached with the U.K. in addition to expected progress with Chinese negotiations taking place in Switzerland, although the final outcome for that key relationship remains quite unclear. (S&P futures were up several percent as a slashing of tariffs was announced this morning.) Congressional discussions about extending the current tax policy set to expire at the end of 2025 has also been ramping up, with rumors mixed about the imposition of a higher rate on millionaire earners.

Economic Update 5-5-2025

Economic data for the week included U.S. GDP growth for Q1 coming in negative, as well as weaker manufacturing, construction spending, and consumer sentiment. On the positive side, home prices continued to rise, albeit at a slower rate, while the employment situation report came in a bit better than expected, still showing growth.

Equities saw gains globally, buoyed by positive earnings and hopes for U.S. trade deals. Bonds fell back along with higher interest rates and a stronger U.S. dollar. Commodities fell back along with weaker crude oil demand expectations.

U.S. stocks rose for the second straight week, with nine straight positive days. However, the S&P 500 price index is still down -7% from the Feb. 19 peak. By sector, industrials, technology, and communications saw the strongest gains, over 4%, while energy was the only sector in decline, with sentiment tied to falling crude oil prices, and minimal gains for defensive consumer staples and health care. Real estate also gained over 3%, despite higher interest rates.

Economic Update 4-28-2025

Economic data included a rise in durable goods orders and new home sales. On the negative side, existing home sales declined, as did consumer sentiment and the index of leading economic indicators.

Stocks saw gains globally last week, with some further optimism about U.S. trade deals coming to pass, including a de-escalation of U.S.-China tensions, and a walkback of the President’s threat to fire the Chair of the Federal Reserve. Bonds fared positively along with falling yields, related to some reduction in inflation fears. Commodities were mixed, with energy falling with high supply and gold flows pulling back as global tensions abated a bit.

U.S. stocks rose sharply last week, despite Monday starting off poorly, with the President’s comments about firing Fed Chair Powell causing some consternation, as noted earlier. In typical recent back-and-forth fashion, Tuesday saw a recovery along with a quick walkback on the Powell firing talk, along with Treasury Secretary Bessent’s comments that alluded to tariff de-escalation, with current levels at an “unsustainable” path. There were further hints that the 145% rate on China won’t persist as the administration expects to reach a deal “in the very near future,” and the President intending to be “very nice” to China.

On a Good Friday-shortened week, economic data included gains in retail sales, while industrial production and housing starts fell back.

Equities experienced a slightly mellower week compared to the one prior, ending lower for U.S. large cap stocks, but a positive week for U.S. small caps and foreign developed markets overall. Bonds fared positively as interest rates fell back. Commodities also fared positively in several areas, including precious metals and energy.

U.S. stocks settled down from the volatility of the prior week, although it was relative, ending in the negative on net, although small cap stocks saw gains. By sector, energy led with gains of over 5%, followed by materials and more defensive consumer staples and utilities. On the negative side were declines of over a percent in technology (largely Nvidia and Microsoft), consumer discretionary (Amazon, Starbucks, and Tesla), and communications. Nvidia (along with a group of related companies) was hampered by news that its specialized H20 chips, quality-restricted to satisfy prior export limitations to China, could be disallowed and placed in same category as other unavailable specialized chips. Real estate also gained over 5% along with lower yields across the U.S. Treasury curve.

Economic Update 4-14-2025

Economic data included a significant pause in the U.S. administration’s total tariff policy, resulting in some relief of recession fears for now. Consumer price inflation came in slower than expected, with the year-over-year rates also declining, as did producer price inflation to some degree. Consumer sentiment remained poor, with inflation expectations rising sharply.

Global stock markets experienced one of the more volatile weeks in many years, but ended on a positive note largely due to Wednesday’s gains as a pause for some tariffs was announced. Bonds fell sharply due to a spike in longer-term U.S. Treasury yields. Commodities were mixed to higher, helped by a falling dollar and flight to quality in precious metals.

