July 29, 2024

“The stock market is filled with individuals who know the price of everything, but the value of nothing.”

 Phillip Fisher

As we closed a tumultuous week this advice seems appropriate. We began with the market up on Biden’s announcement followed by fears of what the inflation number would be and finished on a broad-based recovery.  However, it was not enough to erase the record pull back, particularly in the Nasdaq and Tech sector. Not to mention the events since the assassination attempt further raising suspicions on exactly what the government is up to.  And to top it all off, Southwest airlines abandoned its long standing open seating policy! (So now the fight for boarding position is over, what is the world coming to?)

Here are the numbers. The S&P 500 finished the week after a wild ride down -1.54%, The Dow Jones Industrial Average booked it 4^th week in the black up +.43%, the Nasdaq whipsawed to a finish off -3.16%, Internationally, the FTSE 100 had a good week up +1.59% but the board MSCI-EAFE lost a slight -.14%. The 2 -year Treasury fell to a yield of 4.385% and the 10-Year paid 4.193%.

So, what happened outside of all the political fireworks, as the President begrudgingly looked like a hostage forced to read his withdrawal address (which failed to explain the obvious)? The markets seem to know it was coming and showed signs of relief that at least that part of the political drama was over. The jobs report, which showed 206,000 jobs added, was welcome news all be it not as strong as it seemed. And the initial fears on the inflation number were alleviated last Friday as the market tried to recover from the damage earlier in the week.

As Barron’s Alex Eule reported, Friday’s good news of strong economic growth had threatened to become a problem when new inflation data arrived this morning. As we know from recent years, hot growth can also mean rising prices. But the connection has largely broken down — and that sent stocks running higher last Friday. The other big news last week, was last Thursday morning’s release of second-quarter gross domestic product data. Real, or inflation-adjusted, GDP increased at an annualized rate of 2.8% in the period, according to the Bureau of Economic Analysis.

That was an acceleration from the 1.4% rate logged in the first quarter and blew the consensus estimate for 1.9% growth out of the water. “The second quarter’s growth in real GDP was primarily driven by consumer spending in both goods and services, as well as a buildup in inventories and an uptick in nonresidential fixed investments such as equipment, the bureau reported,” wrote Barron’s Megan Leonhardt.

Speaking of inflation, Market watch reported, the most critical inflation gauge in the U.S. affirmed that price increases are slowing, but the June report might also contain a bit of unwelcome news. Here’s what to watch for in the personal consumption expenditures price index, which came out last Friday morning. Core PCE, which strips out food and energy, rose 0.2% in June and 2.6% year over year. That puts inflation close to the Fed’s 2% inflation target the personal consumption expenditure index, or PCE, showed that prices were up slightly less than 0.1% in June, after no change in May. That was in line with economists’ expectations and keeps the Federal Reserve potentially on track for a September cut in interest rates. The Federal Reserve views the PCE as the most accurate measure of price changes, rather than the better-known consumer price index. Increases ranging from 0.1% to 0.2% a month are seen as consistent with low U.S. inflation.

So far, so good. But, there’s little doubt inflation has slowed. Price pressures have eased in the past few months after a mini surge in the first quarter. Just don’t expect inflation to slow rapidly enough to hit the Fed’s 2% inflation target anytime soon. The yearly rate of PCE inflation could fall a tick, to 2.5% from 2.6%. The core rate is more likely to hold steady at 2.6%, Wall Street forecasts. If either of those rates fall even lower, it would lend support to the idea that the Fed will cut U.S. interest rates no later than September.

How about earnings? Again, from Market Watch, “So far this reporting season, S&P 500 earnings per share are on track for a 11.1% year over year rise, on 4.5% revenue growth, according to data from Refinitiv. If sustained, that would be the fastest per-share profit growth since the first quarter of 2022. It hasn’t been a fully representative same so far, however. Some 20% of the S&P 500 has already reported, but the largest share of those companies has been in the financial sector. Traditionally, banks tend to report within a few weeks of the end of the quarter, while most other companies take a bit longer to prepare their quarterly results. Luckily for the broader market, banks kicked off the earnings season on a relatively high note. S&P 500 financials’ earnings have been up 17%, on average, so far this earnings season.”

How does it look in foreign markets so far? As Lord Abbett analysist comment in a report to us advisors, “The first half of 2024 is in the books, and global equity markets have continued to rally following their impressive 2023 performance. The S&P 500® Index climbed 15.3% through June 28, its second-best first half showing since 2000, thanks in part to a resilient U.S. economy, improved corporate earnings, and massive demand for companies participating in the artificial intelligence (AI) supply chain. Most of this performance has come from the Information Technology and Communication Services sectors, and more specifically from mega-cap tech. NVIDIA was up 10.3% in June alone, bringing its year-to-date gains to 149%. Even that was not the best-performing stock in the S&P 500 in the year’s first half. Super Micro Computer, a leading server and storage vendor that is helping enable increased AI capabilities, was up 188.2% in the same period. (Stock and index performance data referenced above are from Bloomberg.) Growth remains healthy outside of the United States, and consensus forecasts are for the world economy to continue growing at a 3.2% pace during 2024 and 2025, according to the International Monetary Fund. While growth in Europe is not strong in absolute terms, it is in positive territory and has been surprising to the upside. Europe has been helped by a decline in natural gas prices, which have receded to levels last seen before the invasion of Ukraine in February 2022, and a pickup in manufacturing activity.” Supporting our view, that international markets still look good.

Finally, Real estate, Market Watch reports, home prices hit fresh record high, pushing sales down for fourth straight month in June ‘We’re seeing a slow shift from a seller’s market to a buyer’s market,’ industry group says. Existing home sales fell for the fourth month in a row in June as record-high home prices and 7% mortgage rates weighed on buyers. The median price of an existing home in June rose 4.1% as compared with the year before, to $426,900, an all-time high. Unsold inventory rose to the highest level in four years. It’s been a tough summer for the real-estate industry, as buyers pull back on purchases due to record-high home prices and elevated mortgage rates. That’s in spite of the fact that there are more homes on the market today than a year ago. The months ahead could be less gloomy. In July, mortgage rates fell on the back of expectations of an interest-rate cut by the Federal Reserve, which could bring some rate-sensitive buyers back into the market. Good news for my niece who has been trying to buy a home for the past 2 years.

Mike