BY STRATEGIC ADVISERS INVESTMENT TEAM — JUNE, 2024
Market Conditions
We believe that the U.S. economy remains in a late cycle expansion. This is a phase of the business cycle in which stocks and bonds have historically risen. But during late cycle, the economy typically grows at a slower pace, so markets may experience some volatility.
- Unemployment is at 4.0%, still near historic lows.1 The job market remains a source of strength for consumers and the economy.
- During Q1 2024, U.S. corporate profits likely grew about 5% and the outlook for corporate profit growth continues to remain healthy for 2024.2
- Consumer spending came in below estimates and dipped slightly.3 Less spending may reflect decreased demand from consumers, which may put downward pressure on inflation as businesses seek to attract customers.4
- Inflation remained slightly above 3%, which is close to the 100-year average of the U.S. consumer price index. 5
- Most market participants now believe that the U.S. Federal Reserve (The Fed) may cut interest rates up to two times this year, as the economy remains strong and inflation falls at a slow pace.6 The Fed's preferred inflation reading came in at its lowest level so far this year, fueling hopes for a continued downward trend.7
What it may mean for your portfolio
Stocks rallied in June and made fresh all-time highs. Economic growth in the U.S. remained positive as well. A strong job market has likely supported consumer spending so far this year, which is typically the biggest driver of U.S. economic growth.
Some investors may feel anxious that markets may experience a correction when they make new all-time highs. However, stocks have historically continued to rise after making new all-time highs. Positive economic growth has also typically led to rising corporate profits and higher stock prices. The current backdrop may support further gains for stocks.
While the U.S. economy remains healthy, some segments remain challenged. For instance, lower-income consumers are starting to reduce their spending and are more likely impacted by higher interest rates compared to higher income households. Inflation has also remained higher than expected and may be elevated for longer than anticipated. This may lead to gradually slower economic growth.
We are closely monitoring these and other factors that affect the U.S. economy. We do not believe these concerns are an imminent risk to U.S. economic growth, which remains positive. Therefore, we continue to slightly favor stocks over bonds within well-diversified client portfolios.
Overseas, stocks in several markets experienced volatility around election results and other political situations. We believe most of this volatility may be short-lived. Economic growth and earnings growth expectations remains positive for many major economies around the world. Historically, these factors have driven stock prices over the long run more than short-term political news headlines. Therefore, we believe that our allocations to international stocks may continue to provide diversification benefits for our clients.
Outlook
We will continue to closely research and analyze the current position of the U.S. economy within the business cycle. As the need arises, we will seek to reduce the level of risk within client accounts. Just as importantly, we will look to rapidly add back to long-term growth opportunities when we start to see early signs of economic stability. We believe these actions may help deliver strong risk-adjusted returns for our clients.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied, even as news headlines may have felt discouraging. We want clients to benefit from market rallies, like the one that has taken place over the last several months. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that getting invested and staying invested can help you reach your financial goals over the long term.