U.S. stocks earned surprisingly solid positive returns on net last week, with several daily price swings dominated by Wednesday’s explosive gains. Sector results were led by technology (up nearly 10%), industrials, and financials, while energy and defensive consumer staples and health care lagged with far lesser gains of a few percent. Real estate declined only slightly, despite the spike in yields.

U.S. stocks haven’t experienced this much day-to-day (or hour-to-hour) volatility in years, by some measures since the fall of 1987, Great Financial Crisis in 2008, and 2020 pandemic—comparisons that have unnerved many investors. The primary driver has obviously been the ‘uncertainty’ and real-time changes in the U.S. administration’s tariff policy. Practically daily, these have included steadfast or escalations in tariff stances corresponding to drawdowns and signs of relief or pause reverting to temporary euphoria. Based on estimates from Goldman Sachs, the ending tariff rate could well remain far higher than it was, but stopping at a weighted average of around 15%, as opposed to the earlier estimates of 20-25%. So, a strain on the economy and inflation no doubt, but not quite as bad as the worst fears.

Economic Update 4-07-2025

Economic data included the announcement of substantial global tariffs by the U.S. administration, which were taken negatively worldwide, but especially in the U.S. Other releases included a weakening of ISM manufacturing and services activity, and JOLTS job openings. The Friday employment situation report came in stronger than expected, with reversals of some earlier seasonal effects.

Equities suffered their worst week since the pandemic, reacting negatively to the U.S. administration’s tariff news. However, government bonds fared positively, as long-term yields fell sharply. Commodities also lost ground across the board, with the combination of uncertain trade and growth impacts.

U.S. stocks began the week on another negative note, as comments from the administration over the prior weekend were taken negatively by markets (notably, those noting a disregard for auto manufacturer pain and possibilities of a recession, brought on by policies). Wednesday’s ‘Liberation Day’ announcement was done after the market close, but stock futures fell immediately afterward and carried over to a decline of nearly -5% on Thursday, one of the worst single days since the pandemic in 2020. The damage continued Friday, with markets down beyond -5%, as markets reacted to China’s retaliatory tariff of 34%. From the peak on Feb. 19, the S&P has fallen over -17% (up to nearly -20% if this morning’s futures are included). As noted separately, the market was prepared for tariffs to some extent, but these came out definitely stronger than expected.

Economic Update 3-31-2025

Economic data included a slight upgrade to U.S. GDP for Q4, and positive news for durable goods orders and a variety of real estate sales and price data. However, consumer sentiment took another dip downward, due to high uncertainty about trade policy.

Equities fell around the world, with concern about upcoming trade policy and weakening consumer sentiment. Bonds were flattish with sticky inflation offsetting a usual risk-off response. Commodities were mixed, with energy prices a bit higher.

U.S. stocks began Monday positively, up nearly 2% upon hints that the President may back off the more extreme tariff measures on April 2, now only days away. However, by Wed., potential new tariffs on non-U.S. autos and auto parts soured the mood again, as did weakened consumer confidence as the result of policy uncertainty. Last week proved to be just another example of how closely financial markets are reacting to trade news above all else at this point, with some well-known firms issuing continued revisions upward for expected net tariff rates. By sector, stocks saw gains in more defensive consumer staples as well as energy, while technology and communications saw the sharpest declines. Real estate earned a small gain for the week.

Economic Update 3-24-2025

Economic data included the Federal Reserve keeping rates unchanged, with a balanced commentary about current conditions but noting uncertainty about the economic path ahead. Positive data came in from retail sales and industrial production, in addition to existing home sales and housing starts. However, several regional manufacturing indexes fell back.

Equities rebounded for the first time in a month in the U.S., while international stocks ended flattish. Bonds gained along with falling yields. Commodity prices generally rose, along with stronger energy.

U.S. stocks snapped a month-long losing streak, with gains in both large and small cap stocks, and value continuing its streak of outperforming growth. By sector, energy, financials, and health care led with gains of one to several percent; materials, consumer staples, and utilities suffered minimal declines of a fraction of a percent. Real estate also declined slightly. Markets turned around from the prior week, bouncing off of -10% correction territory for the time being, helped in mid-week by a more dovish tone about the economy struck by Fed Chair Powell. This was in contrast to some signs of pessimism elsewhere, such as consumer sentiment around the unclear upcoming tariff response. (Although by this morning, some of the administration’s rhetoric about the April 2 trade ‘Liberation Day’ has been toned down a bit.)

