Quarterly Commentary & Economic Outlook

Indicator	Outlook	Insights
Economic Growth		Real GDP growth is expected to remain positive in 2024, supported by healthy consumer activity and a robust employment backdrop.
Inflation		Inflation continues its gradual descent, with lagged effects of Fed tightening taking hold, easing of labor cost inflation and declining home sales.
Fed Policy		In spite of moderating inflationary trends, the Fed is exercising patience in embarking on a path toward lower interest rates and monetary accommodation.
Stock Market		US equity valuations are supported by fundamentals, but the concentration of the largest stocks contributing disproportionately to performance warrants caution.

= Positive Indicator    = Neutral Indicator    = Negative Indicator

It is halftime 2024. In certain sports, spectators can take advantage of the break from competition with some refreshments and live entertainment. Last week was the first (and now being rumored to possibly being the only) U.S. Presidential debate. While it was not exactly live entertainment, traditional and social media outlets certainly did not waste time treating it as such. From an investment standpoint, it felt relatively light on some much needed and forward-looking policy details. However, we expect more details on these to emerge as this rematch heats up while the respective campaigns advance through the second half into Election Day. For investors, the staggering of such policy-related communications from each campaign is likely to result in market uncertainty and volatility. However, if history serves as a guide, the market will focus on potential fundamental outcomes as opposed to who wins the Presidency.

Economic and Market Review

For the quarter ending June 30, 2024, the narrative surrounding the U.S. economy appears to be transitioning from one of resilience and more into strength. Economic growth remains strong as seen with the Atlanta Fed’s GDPNow model that is forecasting second quarter GDP growth at +2.2%¹ with a meaningful contribution from healthy consumer spending. The job market remains supportive of this consumer outlook. The unemployment rate is holding steady at 4% and declining job openings appear to be pushing labor cost inflation lower². All else staying equal, this could prospectively help alleviate cost pressures for American businesses. With labor cost inflation appearing to moderate, the forward outlook for CPI could be lower and pave the way for the Fed to make its widely anticipated first rate cut, which remains at a target range of 5.25% - 5.50%³. Futures now indicate an approximate 93% probability of at least one 25 basis point rate cut by the end of 2024⁴. While this would be a welcome market development, the level of inflation remains elevated. Therefore, any outsized rate cuts remain highly unlikely. Several international central banks have already begun cutting rates. However, others like the Bank of England remained firm on its current policy like the Fed, citing lingering inflation risks.

It was a strong second quarter for U.S. equities, with new record highs achieved by both the Dow Jones Industrial Average and the S&P 500 Index. For the quarter the S&P 500 returned +4.3% and +15.3% year-to-date³. Technology continues to push benchmark indices higher, with the tech-heavy NASDAQ Composite Index returning +8.5% for the second quarter³. While these records are noteworthy, additional items warrant consideration. One such item is how the market surge was attributable to just a handful of tech-related stocks, including Nvidia (NVDA). International equity returns were relatively lackluster with the MSCI All-Country World ex-USA Index finishing declining by (0.1%)³ in the quarter. Weak European equity market performance was the main detractor, impacted by the surprising results of European Union (EU) Parliamentary elections.

Outlook & Positioning

The economic and market prospects for the second half of 2024 look favorable. While we were greeted at the start of the quarter by rising geopolitical tensions in the Middle East, markets were quick to digest those headlines and turned their attention back to fundamentals. We expect U.S. economic growth to moderate and remain positive through the remainder of the year. With the risk of more politically generated market turbulence in Europe, we favor U.S. over international equity markets. We maintain our positive stance on U.S. equities and expect improved market breadth with more contribution from outside the concentrated tech cohort of names. With fixed income we remain duration neutral and will continue to monitor the Fed amid the elevated, but improving, inflation backdrop. Finally, market volatility will likely rise as we approach the Presidential election. However as mentioned, history suggests any market pullback stemming from politics itself and the resulting headline drama is generally short-lived. This could allow for opportunistic overlays to be made alongside our long-term, strategic positioning.