July 14, 2024
Volume 11, Issue 28
Weekly Recap
Domestic stocks moved higher last week. It was the first notably broad advance since mid-April. The Dow Jones Industrial Average, S&P 500, and technology-heavy Nasdaq Composite all moved to record intraday highs, but the biggest advance was notched by the small-cap Russell 2000, which gained 6 percent, marking its best week since early November. As measured by various Russell indexes, value stocks also handily outperformed growth stocks.
The unofficial start of earnings season kicked off Friday, with second-quarter earnings releases from JPMorgan Chase, Wells Fargo, and Citigroup. Shares of all three fell at the open of trading, with JPMorgan and Wells Fargo both missing estimates and the latter cutting its outlook. As of the end of last week, analysts polled by FactSet were expecting growth in overall earnings registered by the S&P 500 to accelerate from 5.9 percent in the first quarter to 9.3 percent in the second, which would mark the fastest rate since the first quarter of 2022. A major factor supporting many stocks – if not the price-weighted benchmarks – was Thursday’s release of the Labor Department’s consumer price index. Headline prices fell 0.1 percent in June, marking the first decline since soon after the start of pandemic lockdowns in May 2020. More encouraging, perhaps, core (ex-food and energy) prices rose a less-than-expected 0.1 percent, the slowest pace in over three years. At a roundtable hosted by the Chicago Federal Reserve, Chicago Fed President Austan Goolsbee called the data “profoundly encouraging” and a sign that inflation was on its path back to the Fed’s annual target of 2.0 percent.
The market’s reaction to the data was notably mixed, however. In the wake of the report, the Russell 2000 outperformed the large-cap S&P 500 index by 209 basis points, while besting the Nasdaq Composite by 581 basis points. Moreover, according to Bespoke Investment Group, it was only the second time since 1979 that the Russell 2000 rose by over 3 percent while the S&P 500 finished in the red, and the first time since October 2008.
Friday’s producer price index data arguably further complicated the inflation narrative and its implications for the market. The headline PPI rose a tick more than expected at 0.2 percent in June, while May’s decrease was also revised upward to flat. Traders seemed to take satisfaction in the core (ex-food, energy, and trade services) PPI reading, which came in unchanged for the month. As with the overall economy, input inflation trends remained concentrated in services, particularly machinery and vehicle wholesaling.
The inflation data sent shockwaves through the federal funds futures market, which began pricing in the virtual certainty of a rate cut at the Fed’s September meeting. This still makes current market pricing of more than two cuts (of 25 basis points each) by December 2024 and almost seven cuts by December 2025 seem aggressive, however.
Inflation also remains “sticky” in certain key categories. While food inflation has moderated, for example, it seems to have settled above its pre-pandemic range. Meanwhile, momentum in agricultural prices and the recent uptick in restaurant prices suggest some upside risks. The yield on the benchmark 10-year U.S. Treasury note declined sharply in the wake of the CPI report, briefly touching its lowest level (4.16 percent) since March 12.
Market Monitor
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks. Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
The Consumer Price Index declined slightly in June, the Bureau of Labor Statistics reported Thursday, with prices dropping 0.1 percent from May and rising 3 percent annually – the lowest annual inflation rate in three years and lower than May’s 3.3 percent annual increase. June’s inflation was less than economists had predicted and provided another month of improved data, boosting the case for the Federal Reserve to begin cutting interest rates. Fed Chair Jerome Powell acknowledged Tuesday that “elevated inflation is not the only risk we face,” warning of the risk of waiting too long to start bringing ratings down. U.S. producer prices climbed in June by slightly more than forecast on a pickup in margins at service providers, offsetting a second month of declines in the cost of goods. The producer price index for final demand rose 0.2 percent from a month earlier, according to Bureau of Labor Statistics data published Friday. Compared with a year ago, the PPI rose 2.6 percent.
Interest payments on outstanding U.S. debt continued to drive the federal government’s budget deficit, which reached $1.27 trillion for the fiscal year through June.
U.S. Treasuries have erased this year’s declines as cooling inflation boosts bets on Federal Reserve interest-rate cuts.
U.S. consumer sentiment unexpectedly declined to the lowest level in eight months in early July as high prices continued to weigh on Americans’ views of their finances and the economy. On Friday, Citi, JPMorgan Chase ,and Wells Fargo released earnings that were stuttered with indications that despite recent signs of cooling inflation the economy continues to be a drag.
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.
- Can You Control Required Minimum Distributions? (Christine Benz)
- How Do Older Households React to Inflation? (Jeanne Pierre-Aubrey & Laura D. Quinby)
- Guaranteed Income: A License to Spend (David Blanchett & Michael Finke)
- 12 Insights into Boomers’ Retirement Realities (Michael S. Fischer) This is the best thing I’ve read recently; the best thing I saw. The smartest. The best thread. The best reporting. 100. Eating at the Olympics. The 111 best horror movie kills of all-time.
In 1958, for a school project, 17-year-old Robert Heft designed a new version of the American flag, which consisted of 13 stripes and 50 stars – a familiar and iconic design that has been used to represent the American flag ever since. He received a B-.
“Leaving behind a well-organized financial life is a wonderful gift to your family.”~ Jonathan Clements
Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.
