May 28, 2024

Drifting Higher

Weekly Market Commentary

Stocks have been drifting higher for several weeks as investors search for a catalyst that could drive shares in either direction.

Interest rates can influence market direction, but there hasn’t been much news recently on the rate front.

Federal Reserve officials would like to gradually begin reducing interest rates, but inflation hasn’t cooperated since the new year began.

Consequently, the Federal Reserve is comfortable maintaining its key rate, the fed funds rate, at the current level as it seeks more clarity on potential price developments heading into and through the summer.

Meanwhile, the A.I. narrative hasn’t changed, and the economy is still expanding, although some recent indications suggest that growth may be slowing down.

However, there is not much to suggest that economic activity is about to stall.

In other words, modest economic growth and stable rates have underpinned stocks in a relatively dull rally that has the major indexes at or near all-time highs, according to MarketWatch.

In Memory of Their Valor

As we reflect on Memorial Day, we pause to honor the brave men and women who gave their lives to defend and serve America.

We honor their courage, dedication, and selflessness, which have ensured our freedom and protected our way of life.

  • Civil War – 620,000 – 750,000 on both sides
  • World War II – 405,399
  • World War I – 116,516
  • Vietnam War – 58,209
  • Korean War – 36.516
  • American Revolution – 25,000
  • War of 1812 – 20,000
  • Mexican-American War 1846 – 13.283
  • War on Terror – 7,078
  • Spanish-American War 1898 – 2,446 

Source: Estimates vary on the number of casualties in earlier conflicts.

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Another Soft Inflation Number Bolsters the Case for Lower Rates

In 2021 and 2022, soaring inflation sparked the most aggressive series of rate hikes in decades. While prices remain high, the rate of those price increases has slowed, and the Federal Reserve may finally be seriously considering a reduction in interest rates.

At First Glance, Another Solid Jobs Report

The U.S. Bureau of Labor Statistics (BLS) reported that nonfarm payrolls rose a solid 206,000 in June, topping the consensus forecast offered by Bloomberg News of 190,000. However, first glances may not always leave the correct impression. Private sector payrolls increased by a more modest 136,000, and nonfarm payrolls were revised downward by 111,000 in April and May.

A Dysfunctional Housing Market

What happens when mortgage rates tumble below 3% and then spike above 7%? Unintended consequences are bound to play out. In hindsight, they aren’t difficult to spot. You’re a winner if you have no intention of moving and were lucky enough to lock in ultra-cheap rates just a few years ago. Those who want to move or renters who want to buy are less fortunate.

Mixed Signals

Much has been made of the remarkable resilience of the American economy. Forecasters who confidently called for a recession in 2023 got it wrong. So far this year, the economy is generating new jobs, and the U.S. economy has yet to falter.

A Steady-as-She-Goes Fed and a Tame Inflation Report

As expected, the Federal Reserve announced last Wednesday that it held its key rate, the fed funds rate, unchanged at 5.25 – 5.50%. The Fed left the door open to a cut in rates later in the year if inflation makes meaningful progress toward its 2% annual goal or if there is an unexpected weakening in the labor market.