WEEKLY INSIGHTS

July 29, 2024
Download PDF

Key Takeaways:

  • Housing market remains weak.
  • S. economic activity increases as consumers remain resilient.
  • Fed’s preferred inflation gauge shows further signs of moderating.
  • Global equities fall as rotation out of tech continues.
  • Treasury yields fall amid decelerating inflation.
  • Crude oil prices fall as outlook for Chinese demand falls.

Weekly Economic Recap — Inflation Continues to Moderate

Sales of previously owned homes fell to the slowest pace this year. The median selling price of existing homes increased to a record-high $426,900. At current sales pace, it would take 4.1 months to sell inventory, the longest in four years.

Sales of new homes in the U.S. fell to a seven-month low in June amid elevated mortgage rates and home prices. Inventory of new homes increased to 476k, the most since 2008. At the current sales pace, it would take ~9.3 months to work through the existing supply, the longest since 2022.

The S&P Global Composite PMI increased to a reading of 55, indicating the fastest pace of expansion since April 2022. The increase was driven primarily by an increase in activity at service providers, increasing the most since March 2022. Prices paid showed rising costs for shipping and wages, but the gauge still fell to a six-month low.

The U.S. economy increased at a faster than expected pace in 2Q24 (2.8% QoQ vs. 1.9% QoQ est.). Consumer spending, which accounts for ~70% of U.S. GDP, increased 2.3% QoQ as spending on both services and goods providers increased modestly. Imports detracted from the headline increase, amid the steepest increase since 1Q22 (6.9%).

The Fed’s preferred inflation gauge, PCE Core, rose slightly in June, which kept the year-over-year reading at 2.6%. Goods prices fell 0.2% for the month, but increases in service prices offset those falling prices.

Personal income increased less than expected (0.2% MoM vs. 0.4% est.). The savings rate fell to 3.4%, the lowest level since November 2022.

Weekly Market Recap — Growth Sectors Fall as Investors Continue Rotation to More Rate-Sensitive Sectors

Equities: The MSCI AC World Index was lower for the second straight week as investors continued to rotate out of mega-cap tech winners into more interest rate-sensitive areas of the market. In the U.S., small-caps led performance as the Russell 2000 was higher for the third straight week. The blue-chip Dow Jones Industrial Average was also higher, while the Nasdaq and S&P 500 both fell for the second straight week.

Fixed Income: The Bloomberg Barclays Aggregate Index was higher for the third time in four weeks. U.S. Treasury yields were lower for the week amid easing inflation data. All sectors of fixed income were higher for the week, led by EM debt (USD) and high-yield corporate bonds.

Commodities/FX: The Bloomberg Commodity Index was lower for the third consecutive week. Crude oil prices fell for the third straight week on a tepid outlook for China demand. Gold prices were lower for the second straight week and the US Dollar was lower.

Key Takeaways:

  • One year anniversary of last rate hike in this cycle.
  • Futures may be pricing in chance of cut this week, but it is unlikely.
  • A look at past economic data when Fed cuts rates.
  • Labor market worsening but underlying rate still strong.
  • The Fed needs to tread lightly as to not reignite inflation.

Theme of the Week — One Year Since the Fed Hiked Rates….When to Expect a Cut?

Last week (7/26) was the one-year anniversary of the last rate hike in this cycle for the Federal Reserve. While the futures market has priced in a small chance of a rate cut at the meeting this week (Wednesday), we find that unlikely. Instead, when we look at historical economic data, it suggests a cut in September can be on the table, but only if inflation continues to moderate and the economy continues to slow.

We looked at each cycle since 1960, when the Fed went on pause, and of all the cycles, if the Fed cuts in September, this would be the fourth longest time the Fed was on hold. When we look at GDP in the trailing four quarters as of 2Q24 it is relatively in line with the level of GDP when the Fed has cut rates in the past. The unemployment rate has been increasing more than in the past when the Fed cuts rates. However, the actual unemployment rate is much lower. In fact, it has only been lower on three other occasions we monitored.

