Market Update – July 15th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, July 15th, 2024

Financial Markets

Last week, CPI data outshined the market, sending stocks and bonds higher. The Dow Jones Industrial Average led the week, closing up by +1.59% as of Friday, July 12th. Following closely, the S&P 500 gained +0.87% for the week, while the Nasdaq Composite gained +0.25%. In the fixed income market, bonds rallied on the soft inflation news, with the Barclays Aggregate Bond Index up by +0.83% for the week.

Market News

June CPI

Consumer prices fell in the month of June, with the monthly inflation rate dropping to -0.1% and the annual headline inflation rate falling to 3%. This marked the lowest annual inflation rate since June 2023. Additionally, Core CPI fell to 3.3%, which was the lowest core inflation reading for the metric since 2021. Stocks reacted uniquely on Thursday following the news, with large-cap technology names that have been leading this recent leg of the market’s rally, declining for the day, while small-cap stocks experienced a stronger day of performance on Thursday.

Breaking down the CPI, grocery prices were up 1.1% from a year ago, while restaurant prices increased by 4.1% over the same period. Energy prices rose by 1%, with gasoline prices down -2.5% from June 2023, while electricity prices were up 4.4% and gas utilities increased by 3.7%. New vehicle prices declined by -0.8% and used vehicle prices saw a significant drop of 10.1% from a year ago.
 
Shelter costs were up 5.2% from a year ago, continuing a small trend of disinflation in housing costs but still exhibiting sticky inflation. Finally, transportation service prices continued to see hot inflation, rising 9.4% from a year ago. Overall, this was a solid month of progress in disinflation, indicating that a rate cut may be appropriate in September.

Source: Bureau of Labor Statistics

June PPI

Following the CPI report last week we also got the PPI, or Producer Price Index, for the month of June on Friday morning. Unlike the CPI, the PPI came in hotter than expected, but stocks largely ignored this news. On a year over year basis, producer prices increased by 2.6%, while Core PPI, which excludes food, energy, and trade costs, rose by 3.1% from a year ago.

In the month of June, the PPI rose by +0.2%, while the Core PPI remained flat. June goods prices fell by -0.5%, while services prices increased by +0.6%, demonstrating another month where service inflation remains the cause of higher prices. Although this PPI report posted hotter than expected data, it was largely overshadowed by the more favorable CPI print, which captured the market’s attention, rallying on Friday.

Source: Institute for Supply Management

Consumer Sentiment

 The University of Michigan’s Consumer Sentiment Index came in below expectations for July’s initial reading, posting at 66.0, down from June’s reading of 68.2. Survey respondents cited concerns over the upcoming election and uncertainty around the trajectory of the US economy.

Furthermore, year-ahead inflation expectations fell for the second consecutive month, reaching 2.9%. Although lower, this expectation remains somewhat elevated compared to the 2.2-2.6% range seen in the two years pre-pandemic. Overall, this month’s consumer sentiment reading highlights a disconnect between stocks, which are near all-time highs, and consumer sentiment, which has been in a downtrend since the start of the year.

Source: University of Michigan

Employment Trends Index & Recession Indicators

The Conference Board released their June Employment Trends Index (ETI), an index that tracks eight employment indicators to gauge the wider US job market. The ETI fell slightly in June to 110.27, down from a downwardly revised 111.04 in May, attributed to higher initial claims and unemployment unexpectedly ticking up to 4.1% last month.
 
Additionally, the Conference Board highlighted the risk that June’s ETI downtick signals employment has the potential to fall in the second half of 2024. Despite being in a mild downtrend, the ETI remains above its pre-pandemic level, and payroll growth remains healthy, albeit at a slower pace compared to the outsized gains experienced during the pandemic recovery.

Overall, recession indicators remain neutral. While the ETI remains overall bullish, it has become less bullish in recent months. We believe the US economy appears to be at an inflection point with the possibility of a soft landing, a recession, or a recovery. We will continue to monitor the economic indicators diligently each week.

Summary

Another bullish week went down for stocks and bonds, as June’s CPI fell to -0.1% monthly and 3% annually, the lowest since June 2023. Core CPI dropped to 3.3%, a low since 2021. On the other hand, the Producer Price Index posted hotter than expected data, however this was largely overlooked by markets. The University of Michigan’s Consumer sentiment declined in July, with inflation expectations slightly elevated but decreasing. The Employment Trends Index showed a slight drop in June, indicating stability for now but potential employment challenges ahead.

In closing, we want to express our sincere gratitude to our valued readers and loyal customers for entrusting us with your financial well-being. Your continued support is the cornerstone of our success, and we are committed to serving you with the utmost dedication and professionalism. As we navigate the ever-changing financial landscape together, we encourage you to reach out to us if there have been any shifts in your risk tolerance or if you have experienced any material changes in your Investment Policy Statement objectives or constraints. Your financial goals are our top priority, and we are here to adapt and tailor our strategies to align with your evolving needs, whether they pertain to risk and return objectives or constraints such as time horizon, taxes, liquidity needs, legal issues, unique circumstances, or changes in your financial planning and retirement objectives. Your feedback and communication are essential in helping us ensure your financial success. We look forward to continuing this journey together.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.