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.

By sector, communications (Meta and Alphabet), consumer discretionary (with Tesla up nearly 30%) and technology (largely from Apple up over 7%) led with gains of up to 4% each; on the other hand, energy and health care lagged with declines of a percent. Real estate experienced a minor decline, despite the fall in yields.

Foreign stocks fared positively as well, with the help of a stronger euro and British pound. The elections in France over the prior weekend resulted in surprising strength from far-right candidates. This troubled financial markets as it implied a potential weakening of ties to the rest of Europe (and the euro), as well as potentially higher debt and deficits, which could violate EU membership limits. (However, these fears abated a bit during the week, ending with Sunday’s second round balloting with no side gaining a clear majority.) U.K. elections ironically held on July 4 ended up with a Labour/liberal majority, after 14 years of Tory/conservative rule, although this result was largely expected. In fact, a change of any kind was cheered by markets (with U.K. stocks stealthily performing nearly as well as U.S. equities over the last three months). Emerging markets saw gains broadly as well, led by Korea and Brazil, while India and China lagged with gains of around a percent, with the latter affected by lackluster manufacturing data.

Bonds saw gains as yields fell by 5-10 basis points across the U.S. Treasury curve, along with economic data pointing to modest slowing. Investment-grade corporates led, while floating rate bank loans lagged with minimally positive returns. Foreign bonds fared best, with the tailwind of the U.S. dollar falling by nearly a percent.

Commodities gained across the board for the most part last week, led by energy and both precious and industrial metals. Crude oil rose 2% last week to $83/barrel, due to some supply concerns related to Hurricane Beryl in the Caribbean, and slower U.S. production.

 

Period ending 7/5/2024	1 Week %	YTD %
DJIA	0.69	5.52
S&P 500	1.98	17.57
NASDAQ	3.51	22.73
Russell 2000	-1.01	0.71
MSCI-EAFE	2.16	7.62
MSCI-EM	1.92	9.55
Bloomberg U.S. Aggregate	0.71	0.00

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
6/28/2024	5.48	4.71	4.33	4.36	4.51
7/5/2024	5.46	4.60	4.22	4.28	4.47

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.