Mid-2024 Financial Review
Ruben’s Commentary on the Market
Inflation Continues to Fall
On July 11, 2024, the Bureau of Labor Statistics released the inflation report for the month of June. The report showed that consumer prices are continuing to cool. The Consumer Price Index (CPI) declined 0.1% from the previous month and has increased only 3% year over year from the previous June. May’s readings still had the (CPI) consumer prices growing at a 3.3% pace. The CPI drop to 3% is a big step in the direction of slowing inflation. This is the first time since May 2020 that the (CPI) reading came in negative as well as being the slowest annual gain in prices since March of 2021. Until now inflation has remained stubbornly above the Fed’s target rate of 2% but continues to come down. As inflation continues to slow it should provide the Federal Reserve governors with more reasons to consider rate cuts. Fed Chairman Jerome Powell, in testimony before congress on Tuesday July 9, indicated that the Fed was keenly aware that holding the rates high for too long may have a negative impact on the economy. Prior to these recent inflation readings many Fed watchers predicted (not scientific) a 75% chance that a rate cut would occur in September, up from those sensing that a rate cut would not come until December. However, with these recent inflation disclosures the odds of a rate cut in September jumped to 89%.
What do these numbers mean to you and me? Lower inflation has a significant impact on prices. When it costs less to manufacture or create a product, prices of goods and services drop. Lower Federal Reserve rates will impact (pro and con) the rates paid by banks on checking accounts, CD rates, credit card rates, and loans. You will make less interest from your bank savings, CDs and checking accounts, but you stand to gain with lower loan and credit card rates. Employment rates have remained steady around 4%. This is a good indicator that inflation is slowing. Lower inflation will also have a positive impact on mortgage rates. Lower rates should boost home building and drive many of the buyers who secured interest rates at a higher level to refinance. Lower interest rates will have an overall positive impact on the economy.
We have also observed that lower rates do have a positive impact on the stock markets. There is a blended benefit to the economy and the companies that we rely on to provide us with goods and services. The markets have produced steady investment growth through the first half of 2024. The S&P 500 rose 15.3% January through June with the NASDAQ composite logging an 18.6% gain for the same period. Company earnings have continued to steadily grow as the borrowing rates come down and steady consumer consumption make it more affordable to produce goods and services. The consumer has directly benefited from lower prices. As rates continue to fall the benefits to consumers will become more obvious.
We have just entered the period when the second quarter earnings results are being released. The earnings estimates appear solid, which should provide us with the best overall corporate earnings since 2022. The U.S. economy is in very good shape. With only a 4% unemployment rate, it could be said that we are at full employment. Consumer spending, by both corporations and individuals, will continue to drive the markets forward at a steady pace, building wealth for investors. With interest rates dropping, the long-term benefits to investors with heavy concentrations of fixed-rate instruments (bonds, CDs, money markets, fixed rate annuities etc.) will be limited. Our philosophy remains that in order to protect your financial lifestyle, it is important to have some participation in the markets to replace the funds being spent.
I have been unwavering in my informed belief that participation in the equity markets has provided and will continue to provide economic benefits to investors. Although it can sometimes be a bumpy ride, equity investing is a proven tool utilized to build wealth and provide financial security. We will continue to keep you informed on the economy, the markets and investing highlights.
Please don’t hesitate to reach out to us with any questions that you may have.
Best regards,
Ruben E. Guerra
Guerra Investment Advisors
915-760-5551
