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.

Foreign stocks underperformed U.S. equities for the week, along with an especially negative week in Europe, dominated by a -7% decline for French stocks. The latter was politically-driven due to the success of far-right candidates in recent EU elections, and the announcement for French legislative elections later this month, with greater market uncertainty over the outcome. Additionally, the ECB put a damper on hopes for further rate cuts after their single quarter-point cut the prior week. Emerging markets bucked the trend, gaining slightly on net, with strength in India, South Africa, and Taiwan offsetting mixed results elsewhere. In reaction to the prior week’s election news in several countries, stock market results were largely hinged on how ‘normal’ the new regimes would be relative to often more extreme expectations.

Bonds moved substantially higher last week, as yields fell by nearly a quarter-percent across the U.S. Treasury yield curve in response to the cooler CPI report. In keeping with duration effects and the parallel shift across the curve, long Treasuries fared best, up several percent, followed by investment-grade corporates. High yield and senior floating rate loans brought up the rear. Foreign bonds gained also, with lower yields offsetting the usually-negative effects of the stronger dollar. The Bank of Japan kept policy rates steady, but did signal plan to reduce bond-buying, which could ultimately drive yields higher.

In Europe, after some fallout from more success than expected for conservative parties, France has called elections in response. The uncertainty involved with French politics has again brought the watching of 10-year French yields relative to 10-year German yields—a classic indicator of the political and economic mood at the fringes. (French debt has tended to trade at least a slight spread to German debt, which has moved from around 0.45% to 0.65% after the elections and S&P downgrade caused by higher French debt levels.)

Commodities were solidly positive last week, led by gains in energy and precious metals, while industrial metals and agriculture lost a bit of ground. Crude oil rose by over 3% last week to $78/barrel, due to a strong OPEC oil demand forecast and easing U.S. inflation. The latter seems odd at first glance considering that commodities can be both a cause and effect of inflation, but it’s another link in the chain reaction of lower inflation, leading to faster expected Fed rate cut regime, leading to eased economic tightness, leading to more economic activity, and more demand for petroleum ultimately.

Period ending 6/14/2024	1 Week %	YTD %
DJIA	-0.51	3.32
S&P 500	1.62	14.63
NASDAQ	3.27	18.25
Russell 2000	-0.95	-0.40
MSCI-EAFE	-2.63	4.89
MSCI-EM	0.50	6.38
Bloomberg U.S. Aggregate	1.31	0.09

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2023	5.40	4.23	3.84	3.88	4.03
6/7/2024	5.52	4.87	4.46	4.43	4.55
6/14/2024	5.51	4.67	4.22	4.20	4.34

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.