Economic Update 3-17-2025

Economic data included consumer and producer price inflation that came in a bit cooler, and better than expected, although the trend remains above target. Jobless claims fell, despite stress about federal layoffs and carryover to the private sector. A low point was consumer sentiment, now showing bipartisan distress, along with heightened inflation expectations.

Equities fell again last week around the world, with continued tariff uncertainty. Bonds were little changed, with governments outperforming corporates. Commodities were mixed, with gains in metals and little change in crude oil.

U.S. stocks were down for the fourth straight week, having started negatively out of the gate, with the S&P 500 down nearly -3% on Monday. This was as investors absorbed the possibility for additional and sustained tariffs, in addition to signs of a slowing economy (with a major investment bank lowering their 2025 estimate again, to just below-trend GDP) and Friday representing the debt ceiling deadline for ‘extraordinary measures’ (behind-the-scenes accounting shifts) after the debt limit was hit in January. Taken as a whole, the underlying worry is that the administration’s policies are causing more harm than expected. In a media interview the prior weekend, the President referred to the current situation as “a period of transition” and refused to rule out a near-term recession, noting that the stock market isn’t something that should be watched as a gauge of policy success, which was obviously not reassuring to many investors (who tend to watch the stock market). After some back and forth on Canadian steel and aluminum imports, a cooler-than-expected CPI report helped sentiment by mid-week, although volatility about the end game for tariffs continued. To end the week, it appeared the chances of a U.S. government shutdown had fallen, removing one element of uncertainty from investors’ minds (although shutdowns have tended to be non-events for the stock market).

Economic Update 3-10-2025

Economic data included a lackluster but positive ISM manufacturing report, while ISM services again improved further into expansion. The employment situation report for February came in decently, within expectations, although the unemployment rate also rose slightly.

Equities were mixed, with another week of declines in the U.S., while foreign stocks (especially Europe) rediscovering positive momentum. Bonds fell back as interest inched back upward. Commodities were mixed, with gains in metals offset by a decline in crude oil.

U.S. stocks suffered a third straight negative week, with negative sentiment driven by the uncertainty around the administration’s back-and-forth tariff policy announcements—the key theme that appears to be driving market movements as of late. By sector, only health care ended the week with a small gain, while all other sectors saw negative results—declines of several percent in financials (not helped by a flatter yield curve), consumer discretionary (Tesla, but also concern in other retailers about a weakening consumer), and energy (following weaker oil prices).

Economic Update 3-03-2025

Economic data included U.S. GDP for Q4-2024 coming in unchanged, but Q1 expectations were revised downward. Personal income and spending were strong, while PCE inflation continued to decelerate. Housing data was mixed with home prices continuing to rise, although at a slower pace, and new home sales fell sharply. Consumer confidence continued to show lackluster results.

Equities were mixed, with U.S. value and U.K. outperforming, and negative results elsewhere. U.S. bonds fared positively as interest rates declined along with inflation and some fears about growth. Commodities fell back across the board, along with a stronger U.S. dollar.

U.S. stocks saw a back-and-forth week, highlighted by news clips and worries about potential tariffs and mixed economic data. By the end of the week, the President’s confirmation that tariffs on Canada and Mexico are set to take effect next week, along with a vow to double tariffs on China, resulted in weaker market sentiment. By the end of Friday an apparent chaotic meeting between President Trump and Ukrainian President Zelensky, set up as a potential deal for U.S. reconstruction aid in return for natural resources, left more uncertainty about near-term European activity.

Economic Update 2-24-2025

On a week shortened by President’s Day, economic data included mixed results for regional manufacturing, while leading economic indicators fell back from the prior month, as did consumer sentiment and home starts and sales.

Equities fell back in the U.S. with investors cautiously looking at future policy and consumer impact, while international stocks performed better, as recent trends have moved in their direction. Bonds ticked up slightly and commodities were mixed, with little change oil prices.

