May 31, 2024

As we transition from the vibrant blooming of Spring into the warmth and stability of Summer, 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

World growth outlook remains cautiously optimistic, with gradually easing inflationary pressures across most economies. The U.S. economy continues to show resilience, buoyed by strong consumer spending and a robust labor market. U.S. GDP growth was around 2.4% for 2023 and is projected to be 1.2% at the end of 2024. Despite the Federal Reserve tempering expectations for rate cuts this year, the overall economic environment supports a modestly overweight position in equities.

Inflation- a Persistent Challenge

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. This stubbornness has led to a shift in expectations for Fed rate cuts, pushing them further out into the future. Inflation is expected to be 3.1% by the end of this quarter and trend around 2.4% in 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. However, stock valuations have become challenging, necessitating a cautious approach. S&P 500 listed companies are expected to report earnings growth of 9.5% for 2024.

Opportunities in Europe

Better-than-expected GDP growth and lower inflation have boosted consumer spending, particularly in the tourism and hospitality sectors. This positive sentiment could attract investors, but questions remain about the sustainability of this recovery. Lagging effects of monetary policy and geopolitical uncertainties continue to pose risks to growth. European GDP growth is only expected to be 0.9% for 2024, as well.  However, the ECB is considering rate cuts towards the end of this year.

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 does decide to cut interest rates.

Fun Fact: The Bat Flight Phenomenon

As we approach the end of May, did you know that Carlsbad Caverns National Park in New Mexico hosts a spectacular natural event? Each evening, thousands of bats emerge from the caverns in a mesmerizing display known as the Bat Flight Program. This nightly exodus, which begins in late May, offers visitors a unique opportunity to witness these nocturnal creatures take to the skies in search of food. For more information about this incredible event, visit Carlsbad Caverns National Park.

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