The Fed has said they need more evidence inflation is coming down to the 2% level. While it is not there, it is lower than in past rate cuts. The two pieces of data that we think have the Fed walking a fine line are the real Fed funds rate and leading indicators. The economy is decelerating quickly as seen by leading economic indicators which would suggest a rate cut is necessary. However, the real Fed funds rate is not nearly as restrictive as it has been in the past. This is concerning because if the fight on inflation is not definitively over, cutting rates too soon could reignite inflation.

Footnotes: Data is as of July 26, 2024.

Source: Bloomberg Finance LP, Verdence Capital Advisors.

Disclaimer: © Verdence Capital Advisors, LLC

Reproduction without permission is not permitted. The indexes presented are unmanaged portfolios of specified securities and do not reflect any initial or ongoing expenses nor can it be invested in directly. An investment’s portfolio may differ significantly from the securities in the index.  This material was prepared by Verdence Capital Advisors, LLC (“VCA” or “we”, “our”, “us”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from VCA. Alternative investments are designed only for sophisticated investors who are able to bear the risk of the loss of their entire investment. Investing in alternative investments should be viewed as illiquid and generally not readily marketable or transferable. Investors should be prepared to bear the financial risks of investing in an alternative investment for an indefinite period of time. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. All indexes are unmanaged, and you cannot invest directly in an index. Index returns do not include fees or expenses. Sector Watch Use of this website is intended for U.S. residents only. Any recommendation, opinion or advice regarding securities or markets contained in such material does not reflect the views of Verdence Capital, and Verdence Capital does not verify any information included in such material. Verdence Capital assumes no responsibility for any fact, recommendation, opinion, or advice contained in any such research material and expressly disclaims any responsibility for any decisions or for the suitability of any security or transaction based on it. Any decisions you may make to buy, sell, or hold a security based on this research will be entirely your own and not in any way deemed to be endorsed or influenced by or attributed to Verdence Capital. It is understood that, without exception, any order based on such research that is placed for execution is and will be treated as an UNRECOMMENDED AND UNSOLICITED ORDER. Further, Verdence Capital assumes no responsibility for the accuracy, completeness, or timeliness of any such research or for updating such research, which is subject to change without notice at any time. Verdence Capital does not provide tax, or legal advice. Under no circumstance is the information contained within this research to be used or considered as an offer to sell or a solicitation of an offer to buy any particular investment/security. Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk. Commodity‐related products, including futures, carry a high level of risk and are not suitable for all investors. Commodity‐related products may be extremely volatile, illiquid and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions, regardless of the length of time shares are held. Data is provided for information purposes only and is not intended for trading purposes. Verdence Capital shall not be liable for any errors or delay in the content, or for any action taken in reliance on any content. Weekly Insights/Qtrly & Annual Outlook The indexes presented are unmanaged portfolios of specified securities and do not reflect any initial or ongoing expenses nor can it be invested in directly. An investment’s portfolio may differ significantly from the securities in the index. Semi-Annual Chart Pack Where shown, performance information presented is that which has been calculated and presented by an unaffiliated third-party manager. We have no insight into the performance of the advisor/product/account or fund shown and do not attempt to determine whether the performance presented is accurate. Therefore, the performance could be incorrect, overstated or not reflective of actual trading of client funds. There is the potential that the performance shown is a back test and not the result of real investment advice and trading. As such, it could not be relied upon as indicative of future returns of a particular strategy. Where performance shown is that of a pooled account, limited partnership, or private equity fund, you should be aware that there is a significant lack of transparency into the operations and investment process and investment vehicles invested in. As a result, pricing and valuation of the underlying holdings which produced the stated performance could be incorrect, stale, or overstated and therefore the performance figures presented cannot be relied upon. Before investing, we encourage you to request additional information, particularly performance information, of any product that you are considering for your client. You should read, as applicable, the Prospectus, SAI, Composite Disclosure and/or performance disclosure associated with any product that you are considering for investment for your or your client’s. Products shown may have minimum account sizes or minimum investments which may preclude retail and non-high net worth investors from being able to invest in these products. You should be aware that certain LPs may be closed to new investors and therefore your clients may be prevented from investing in these products. Portfolio Implementation and Rationales The SMA Asset Allocation Models do not represent a personalized recommendation of a particular investment strategy to you or your clients. You should not buy or sell an investment without first considering whether it is appropriate for your client’s portfolio. Additionally, you should review and consider any recent market news. