July 31, 2024

The heat of Summer is here! Meanwhile, your planning & investment team is hunkering down in the cool air-conditioned office to monitor worldwide economic trends and market insights. Let’s dive into the most valuable and actionable information we’ve uncovered for July!

Economic Resilience Amidst Challenges

Despite ongoing concerns about inflation and interest rates, the U.S. economy is showing remarkable resilience. GDP growth is projected at 2.1% for 2024, supported by robust consumer spending and a strong labor market. This positive outlook reinforces our managers’ modestly overweight position in U.S. equities, particularly in quality stocks and sectors driven by technological advancements.

Inflation: The Persistent Summer Heat

Much like the July heat, inflation remains a persistent concern for investors. Nevertheless, many investors are getting used to it. While progress has been made in reducing inflation rates around the world, the U.S. still faces spending challenges. The Federal Reserve has tempered expectations for rate cuts this year, pushing them further into the future. Inflation is expected to average around 2.6% for 2024 by year’s end, with a gradual cooling towards the Fed’s 2% target by 2025.

Earnings Growth: A Breeze Becomes a Tailwind

Amidst the economic heat, earnings expectations in the U.S. are providing a refreshing breeze. The S&P 500 is on track to post a 5.9% growth rate for Q2 2024, the highest year-over-year earnings growth since Q1 2022. However, like planning for a summer picnic, we must approach stock valuations with caution. The 12-month forward P/E ratio stands at 20.6x (historical average is 15-16x), suggesting people will pay a premium for potential earnings growth in the future.  This means investors are anticipating that the Fed will drop interest rates soon.

National Lampoon’s European Vacation

Opportunities for investments emerge just as many Americans plan European vacations in July. Investors might consider opportunities across the Atlantic particularly if the gains can offset the cost of the trip! Better-than-expected GDP growth and lower inflation have boosted consumer spending in Europe, particularly in tourism and hospitality. The Eurozone economy is expected to grow by 0.8% in 2024. While this positive sentiment could attract investors, we remain cautious about the sustainability of this recovery given geopolitical uncertainties. Chances are it will fizzle out by year’s end.

Navigating Market Volatility

Like the squalls of summer storms, market volatility continues to present both challenges and opportunities. The prolonged yield curve inversion has created a unique environment for fixed income investments. Cash and high-yield bonds remain attractive due to their yield levels and supportive fundamentals. Additionally, intermediate-term bonds offer potential for both yield and capital appreciation when the Fed eventually cuts interest rates.

Fun Fact

As we enjoy the last of these long days of July, did you know that the “Dog Days of Summer” traditionally begin on July 3rd? This phrase dates back to ancient times when Sirius, the “Dog Star,” rose with the sun. The Romans believed this star added to the sun’s heat, making these the hottest days of the year. While we now know this isn’t scientifically accurate, it’s a reminder to stay cool – both literally and in your investment approach – during the summer months.

Align Wealth Strategies is here to help you navigate the summer markets and keep your financial goals on track. Stay connected with us and call to set up an appointment today!