It’s Summer! What about the Market?
As we step into the summer of 2024, it’s essential to assess the current state of the stock and bond markets. The financial landscape continues to evolve, influenced by various economic, political, and global factors. Here’s a detailed look at where we stand and what you, as an investor, need to know.
Stock Market Overview
The stock market has been experiencing a period of heightened volatility, reflecting the mixed economic signals we’re receiving. Here are some key points to consider:
- Economic Indicators:
- GDP Growth: The latest GDP figures show moderate growth. While this indicates economic expansion, it is slower than the post-pandemic surge we saw in the last few years.
- Employment: The job market remains strong, with unemployment rates near historic lows. However, wage growth has started decelerating, suggesting that the labor market may be cooling slightly.
- Corporate Earnings:
- Q1 Earnings Reports: Corporate earnings for Q1 2024 have been mixed. While tech giants and consumer goods companies reported robust profits, retail and real estate sectors have faced pressures due to changing consumer behavior and higher interest rates.
- Market Sentiment:
- Investor Confidence: Despite positive economic data, investor sentiment has been cautious. Concerns over potential interest rate hikes by the Federal Reserve to curb inflation and geopolitical tensions contribute to market uncertainty.
Bond Market Overview
The bond market has navigated through a complex environment shaped by interest rate policies and inflationary trends. Here’s what you need to know:
- Interest Rates:
- Federal Reserve Policy: The Federal Reserve has maintained a vigilant stance on inflation. Recent statements suggest that while there may be a pause in rate hikes, the possibility of further increases later in the year remains if inflation does not moderate.
- Inflation:
- Current Levels: Inflation has shown signs of easing but remains above the Fed’s target rate. This persistent inflation impacts bond yields and prices, as higher inflation generally leads to higher yields and lower bond prices.
- Bond Yields:
- Yield Curve: The yield curve has flattened, with short-term yields rising faster than long-term yields. This could indicate market expectations for future economic slowdown or recession.
- Bad News/Good News: Bad news (lower bond yields) may no longer be good news for stocks as it may foretell a real economic slowdown. Are high interest rates starting to work? This week’s employment reports may confirm whether inflation continues downward, remains sticky, or rises.
Here on, the Election Looms Large
Investors will weigh different outcomes as the election approaches. Whether it’s Biden or Trump will have significant ramifications for the market. The Senate and House races are tight, and the winning party may sweep it all. Tax policy hangs in the balance, as the Trump tax cuts of 2018 are set to expire in 2025 if nothing is done. A rollback of tax cuts may hurt the economy and small businesses (think small-cap stocks), especially as they will again be subject to regular income tax rates.
I locked in attractive higher rates, moving a small amount into longer bonds. However, I continue to overweight stocks, especially small-cap, and value–attractively priced sectors. The summer and fall may be rocky, but we will be rewarded later in the year. Overall, the U.S. economy is solid, with expanding earnings, a Fed on the cusp of cutting, and valuations that are not unreasonable, if not cheap, in areas like small-cap.
Political developments will matter more than usual now that we’re less than six months to the election. And there’s plenty of time between now and then for the likely election outcome to shift. So stay tuned.
Thank you for your trust and partnership. Here’s to a successful investment journey ahead!
Please reach out if you have any questions about your financial situation.
Best,
Henry Gorecki, CFP®
HG Wealth Management LLC
401 N Michigan Ave, Suite 1200
Chicago, IL 60611
312-723-5116
