Week in Review: June 28, 2024

July 1, 2024

Recap & Commentary

Markets ended the week mixed, with the S&P 500 little changed, despite a plethora of economic data. For the most part, the data corroborated other recent readings showing that the housing sector remains pressured by higher mortgage rates, consumers remain somewhat downbeat due in large part due to inflation, and that inflation itself showed signs of improvement in May, a welcome development following a disappointing first quarter in which inflation appeared to be stalled around 3%. Despite the relatively quiet week, the S&P 500 ended the first half of the year up an impressive 14.5%.

With no Fed meeting until September there will be a lot of data for both investors and the Fed to consider between now and then. Inflation data and readings on the health of the broader economy will remain the primary focus. Any indication that inflation is continuing to slow, and thus Fed rate cuts are more likely, would be welcomed by investors looking for a catalyst to drive markets higher following the strong start to the year.

Currently, markets are expecting two rate cuts before year end, with the first occurring in September, followed by a second cut in December. That marks a sharp reduction from the six rate cuts markets were expecting at the start of the year, but an improvement from the beginning of May when market expectations had fallen to just one rate cut in 2024.

Economic Commentary

A busy week for economic data was headlined by the core personal consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, which slowed on an annual basis from 2.8% in April to 2.6% in May, moving closer towards the Fed’s longer-term target of 2%. After three consecutive months in which core PCE remained at 2.8%, May’s deceleration was likely welcome news by the Fed.

New and pending home sales pointed to continued weakness in the housing markets as new home sales plunged over 11% in May to their lowest level since November and pending home sales fell to a new record low. The disappointing data reflects the ongoing impact of higher mortgage rates on the housing sector.

Consumer sentiment dipped in June, led by a deterioration in consumers’ views on current economic conditions. Importantly, however, consumers’ expectations for inflation a year from now dropped from 3.3% to 3.0%, while expectations for inflation five years from now remained unchanged at 3.0%.  The data indicates that inflation expectations remain well anchored, an important factor for the Fed when considering monetary policy actions.

Growth in personal incomes surprised to the upside gaining 0.5% in May, better than the expected 0.4% forecast.  Spending, however, was relatively modest at 0.2%, reinforcing recent concerns about a potential slowdown in consumer spending and by extension, broader economic growth.

Durable goods orders rose 0.1% in May. However, within the broader headline number, business spending fell 0.6%, matching the largest drop this year, highlighting ongoing caution by businesses faced with elevated borrowing costs and softer demand.

Of Note

Industry group AAA expects a record 70.9 million people to travel 50 miles or more from their home between June 29 and July 7, marking a 5% increase from last year and a 9% increase from 2019.

Market Indices   (As of 06/28/2024)

The Week Ahead

• June Employment Report
• ISM Manufacturing
• ISM Services
• JOLTs Job Openings
• Weekly Jobless Claims