After a promising start earlier in the week, U.S. stock fell back into the negative with uncertainty about tariffs after several comments from the administration, although light on detail. Thursday and Friday were soured by weaker consumer confidence and cautious guidance from Walmart, despite above-consensus earnings results, concerning anticipated weaker results in the year ahead due to persistent inflation and tariff uncertainty.

Economic Update 2-18-2025

Economic data was highlighted by consumer price inflation that came in hotter than expected, as did producer price inflation. Positive results were seen in industrial production, while retail sales fell back for the month, with perhaps weather and turn of the year seasonal effects skewing several of these measures.

Equities saw gains globally, as markets celebrated what appeared to be a less dramatic and broad tariff policy. Bonds were up slightly although yields were little changed, with foreign bonds helped by a weaker dollar. Commodities were up across the board.

U.S. stocks saw gains overall, although the week saw its share of uncertainty, mostly on the tariff front. There was a bit of a hiccup mid-week, after the especially hot CPI inflation report, which continues to push out the possibility of further Federal Reserve rate cuts in the near term. Markets turned upward with rising odds of a Ukraine-Russia peace deal, which was reportedly being discussed in Munich. As noted earlier, announcements of tariffs on steel/aluminum and ‘reciprocal’ tariffs on all countries were seen as less severe than feared, as recent tariff comments have not been reacted to as strongly as they once might have been, and the decision to not introduce full global tariffs provided some relief. Growth stocks broadly outperformed value, and large cap outgained small. By sector, technology gained nearly 4% for the week, followed by the mix of communications, materials, energy, and consumer staples. Healthcare lagged with a decline of over a percent. Real estate saw a small gain.

Economic Update 2-10-2025

Economic data for the week included strength in broad manufacturing measures, while services decelerated but remained strong. Other releases were mixed, with construction spending up, while consumer sentiment declined. The January employment situation report showed slower job growth but upward revisions for prior months, while the unemployment rate fell.

Equities were mixed globally, with declines in the U.S. offset by gains overseas, as tariff news turned out more benign than feared. Bonds saw gains along with falling long-term interest rates. Commodities were mixed, with higher prices for metals and lower for crude oil.

U.S. stocks started down Monday morning with the imposition of 25% tariffs on Canada and Mexico (10% on Canadian energy and China). However, markets reversed a bit when tentative agreements (with conditions largely symbolic) were made with both countries to delay tariffs by a month or more. It’s assumed that these extensions may continue until the review of the USMCA trade agreement in 2026. The Chinese tariffs of 10% were kept, although far below the 60% advertised during the election campaign, with retaliation from China far less dramatic than feared. Now, focus has turned to potential tariffs on European goods, which are assumed to be focused on the auto industry, among a few critical goods there and elsewhere. Some economists have been reticent about assigning odds of dramatic tariffs happening, but the odds of at least some degree of broader tariff increase have risen.

Economic Update 2-03-2025

• Economic news for the week included the FOMC keeping short-term interest rates unchanged, while U.S. GDP for Q4 came in above-trend but below the prior quarter, and personal income/spending positive. Gains in new home sales accompanied continued positivity for home prices. Durable goods and consumer sentiment fell back.
• Equities were mixed globally last week, with most regions down, although a few countries bucked the trend. Bonds were up slightly, as interest rates ticked down. Commodities were also mixed, related to uncertainty over upcoming tariff policy and a strong U.S. dollar.

U.S. stocks started off poorly on Monday along with the news from DeepSeek, noted earlier, although some of the surprise faded later in the week as markets absorbed the news as being perhaps less earth-shattering as it first appeared. By Friday, concerns over North American tariffs, also noted earlier, pulled down sentiment. Sectors were mixed for the unusual week, with gains in communications, health care, consumer staples, and financials; energy and technology each fell by 3-5%, due to different drivers. Real estate was down slightly, with little change in interest rates. Earnings reports from several technology firms appeared to offer mixed results, with much of the corporate discussion focused on the promise of AI as opposed to current earnings trends. In one of the bigger weeks for U.S. company earnings, per FactSet, just over a third of S&P 500 companies have now reported for Q4. Over three-quarters of these have noted a positive earnings surprise, and over 60% a positive revenue surprise, with the blended earnings growth rate having improved to 13.2% (which would be the best quarter since 2021 if it holds out).

