Weekly Market Update: June 10, 2024

Alex Ralicki |

Minimal progress has been made on inflation thus far in 2024. Indeed, the pace of both consumer and producer (wholesale) price growth remains above the Federal Reserve’s target level of 2%. Likewise, the Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely tracked by the Fed, was in line with the consensus forecast in April, but also did not show improvement from the prior month. On a 12-month basis, the April core PCE, which excludes the more-volatile food and energy components, climbed 2.8%, unchanged from the March reading.

The data-dependent Federal Reserve does not appear to be in a rush to reverse monetary policy course and begin cutting the federal funds rate. In fact, most senior Fed officials believe the benchmark short-term interest rate needs to stay “high for longer” to effectively fight inflation. Ultimately, this may depend on how well the U.S. economy holds up in the second half of the year. It has remained relatively strong, although a recent low jobs-available number may indicate some cooling.

The central bank must guard against keeping monetary policy too restrictive and causing a “hard landing” for the domestic economy. Such concerns have emerged recently, as economic data revealed some weakness in certain sectors. For example, residential construction was lackluster in April, retail sales were flat, and manufacturing activity contracted for the second-consecutive month in May.

There are signs of fatigue among consumers who are still dealing with elevated prices for goods and services. On point, growth in both personal income and expenditures slowed in April, and this comes as credit card balances and delinquencies rise. The Federal Reserve Bank of New York recently reported that the nation’s collective credit card balance stands at $1.12 trillion and nearly one-fifth of credit card borrowers had used at least 90% of their available credit line in the first quarter. This bears watching as the consumer sector has been the linchpin of the economy’s expansion in the post-pandemic era.

Conclusion: As the calendar turned to the month of June, the odds of a near-term interest-rate cut were low. Wall Street also was starting to worry more about the recent series of disappointing economic data, leading to an uptick in stock market volatility. In this environment, a portfolio consisting mostly of high-quality stocks and cash-equivalent securities is recommended. 


Source: ValueLine.com