July Economic Update
- Barrington Capital Management, Inc.
- Jul 9, 2024
- 3 min read
Market Summary
Last month was fairly quiet on the news-front for the markets most economic data points that were released remaining little changed from prior releases. This led to a handful of technology stocks continuing to lead the large cap markets higher while breadth overall was relatively unimpressive, leading to a mixed performances between various sectors. The broad-based S&P 500 and the tech concentrated Nasdaq both ended the month in positive territory adding 3.47% and 6.18% respectively. The small cap Russell 2000 index, which does not have big tech exposure, retreated -1.08%. (1)
Economic Data
As has been the case for the past couple of years, the most anticipated data release last month revolved around inflation. Personal Consumption Expenditures (PCE) is the Federal Reserve’s primary inflation gauge which was released towards the end of the month, which met expectations for all metrics released and was little changed from the previous release in May. The Consumer Price Index release also showed little change from expectations and from the previous report with both Headline and Core CPI remaining in the mid-three percent range. (2)
There were only a couple of surprises with last month’s economic releases. For one, the US Bureau of Labor released their jobs opening data known as “JOLTs”. Job openings have been on a downward trend for several months and the latest report stated there are 8.059 million open jobs which was lower than the 8.37 million expected. This is approaching pre-pandemic levels not seen since 2019. (2)
Another surprising data release was the University of Michigan’s Consumer Sentiment survey which came in much lower than expected – 65.6 versus 72.1 – and is the lowest reading since December of last year. This supports other recent weak consumer data that we have pointed out in the past several newsletters. (2)
Federal Reserve Statements
On June 12th, the Federal Reserve released their decision to keep interest rates unchanged, which was expected. In their written statement, they said it would not be appropriate to reduce interest rates until gaining greater confidence that inflation is moving sustainably toward 2%. (3)
There were a few surprises with the Fed’s policy outlook including a change to what is known as the “Dot Plot” which illustrates future interest rate projections from each of the 19 Fed officials. For year-end 2024, the median interest rate was risen to 5.1% compared to 4.6% previously cited. That equates to only one -0.25% interest rate cut instead of -0.75% which was previously forecasted. Additionally, four Fed Officials projected no rate decreases this year while seven predicted one cut. (3)
In the Minutes from the June meeting, it stated that the vast majority of Fed Officials opined that the US economy is “gradually cooling” due to restrictive high interest rates. They also noted that several participants said if inflation persisted at these elevated levels or rose further, then interest rates might need to go higher. On the jobs front, the Meeting Minutes stated, “further demand weakening could generate a larger unemployment response than in the recent past." (4)
Looking Forward…
Several economic indicators are showing signs of a cyclical peak, as well as the Federal Reserve. While this may be the case, the primary driver behind this market over the past 14 months or so has been the outperformance of a handful of large technology stocks. This raises the question as to whether these stocks can continue to support the broad market indices if economic data continues to waver.
Monthly Financial Tip:
How large should an emergency fund be? Large enough to cover at least three months of expenses in cash. In fact, building your emergency fund to twice that size is a worthy goal.
Citations:
1. WSJ.com, June 28, 2024
2. Investing.com, June 06, 14, 28, 2024
3. Federal Reserve, June 12, 2024
4. Federal Reserve, July 03, 2024
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Comments