Here are the economic and market highlights for the week:
- Friday’s release of the personal consumption expenditure index — the Fed’s preferred inflation measure — showed inflation rose 2.60% in May from a year ago. The current reading is the lowest annualized increase since March 2021, the moment that launched this most recent inflation cycle following a decade of price stability. Price gains were held in check during the month by a 0.40% decline for goods and a 2.10% slide in energy. That helped offset a 0.20% increase in services and a 0.10% gain for food. Housing prices, however, continued to rise with prices up 0.40% on the month for the fourth straight time. With replacement mortgage rates averaging 7% and nearly two-thirds of current outstanding mortgages below 3%, many would-be sellers are electing to hold, limiting supply. Friday’s report also contained personal income figures, which showed income rising 0.50% for the month. This was above the 0.40% estimate. Consumer spending, however, increased a more modest 0.20%, weaker than the 0.30% forecast.
- New orders for capital goods fell 0.10% in May, slowing from a downwardly revised 0.20% in April. Non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, fell 0.60% month-to-month. The slowdown was attributed to elevated borrowing costs for businesses as the Fed keeps rates elevated amid lingering inflationary pressures.
Investors Cheer Winning First Half
Investors wrapped the first half of 2024 on a high note, powered by AI and hopes for Federal Reserve interest rate cuts in the months ahead. The S&P 500 and Nasdaq Composite came out on top of the major indices in Q2 2024, rising 4.00% and 8.00%, respectively. That brought their year-to-date gains to 14% and 19%. The Dow Jones Industrial Average, however, struggled to keep up with its more tech heavy peers, slipping -1.70% for the quarter and up only 4% in the first half on concerns over slowing economic momentum. The week’s economic releases further supported the slowing economic growth narrative as durable goods orders dropped and inflationary pressures continued to ease in May.
With the first half of the year in the books, investors are now eying the back half with many of the themes from the first half carrying over. Optimism for all things AI remains firmly in place but with a slight twist. While the first six months of 2024 were all about the purveyors of AI technologies (semiconductors, algorithms, data models), analysts are now busy projecting the earning implications for companies within the broader economy as they increasingly adopt the technology. Elevated interest rates and high wages have stymied business investment, but AI and related technologies have the potential to significantly boost productivity for relatively low investments, and companies’ bottom lines along with it. While the first half of 2024 was led by Big Tech, investors have begun positioning for a broadening in the market’s leadership in anticipation of a soft landing and a series of Fed cuts in late 2024 and 2025. Economically sensitive sectors, such as financials, materials, industrials and consumer discretionary, are likely to benefit as the cost of capital declines and borrowing normalizes. A broadening of the market would be a welcomed and healthy indicator given tech’s dominance. Nearly 37% of the S&P 500’s market capitalization is associated with just 10 names, the highest concentration in over 30 years. Eight of the ten largest companies are in the tech sector. Ultimately, any rotation is likely to be tied to rates and in that respect all eyes remain on the Fed, but with data now consistently cooperating and sentiment riding high, investors are feeling good about what the remainder of 2024 holds.
The Week Ahead
The Fourth of July holiday beckons, making it a short trading week. The next edition of Week in Review will arrive on July 12th with the latest jobs, ISM, and CPI numbers.
Retirement Planning to Secure Your Future
A recent survey by New York Life revealed that more than half of adults (52%) do not have a plan or strategy in place for retirement and only a third of adults (31%) report having any retirement savings. The survey was conducted last month, and the results were reported this week. In the past, individuals who retired at age 65 would typically live for another 10 to 15 years. Today, more people are living well into their 90s and beyond. With Americans living longer, individuals can potentially spend up to a third of their lives in retirement. A longer retirement – which is a good thing – creates a need for thoughtful planning to ensure retirement savings will last and to ensure individuals can afford the retirement they envision.
For most individuals, retirement planning helps them see the big picture and better understand their financial preparedness for their golden years. It can help them determine how much they need to save and implement strategies to preserve their nest egg. Additionally, individuals who plan are better able to design the retirement they desire – one where they can pursue their passions, thrive, and truly enjoy the next chapter.
For individuals seeking professional advice and guidance in preparation for when they are no longer working, our team of wealth management and retirement planning experts can help create a plan for a financially secure and independent retirement through the following steps:
Discovery Meeting: We begin by discussing your vision and dreams for a purposeful and fulfilling retirement, including lifestyle expectations, future goals, desired retirement age, and legacy considerations.
Financial Assessment: We connect your dreams to your goals by conducting a comprehensive review of your assets, liabilities, and income and calculate your estimated living expenses during retirement.
Strategy Development: We customize your retirement strategy based on your goals, financial situation, income sources, and the optimal timing of withdrawals. We consider asset allocation and investment selection in your portfolio, taxes, insurance, Social Security benefits, required minimum distributions, and estate planning.
Implementation: All the moving parts of your financial life are aligned to help create long-term financial security.
Monitoring and Adjustments: Retirement planning is not a one-time event. It requires regular monitoring and adjustments to keep you on track towards your goals.
Stress Testing Under Different Scenarios
The goal of retirement planning is to ensure you have enough income to live on for life, given a wide range of possible outcomes in the economy, in the markets, and with unknown risks such as a major health event. As such, one of the critical aspects of retirement planning is stress testing your plan under these different conditions. Our stress testing analysis encompasses the following:
Different Market Returns: We simulate scenarios of varying market returns to assess how fluctuations may impact your retirement funds.
Sequence of Returns: We analyze the order in which investment returns may occur, accounting for potential downturns, which can affect the longevity of retirement funds.
Inflation: We take into consideration the impact of inflation so that your earnings outpace the rate at which inflation diminishes your purchasing power.
Taxes: Our team will develop a plan to help mitigate taxes in your retirement years.
With careful planning, retirees can focus on enjoying their retirement without the worry of outliving their assets.