Monthly Market and Economic Update - June 2024

Current Market and Economic Conditions

• In June, the S&P 500 Index was up 3.59%, while the Bloomberg Barclays US Aggregate Bond Index was up 0.95% and the Bloomberg Barclays Municipal Bond Index was up 1.53%.
• The stock market continued its upward momentum in 2024 after a brief downturn in April. The stock market is well ahead of the average year for the non-election years, much less at this point during the average election year.
• With inflation easing and the Federal Reserve Open Market Committee (FOMC) likely to start reducing interest rates in September, the stock and bond markets are enjoying an economic tailwind to complete a positive year.

Bond Market     

• Despite the recent rise in the unemployment rate, the job market remains strong with new job openings increasing and weekly initial claims remaining near historic low levels. The recent rise in the unemployment rate is not due to job losses. Rather, it is primarily a result of workers being drawn back into the job market, increasing the ranks of those classified as “unemployed” rather than “retired.”
• The Futures market is projecting two interest rates reductions by FOMC before the end of the year, with the first likely in September. The recent inflation readings continue to show improvement in the pace of inflation. The Fed’s preferred inflation marker, personal consumption expenditures index (PCE), was flat in May which provides optimism of the first interest rate cut coming in September.
• For bond investors, the combination of higher current interest rates and potentially rising values due to the possibility of falling yields later in the year may result in a rather ordinary but potentially positive year for bonds. Given the volatility in bond values over the past few years, ordinary is likely welcome. The probability of a soft landing for the economy is increasing. 2024 started with strong results for the key indicators for economic growth – jobs growth, consumer spending, and industrial production. Despite numerous recession forecasts in 2022, 2023, and now going into 2024, the actual economy continues to grow. 

Stock Market

• The stock market has had a positive return in five of six months with the S&P 500 Index up over 17.5%, year to date. It is certainly being led by the largest stocks, especially those tied to artificial intelligence. Even if the market experiences a 10% correction, the market is poised to finish the year in positive territory. 
• Typically, the first half of an election year is marked by uncertainty and market volatility. This year has been the exception likely due to the fact that each party’s candidate has been well known for a long time and their policies are also well understood given that one of the candidates is president and the other was president. When the market can be relatively certain of a future outcome, even when there are two distinctly different outcomes, it adjusts and then focuses on other more significant factors like interest rates, inflation, earnings growth and other economic data points, most of which are pointing in a positive direction and providing the market a steady tailwind. 
• The US economy has transitioned from the rapid recovery phase to a slower growth phase between 2020 and 2023. With the Federal Reserve prescribing strong medicine in the form of higher interest rates, certain market sectors and the overall economy have endured some short-term side effects. Now that the Federal Reserve is projecting a pivot to lower interest rates sometime in 2024, the markets are behaving as if we are in an economic recovery which may mean leadership will broaden out toward stocks that have been overlooked and undervalued. Those opportunities can be found in both US and international stocks. Investors should focus on the longer-term path of the stock market and the economy and take advantage of any short-term correction by rebalancing to their appropriate risk profile.

Portfolio Management

• The allocation for each investor should be diversified between growth and safety based on their own tolerance for risk in the short run and their desire for growth in their investments in the long run. Determining the appropriate asset allocation and risk-reward trade-off is the most important decision for investors.  Once determined, staying invested during periods of uncertainty and rebalancing back to the selected risk profile can help investors achieve their long-term goals.