Market Commentary - July 2024
Introduction
The global financial markets and the economy have presented a dynamic landscape filled with both opportunities and challenges during the first half of 2024. This period has been marked by significant developments across various sectors, influenced by a myriad of factors, including shifting consumer behaviors, continued inflationary pressures, and evolving monetary policies. In this newsletter, we will delve into the current state of the economy, market performance, corporate earnings, and the role of the Federal Reserve in the ongoing battle against inflation.
The Economy
The economic environment in Q2 2024 has been characterized by moderate growth amidst a backdrop of continued fiscal support. The U.S. GDP growth rate has been steady, driven primarily by consumer spending and propelled by low unemployment and increasing income levels. Globally, major economies like the European Union and China are experiencing varied recovery paces. Europe is continuing to rebound from recessionary conditions, and China is providing incremental liquidity in efforts to support its economy.
Market Performance
Financial markets have rebounded from a pullback in April, although significant divergences exist among its underlying segments. While the S&P 500 and NASDAQ indices have shown resilience, smaller companies continue to diverge and are down for the quarter and are approximately flat for the year. Figure 1 shows the year-to-date performance of the S&P 500 (SPY) in blue and small cap stocks (IWM) in red.
Figure 1: Morningstar – YTD Performance Comparison of SPY and IWM
Meanwhile, the bond market has experienced fluctuations as investors weigh the implications of uncertainty around future inflation, as further discussed below. Internationally, markets in Europe and Asia have been influenced by regional economic policies and growth dynamics, leading to varied performance across regions.
Earnings
Corporate earnings in Q2 2024 are expected to grow 9% year-over-year. Earnings growth continues to be led by technology and communication services companies, driven by demand for digital services and innovations. The energy sector has benefited from higher oil prices, though concerns about long-term sustainability and regulatory changes remain. On the other hand, retail and consumer goods companies have encountered challenges due to inflationary pressures and shifting consumer preferences.
Federal Reserve and Inflation
The Federal Reserve has indicated it will likely cut rates once in 2024. This is a stark difference from the six rate cuts the market had priced in at the start of the year. While inflation rates have shown signs of stabilizing, they remain above the Fed's target range of 2% and may not drop much further in the second half of 2024 due to easier base effects. The central bank's communication emphasizes its commitment to data-driven decisions, indicating that future rate adjustments will be contingent on continued economic assessments.
Looking Ahead
In conclusion, the second quarter of 2024 has largely experienced a steady and measured push higher both in the economy and financial markets. While challenges such as inflation and some softening in the labor market are present, there are also clear signs of resilience and recovery. Investors and businesses alike are navigating this complex environment with a focus on long-term growth and stability.
Reporting Updates
As we continue to evaluate and enhance our reporting and communication, enclosed you will find an updated snapshot of your portfolio. We have heard from many of our clients that these reports are more transparent and comprehensive than the custodial statements. We welcome any feedback and questions should they arise.
- Jason, Micah, Matt, Tim, & Victoria