The US economy shifts away from a recession in an unusual turn of events. Meanwhile, inflation persists.
Let’s break it down…
- First quarter earnings season is in full swing. Around one third of S&P 500 companies have reported so far, with overall sales growth up by 3.6% and earnings up 6.7%.1 The market still expects high single-digit earnings growth for 2024,2 which we believe is a supportive backdrop for stocks.
- Business cycle in retrograde? We now believe that the US economy has shifted away from a recession and closer to the “mid-cycle” phase of the business cycle.3 This kind of move is unusual for the business cycle, which tracks the pattern of cyclical fluctuations of the economy over a few years.4 While we don’t believe the economy will move fully back into mid-cycle, it is possible that we may remain in the late cycle of the business cycle for a prolonged period. Historically, stocks have posted positive returns in late cycle.5 To learn more, check out the Q2 Quarterly Market Perspective video.
- The conflict between Israel and Iran appears to have de-escalated for now. Markets have since calmed down and volatility has dropped.6 “Safe haven” investments (such as gold, Treasurys, etc.) have normalized;7 meanwhile, risk assets have rallied from recent lows.8
- The US Federal Reserve’s (the Fed) “whac-a-mole” game with inflation continues. The Fed’s preferred measure of inflation, the Core Personal Consumption Expenditures (PCE) Price Index, jumped 3.7% in the first quarter compared to the expected 3.4%.9 This led to a reversal of the positive momentum stocks and bonds experienced early last week.
Portfolio Manager at Strategic Advisers
"The bond market has been pricing in 'higher for longer' rates as evidenced by the inverted yield curve. With continued stubborn inflation (confirmed by the recent Core PCE) and a strong labor market, market expectations have fallen from a total of six rate hikes in 2024 to just one—and that's not anticipated until December."
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For over 30 years, Strategic Advisers and its dedicated group of seasoned investment professionals have helped clients reach their financial goals. Our team of portfolio managers, with specialized areas of focus in asset allocation and specific asset classes, along with our deep quantitative and fundamental research, drive our investment selection and risk management decisions on behalf of our clients.