June Economic Update

Market Summary

What historically can be a volatile period, last month was relatively calm for the markets as well as the economic headlines. All four major US stock indices ended the month in positive territory with the S&P 500 and Nasdaq regaining their April losses and the Russell 2000 and Dow Jones Industrial Average trading sideways within their April ranges. The S&P 500 gained 5.16%, the Nasdaq 7.03%, the Russell 2000 4.54% and the Dow Jones adding 2.07%. (1)

Little Change to Inflation

Inflation data last month continued to hold above the Federal Reserve’s 2% objective and continued to print readings within their recent ranges in the mid-3% handle. Year-over-year CPI came in at 3.4% while Core CPI which excludes food and energy prices came in at 3.6%. Overall, these numbers weren’t surprising to the up or downside and we will continue to wait and see whether inflation begins to improve again or will remain persistently “sticky” into the summer. (2)

Federal Reserve Statements

While the recent CPI data didn’t lend much insight, the Federal Reserve Meeting Minutes gave us a glimpse into the central bank’s current policy thinking. The report which summarizes last month’s meeting discussions stated Fed officials are conceding that it would take, “longer than previously anticipated to gain great confidence in inflation moving sustainably to 2%.” (3)

The Meeting Minutes also commented about weaking consumer data stating, “deteriorating household financial positions, especially for lower-income households, might prove to be a bigger drag on activity than anticipated.” In other words, consumer demand is beginning to soften due to inflation and high interest rates. (3)

In response to the consumer demand statements, the Fed said that many officials commented about their uncertainty about whether interest rates are sufficiently high enough to bring down inflation and some officials mentioned willingness to raise rates higher if these outlook risks materialize. This was the first statement regarding potentially increasing rates in about a year. (3)

Looking Forward…

As stated in the past couple monthly updates, as well as by the Federal Reserve, there are a lot of uncertainties at the moment regarding economic data. In our opinion, consumer strength remains vulnerable into late summer as people begin to tighten their belts and keep their wallets closed.

For the past year, technology stocks have been the driver for the markets while other economically sensitive sectors such as small capitalization companies have lagged behind. The NFIB Small Uncertainty Index just reached its highest level since 2020 while several technology stocks have expensive valuations and are hitting all-time highs. This divergence was mentioned in our newsletter at the beginning of this year and we have yet to see clarity surface in terms of which of these conflicting indicators will shed light for where the market moves into the middle and latter parts of this year.

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Monthly Financial Tip:

Keeping federal tax returns, W-2s, 1099s, year-end account statements, and sample pay stubs for 6-7 years is sensible, in case you make an error in reporting income. The IRS wants you to keep the past 3 years of federal tax returns just for proof of income, deductions, and credits claimed.

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Citations:

1. WSJ.com, May 31, 2024

2. Investing.com, May 14, 2024

3. Federal Reserve, May 22, 2024

4. NFIB, May 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.