June 30, 2024

As we transition from the warmth and stability of early summer into the heart of the season, Align Wealth Strategies remains dedicated to analyzing world news and insights. What is the most valuable and actionable information available that we were able to uncover for the month? Let’s review.

Economic Resilience and Market Optimism

The global economic outlook continues to brighten, with the U.S. economy showing remarkable resilience. Despite elevated inflation and interest rates, the U.S. GDP growth is projected to be around 2.1% for 2024, supported by strong consumer spending and a robust labor market. This positive economic environment reinforces our modestly overweight position in U.S. equities, particularly in quality stocks and sectors driven by technological advancements.

Inflation – A Persistent Nag

Inflation remains a key concern for investors. While there has been progress in reducing inflation growth rates worldwide, the U.S. still faces challenges with sticky inflation. The Federal Reserve has tempered expectations for rate cuts this year, pushing them further out into the future. Inflation is expected to average around 2.6% for 2024, with a gradual decline towards the Fed’s 2% target by 2025.

Earnings Growth and Market Valuations

Earnings expectations in the U.S. are on the rise, supported by strong consumer spending and a resilient labor market. The S&P 500 is on track to post a 5.9% growth rate for Q2 2024, which will be the highest year-over-year earnings growth rate since Q1 2022. However, stock valuations have become challenging, necessitating a cautious approach. Forward earnings projections, as suggested by the 12-month price-to-earnings (P/E) at 20.6x, indicate that the Federal Reserve will continue its pause on rate hikes, and may even lower rates in coming quarters. 

Opportunities in Europe

Better-than-expected GDP growth and lower inflation have boosted consumer spending in Europe, particularly in the tourism and hospitality sectors. The Eurozone economy is expected to grow by 0.8% in 2024, with the European Central Bank (ECB) likely to adopt a cautious approach towards monetary easing. This positive sentiment could attract investors, but questions remain about the sustainability of this recovery given the geopolitical uncertainties and the lagging effects of monetary policy.

Volatility as Opportunity

Market volatility continues to present challenges and opportunities. The prolonged yield curve inversion, the longest in history, has created a unique environment for fixed income investments. Cash and high-yield bonds remain attractive due to their absolute yield levels and supportive fundamentals. Additionally, intermediate-term bonds offer longer-term yields as well as capital appreciation when the Fed decides to cut interest rates.

Fun Fact

The Summer Solstice – As we approach the end of June, did you know that the summer solstice, which occurs around June 21st, marks the longest day of the year North of the Equator? This astronomical event has been celebrated by various cultures throughout history as a time of renewal and reflection. It’s a perfect opportunity to review your financial goals and ensure you’re on track for the rest of the year.

Align is here to assist you in growing your wealth and achieving your financial goals. Stay connected with us and call to set up an appointment today!