In recent days, the stock markets have surpassed the previous all-time highs achieved in December of 2021. As the Fed increased short-term interest rates during 2022, the stock market likewise went straight south. It took all of 2023 to regain that lost ground. Now in 2024, the economy appears to be in a Goldilocks condition, not too hot and not too cold. Inflation has subsided to levels that will make the Fed’s target of 2% achievable within coming months. The labor market is as strong as can be with wages rising and unemployment less than 4% for two years running. The economy has not been this productive for 50 years. Help wanted signs are still everywhere. It is becoming apparent that even without new fiscal or monetary stimulus from either Congress or the Fed, as is likely, the previous trillion dollar covid stimulus money is still circulating and accommodating consumer demand that is more than enough to keep powering the economy forward for some time to come.
The question of whether or not we will have a soft landing economy (low inflation with no recession) or a no-landing economy (low inflation and strong employment) now seems a non-issue. A recession is still nowhere in sight at this point in the current inflation cycle. There is sufficient consumer demand to keep corporate earnings growing steadily, and hence, to also keep the stock market growing. For three years now the stock market has weathered unprecedented volatility, and now because of what appears to be a stabilizing economy, looks set to also embark upon a steady and much less dramatic and less volatile growth trend. However, we are seeing surges in market various market sectors. Most recently, artificial intelligence has fostered a dramatic surge in the microchip manufacturing sector. We expect these various sector rotations to continue.
The housing sector is part of this sector rotation but is currently in a slump in the cycle. New home sales are inching down but builder confidence is rising along with building permits. The persistent housing shortage will be with us for some time and will keep this sector moving forward. Long-term Treasury bond yields that loosely affect mortgage interest rates have recently been rising but mortgage rates themselves are quite stable.
Our outlook is that the market will trend upward in a normal choppy pattern throughout the year, but, as always, there are many unforeseeable risks which can easily upset that outlook or at least exacerbate expected ups and downs. We remain cautious and vigilant. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.
Very Best Regards,
Joe
Affiliated Investment Advisors 