Relatively high interest rates and inflation continue to dominate the U.S. economy at the end of the first half of the year. However, in this mid-year market update, the economy shows great resilience with hearty growth.
This halfway point is a good time to review economic data, assess what’s happened in the markets, and take a look at how those trends might affect your financial portfolio. Talking to a financial advisor at ATS Wealth Circle about a mid-year market update can help you plan for the second half of 2024.
Market Optimism
Investors appear to be brushing aside mixed economic news in anticipation of lower inflation, higher earnings growth, and cuts in interest rates in the second half of 2024.
The first quarter saw the S&P 500 continue to move higher on the strength of strong first-quarter earnings. In May, the trend kept up despite concerns about mixed data regarding economic growth, consumer sentiment, and inflation. The S&P 500 gained 4.2% in May and is up 10% year-to-date.
Investors appear primed by history to believe that the run could continue into the third quarter, a three-month period that has, in previous years, shown positive trends for stocks. They also seem optimistic due to gross domestic product (GDP) and employment data that indicates the U.S. economy is not overheated and is aligning with the expectations of the Federal Reserve.
Still, continuing high interest rates and inflation with softening GDP may lead to overall uncertainty for the stock market for the remainder of 2024.
Employment Robust
In April, employers in the U.S. created 175,000 jobs, the lowest number this year but still in line with the expanding economy. The growth also continued 39 consecutive months of job expansion. Job creation numbers for May—released after this mid-year market update—are expected to be 190,000, with unemployment remaining around 3.9%.
Investors keep an eye on data like this that may show the U.S. economy is slowing, which could lead the Fed to lower interest rates.
GDP Slowing
In May, the U.S. Department of Commerce revised downward the pace at which the U.S. economy grew from January through March. The growth rate was revised to an annualized 1.3% from the early estimate of 1.6%, considerably slower than the rate of 3.4% in the final quarter of 2023.
Numbers on consumer spending were also revised downward. The price index for gross domestic purchases increased 3.0%, a drop of 0.1% from the previous estimate, and the personal consumption expenditures (PCE) price index increased 3.3%, a downward revision of 0.1%.
The PCE price index, minus food and energy, increased 3.6%, a 0.1 percentage-point decrease from an earlier estimate.
Interest Rates and Inflation
At this mid-year market update, market analysts and economists are watching the Fed for a signal of what’s next. Interest rates remain between 5.25% and 5.5% as the Fed stays focused on bringing down inflation. With inflation above the Fed’s target of 2.0%, the Fed has held off on lowering interest rates, and the possibility of an increase remains, creating uncertainty.
Inflation numbers for May are expected this month and may provide some clue about the Fed’s next move.
Talk to a Financial Advisor for a Mid-Year Market Update
A mid-year market update is a review of where we’ve already been that allows us to gain an outlook on where we might be heading. ATS Wealth Circle helps families plan for the financial road ahead. For help understanding how this mid-year market update may affect your future, consider talking to a financial advisor.
If you or someone you know would like to learn more about retirement strategies, or general financial planning, call (408) 333-9998 to schedule a meeting.
Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Investing involves risk and investors may incur a profit or a loss.
