Weekly Market Update: July 29, 2024
The nation’s economy continues to make progress, but may be starting to moderate. Gross domestic product (GDP) will probably increase between 2.0% - 2.5% for full-year 2024, which would be flat, or down slightly, compared to the figure logged in 2023. The labor market is showing signs of cooling, with the pace of hiring easing and the unemployment rate rising to 4.1%. In addition, the consumer seems somewhat fatigued, with retail spending softening and sentiment flagging.
On a positive note, inflation seems less problematic. The Consumer Price Index (CPI) showed prices rose 3.0% year over year during the month of June, which was a step in the right direction. (The June Personal Consumption Expenditures (PCE) Price Index, a key inflation reading, was set to be released after we published this report.) Meanwhile, the Federal Reserve has indicated that it may not need to wait for inflation to reach its 2.0% target before lowering rates. Few analysts were expecting the Fed to alter its policy at its meeting on July 30th and 31st, but there is a chance rate cuts could begin in September. The yield on the 10-year Treasury bond has eased over the past several months to about 4.2%, possibly reflecting a softer rate outlook.
The corporate sector has been holding up well. The second-quarter earnings season is now in full swing. Analyst forecasts remain bullish, calling for corporate profits to rise approximately 9% for the quarter, according to FactSet. This hurdle may be difficult to clear, and it is uncertain what guidance will be provided.
The stock market has advanced without much resistance. The S&P 500 Index is ahead roughly 15% this year, leaving investors wondering if further gains are possible from here. For some time, the bull market has been fueled by technology sector gains. Recently, however, investors have been rotating capital out of expensive technology issues and into overlooked parts of the market, which may be a healthy development. Elsewhere, the uncertainty surrounding the upcoming Presidential election also seems to be playing out in the market.
Conclusion: In the current environment, investors should maintain a balanced portfolio, consisting of shares of good-quality businesses and a healthy cash position.
Source: ValueLine.com
