Key Takeaways
- U.S. economic resilience continued to surpass expectations, but early signs of a slowdown may be emerging. Slowing growth likely represents a normalization rather than a rapid deterioration barring any exogenous shock.
- The consumer is demonstrating some signs of weakness including reduced spending on basics such as food and clothing, as they are increasingly pinched by higher housing and borrowing The lagged implications of restrictive monetary policy are becoming more apparent.
- While headline figures indicate the labor market is on solid footing, certain sectors (ex. retail, construction) are realizing reduced job A slower pace of growth could contribute to more moderate payroll gains thus further suppressing inflation.
- Fed expectations of multiple cuts throughout the course of 2024 have been walked back to maybe one or two cuts in the back half of the Continued weakness in aforementioned areas could solidify small policy correction cuts but leave little potential for more drastic rate reductions.
- Risk assets recovered lost ground over the month with most major stock and bond indices finishing Year-to- date performance of balanced accounts remains supportive due to equity market strength despite small losses from high quality fixed income assets.
- Last year’s equity market leadership spilled over into 2024 with S. large-cap stocks pulling indices higher. By many measures, U.S. stocks look expensive with more value found across smaller market-caps and within international geographies.
- High quality bond indices have realized small losses so far in 2024 as yields have shifted upwards, especially in the belly of the curve. Credit exposure has been rewarded stemming from higher yields and modest spread tightening.
- Recent data reaffirms the case for a soft-landing scenario where growth slows but isn’t derailed. Fully priced equity assets leave forward returns susceptible to unexpected, negative Relative to stocks, more attractive valuations within high quality fixed income offers portfolio protection while being paid to wait.