Economic Update 1-27-2025

• In a shortened quiet week for economic releases, data included gains in existing home sales, while the leading index of economic indicators declined, as did consumer sentiment.
• Equities gained, especially abroad along with a weaker U.S. dollar as fears of tariffs were dampened a bit after the inauguration. Bonds were little changed domestically, but some foreign bonds fared well with a weaker dollar. Commodities were mixed, with declines in oil.

U.S. stocks fared positively, to more record highs for the S&P 500, on a market week shortened by the MLK holiday and also included the U.S. Presidential inauguration. By sector, leaders included gains of 4% for communications services and 3% for health care, followed by technology and industrials, while energy ended up as the only down sector, with a decline around -3%. Real estate gained over a percent, despite slightly higher interest rates. Per FactSet, 16% of S&P 500 companies have reported earnings, with blended (actual plus expected) 4th quarter year-over-year earnings growth at 12.7%, about a percent higher than it was at year-end and a few tenths higher than the prior week. There is much more to come on the earnings front over the next few weeks.

Economic Update 1-21-2025

• Economic data included the positive news of consumer and producer price inflation coming in softer than expected, while industrial production and housing starts also saw strong gains for the month. Also, retail sales increased, albeit to a lesser degree than hoped.
• Equities gained around the world, as markets celebrated tempered inflation results, causing a drop in long-term yields. Bonds fared well for the same reason of lower rates. Commodities gained, with hopes for stronger demand and some supply concerns.

U.S. stocks reversed back upward last week, as markets celebrated the Wed. CPI report, which was still sticky, but a bit cooler than expected, which drove down long-term yields. Sentiment also appeared to be helped by the Israel-Gaza ceasefire agreement, which lowers the temperature in the Middle East.

Value strongly outperformed growth, with every S&P 500 sector ending positively, and small caps outpacing large caps. Leading were cyclicals energy, materials, and financials, each up over 6% for the week. For the latter, as earnings season started, strong reports in financials drove prices higher for JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo, among others. Defensive consumer staples and health care brought up the rear with minimal gains. Real estate also gained nearly 5% as interest rates came back down sharply. Financials started off earnings season, with big banks performing strongly, with stronger net interest margins (from higher interest rates) as well as hopes for an easier regulatory environment in the coming administration.

Economic Update 1-14-2025

• Economic data for the week included ISM services continuing to improve into solid expansion and an employment situation report for December that came in far stronger than expected.
• Equities fell back, along with the positive economic news pointing to less Fed policy easing action. Bonds accordingly fell as long-term interest rates rose ever higher. Commodities fared positively, with gains in all major groups. 

U.S. stocks fell back as higher interest rates continued to weigh on sentiment, with small caps now having reached -10% correction territory since late November, while large caps have held on significantly better. The week was shortened by the Thur. market closure to commemorate former President Carter. From over the weekend into Monday, reports surfaced that incoming President Trump had plans to ‘pare back’ tariff levels relative to what had been announced during the campaign (causing a drop in the value of the U.S. dollar), although he refuted these same claims, resulting in further volatility. As ISM services, JOLTs, and non-farm payrolls came in stronger than expected, it ended up being a ‘good news is bad news’ dynamic yet again, as that points to a path of the Fed moving at a slower easing path that was earlier hoped. This is especially true, as continued sticky inflation remains a wildcard. As seen by recent consumer sentiment results, plenty of speculation is swirling around possible worst case scenarios surrounding foreign trade policy this year, such as maximum tariff levels across the board, as opposed to a political likelihood of more tempered actual policy. How closely draft political policy morphs into reality will be unveiled over the next several months.

Economic Update 1-06-2025

• In a New Year holiday-abbreviated week, economic data included an improved (but still contractionary) ISM manufacturing report, minimally-changed construction spending, and continued movement higher for residential home prices.
• Equities fell globally last week, in contrast to a positive year (to say the least, in the U.S.). Bonds gained a bit as interest rates settled from recent volatility. Commodities gained along with rising prices for crude oil and gold.

