While “moderation in all things” are good words to live by, experience tells us that few things manage to be average over the long run. First there’s too little, then there’s too much.
Inflation meets that description as the last four years have seen prices rise 22% after only rising 18% over the previous ten years. The May Consumer Price Index (CPI) showed annual inflation at 3.2% but the report also noted that prices for energy, new vehicles, auto insurance and airline tickets appear to be cooling. Growth in healthcare and home prices though remains above the long-term trend. Despite the below average number of homes being sold, home prices are still rising 4.9% year over year. The average home sale price is now 50% higher than it was at the beginning of 2020.
Still, the U.S. economy overall continues to do well. It has now completed its fourth year of expansion following the Covid-19 shutdown. Strong consumer spending has powered this expansion, but growth in spending is moderating as consumers get more selective. Healthy profits continue to support strong business spending particularly on artificial intelligence.
Economists point to the strong job market as giving consumers the confidence to keep spending. While still very strong, the job scene also shows signs of moderating back to the long-term trend. 206,000 workers found a new job in June, but the unemployment rate rose 0.1% to 4.1%.
The stock market remains very excited about artificial intelligence as technology stocks continue to power the stock market higher. The S&P 500 Index has now logged 33 new all-time highs in the first half of 2024 and the tech heavy NASDAQ 100 Index was up 18.6% mid-year. Overall, the US stock market rose 3.48% in the second quarter and was up 14.07% in the first six months of 2024 as measured by the Morningstar US Market Index. Large cap stocks continue to outpace small cap stocks. The Morningstar Large Cap Index was up over 6% in the second quarter and 17.8% for the year. The Morningstar Small Cap Index though, lost 3.64% last quarter but is up 1.85% for the year.
International stocks were a mixed bag in the second quarter with developed market stocks down 0.58% while emerging market stocks rose 5.26%. Year-to-date, international developed market stocks are up 4.76% while emerging market stocks are up 7.67% per the Morningstar Developed Markets ex-US and Morningstar Emerging Markets indices respectively.
The bond market continues to be hampered by inflation and the dwindling chance that the Federal Reserve will cut interest rates significantly in 2024. The Morningstar Core Bond Index rose 0.17% in the second quarter but remains down 0.59% for the year. Long-term bonds have been impacted more than short-term bonds. The Morningstar US 10+ Year Core Bond Index was down 1.59% in the second quarter and is down 3.88% for the year while the Morningstar US 1-5 Year Core Bond Index was up 0.85% for the quarter and 1.06% for the year.
The Consumer Price Index measures the change in the cost of living by tracking the prices of a basket of consumer goods and services.
The S&P 500 Index tracks the performance of 500 of the largest US stocks. The NASDAQ 100 tracks the performance of the 100 largest and most actively traded stocks on the NASDAQ exchange. The Morningstar U.S. Market Index measures performance of company stocks comprising 97% of the tradeable universe of U.S. stocks. The Morningstar Large Cap Index measures the performance of the largest stocks comprising 70% of US exchange traded stocks. The Morningstar US Small Cap Index tracks small stocks that fall between the 90th and 97th percentile of the US investible universe. The Morningstar Developed Markets – ex U.S. measures performance of stock markets in the most developed countries outside of the US. The Morningstar Emerging Markets Index measures the performance of large and small-cap stocks in 24 emerging economies.
The Morningstar U.S. Core Bond Index represents the performance of a portfolio consisting of U.S. Treasury, mortgage-backed, and corporate bonds with a term greater than I year to maturity. The Morningstar US 10+ Year Core Bond Index measures the performance of fixed-rate, investment-grade, US-dollar denominated bonds with maturities of 10 years or greater. The Morningstar US 1-5 Year Core Bond Index measures the performance of fixed-rate, investment-grade US dollar denominated securities with maturities between 1 and 5 years.
The opinions expressed in this article are those of author and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.