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. Diversification and asset allocation do not ensure a profit and do not protect against losses in declining markets. Any forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. Investments in growth stocks may experience price volatility due to their sensitivity to market fluctuations and dependence on future earnings expectations. Sector allocation references to market capitalization (“smid cap” or “micro caps” etc.) may be subject to special risks given their characteristic narrow markets, limited financial resources, and less liquid stocks, all of which may cause price volatility. International/global investing can involve special risks, such as political changes and currency fluctuations. These risks are heightened in emerging markets. A significant percentage of the underlying investments in aggressive asset allocation portfolio investments have a higher-than-average risk exposure. You should consider your risk tolerance of each of your clients carefully before choosing such a strategy. An investment with multiple underlying investments (which may include asset-allocation or custom blended investments) may be subject to the expenses of those underlying investments in addition to those of the investment itself. Investments may reside in the specialty category due to 1) allowable investment flexibility that precludes classification in standard asset categories and/or 2) investment concentration in a limited group of securities or industry sectors. Investments in this category may be more volatile than less flexible and/or less concentrated investments and may be appropriate as only a minor component in an investor’s overall portfolio. Investment Managers You and your clients should carefully consider investment objectives, risks, charges, and expenses of Funds discussed. This and other important information are contained in the respective Fund prospectuses and summary prospectuses, which should be read carefully before investing. Investment portfolio statistics change over time. Current performance may be lower or higher than return data quoted herein. The investment return and the principal value of an investment will fluctuate; so, an investor’s shares/units, when redeemed, may be worth more or less than their original cost. Verdence relies heavily on unaudited third-party data. Data sources include public data, such as mutual fund data, and non-public data, such as information provided by other investment advisors and managers of limited partnership pooled accounts. Data and/or statistics included on this Portal, including references to performance, opinions, ratings, rankings, manager statistics and demographic information, product, or strategy descriptions, either quantitative or qualitative, are based upon information reasonably available to us as of the applicable date(s) then-published. Information has been obtained from sources that we believe to be reliable, but these sources cannot be guaranteed as to their accuracy or completeness. All data and information produced by a third party has the potential to be incorrect, incomplete, or otherwise misleading. No implication shall be created that the information contained on the Site is correct, including as of any time subsequent to the publish date, and Verdence does not undertake an obligation to update such information at any time after such date. Verdence makes not warranty or representation of the veracity of the data and information and its use of the information should not be implied as an endorsement of any material or statements made. Data, particularly non-public data, is subject to error and where the information is not audited, the potential for error is greater. Where shown, performance information presented is that which has been calculated and presented by an unaffiliated third-party manager. We have no insight into the performance of the advisor/product/account or fund shown and do not attempt to determine whether the performance presented is accurate. Therefore, the performance could be incorrect, overstated or not reflective of actual trading of client funds. There is the potential that the performance shown is a back test and not the result of real investment advice and trading. As such, it could not be relied upon as indicative of future returns of a particular strategy. Where performance shown is that of a pooled account, limited partnership, or private equity fund, you should be aware that there is a significant lack of transparency into the operations and investment process and investment vehicles invested in. As a result, pricing and valuation of the underlying holdings which produced the stated performance could be incorrect, stale, or overstated and therefore the performance figures presented cannot be relied upon. Before investing, we encourage you to request additional information, particularly performance information, of any product that you are considering for your client. You should read, as applicable, the Prospectus, SAI, Composite Disclosure and/or performance disclosure associated with any product that you are considering for investment for your or your client’s. Certain products shown may have account minimums or minimum investment sizes that are unattainable for your clients and therefore they may not be eligible to invest in these products. Reference to registration with the Securities and Exchange Commission (“SEC”) does not imply that the SEC has endorsed or approved the qualifications of Verdence or its respective representatives to provide any advisory services described on the Site.

Read more