Quarterly Commentary, Q2 2024

The markets finished the second quarter with mixed results. Equities were bifurcated, and the Magnificent 7* stocks appreciated while the rest of the U.S. market struggled. Fixed income had a neutral to positive quarter. Notably, equity volatility is now at the lowest levels in five years. As for the stock market, valuations are up, driven by the largest technology names. While the Magnificent 7 are rich, the rest of the market is at or below 25-year average valuation levels. Small caps, international, and value companies have reasonable valuations and positive forward profit expectations. Both attractive fundamentals to invest in.

It has been a while since inflation peaked two years ago at 9.1%. Inflation has been hovering in the low three percent range, with the latest inflation readings even lower. Inflation appears to be contained. The conventional recession indicators, rapidly rising inflation, an inverted yield curve, and a decline in the leading economic indicators suggested a recession was imminent. On the other hand, companies remain remarkably healthy, with low debt levels and high profit margins. The consumer is enjoying personal disposable income to debt payment levels near a record high; unemployment is close to a 50-year low; and real wages have been rising steadily for two years. The economy does not usually slip into a recession with full employment, rising incomes, and healthy profits.

The macro outlook for financial assets remains positive. We have lower inflation, a higher likelihood of a market-friendly administration, and negative consumer confidence (a contrarian indicator). Plus, the Fed is closer to easing interest rates, the money supply is turning positive, and economic growth is positive—all favorable parameters.

As always, if you have any questions or would like to discuss your investments, please reach out. Your Resource Consulting Group advisor is here to help.

*Magnificent 7: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.

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