U.S. stocks finished 2024 strongly, with the S&P up over 25%, representing the second straight year of gains of 20%+. Though, the full short week ended negatively, with what appeared to be some profit-taking, late seasonal adjustments, and a downgrade of Q4 U.S. economic growth as measured by the Atlanta Fed GDPNow (down from 3.1% to 2.6%). Small caps, on the other hand, had a solidly positive week. In the S&P 500 by sector, energy led with gains of over 3%, followed by utilities. The largest declines were experienced by materials, consumer discretionary (primarily volatility with Tesla), and consumer staples, each down at least a percent.

Some investors nervously await the outcome of various forms of the ‘January effect,’ whether it be the stock market performance for the entire month, or only the first 5 or 10 days. Obviously, this sample is too short to get a handle on 2025’s fundamentals and likely surprises to come, but from a behavioral standpoint, it can begin to set a tone for market sentiment.

Thanksgiving Update 

As we celebrate Thanksgiving, it is a time to reflect on the economic progress that has been made and express gratitude for the resilience of healthy markets. The moderation of inflation, steady growth, and promising outlook for both equities and fixed income serve as reminders of the strength and adaptability of the economy. While uncertainties remain, the foundations for a stable and prosperous future are in place, giving us much to be thankful for this season.

The U.S. economy has demonstrated remarkable progress toward achieving a "soft landing," where economic growth slows without tipping into recession. As of now, U.S. real growth has settled at a healthy 2.7% year-over-year rate, and inflation has moderated to 2.7%. When excluding housing, inflation drops further to 2.1%, inching closer to the Federal Reserve's long-term target of 2%. While inflation remains slightly above this goal, the Federal Reserve has found it appropriate to begin reducing policy rates, signaling a more stable economic environment.

Economic Update 10-28-2024

• Economic data for the week included a decline in overall durable goods, mixed results in housing sales, as well as higher continuing jobless claims, due to a variety of weather and labor issues.  
• Equities declined globally, with higher interest rates and less certainty about central bank rate easing looking forward. Bonds fell back along with rising yields at the longer end of the curve. Commodities gained, largely due to energy, despite a stronger dollar.

U.S. stocks lost ground for the first time in six weeks, as higher interest rates associated with an assumed more drawn-out Fed rate cut cycle and perhaps higher future deficits post-election weighed on sentiment. By sector, consumer discretionary experienced a percent gain (led by a 20%+ return for Tesla, upon better than expected earnings and vehicle sales projections) and a small gain for technology, while negativity was most pronounced in materials, industrials, and health care. Large cap fared better than small cap. Real estate fell about -2% upon the rise in yields.

At the September meeting, the U.S. Federal Reserve Open Market Committee decided to reduce the Fed funds rate by -0.50% to a new range of 4.75-5.00%. There was one voter dissent, where a member opted for only a quarter-percent cut.

The formal statement was updated to reflect the new easing bias, noting that inflation has simply “made further progress...but remains somewhat elevated.” Also noted was that the committee’s labor and inflation goals “are roughly in balance.” Later in the statement, labor was again mentioned in a reminder of the Fed’s dual mandate in “supporting maximum employment” in addition to its inflation objective. The new quarterly Summary of Economic Projections (SEP) put the Fed funds rate expectation at 4.4% for year-end 2024 (down from 5.1% in June), 3.4% for 2025, 2.9% for 2026 and 2027, while the anticipated long-term rate ticked up a tenth to 2.9%.

There hasn’t been this much mystery shrouding a policy change in some time, and surprise announcements have not been common in recent years. Before the meeting, CME Fed funds futures markets evolved toward the chances of a -0.50% cut at as high as 60%, and a -0.25% move at around 40%, after wavering between the two for much of the past month (wisdom of futures markets is correct again). Chances remain high for cuts in November and December, with odds pointing to a year-end rate of around 4.25%. The furthest-out estimate in Dec. 2025 shows the highest probabilities for Fed funds at around 3.00%.

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.