April 2024
The following facts and statistics describe the financial situation in the United States from January 1st to April 24th:
The S&P 500 is up 7.15 percent year to date.
The S&P 500 P/E ratio currently is at 27, trailing 12 months and has a forward P/E based on issued guidance of 19.9 (the 5-year average forward P/E is 19.1 and the 10-year average is 17.8).
The NASDAQ is up 6.3 percent year to date
The Dow Jones Industrial Average is up 1.64 percent year to date.
RECENT STATISTICS AND ECONOMIC DATA THAT AFFECT INVESTMENT DECISIONS
The following statistics and data are important factors to consider when making investment decisions:
The PCE price index (a favored index by the Federal Reserve) for March increased 2.7 percent for the same month one year ago. From the preceding month, the PCE price index for March increased 0.3 percent. Prices for services increased 0.4 percent and prices for goods increased 0.1 percent. Food prices decreased less than 0.1 percent and energy prices increased 1.2 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
Real gross domestic product (GDP) increased at an annual rate of 1.6 percent in the first quarter of 2024, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2023, real GDP increased 3.4 percent.
According to ADP Employment 184,000 jobs were added in March with an annual pay increase of 5.1 percent. Nela Richardson, Chief Economist at ADP says, “March was surprising not just for the pay gains, but the sectors that recorded them. The three biggest increases for job-changers were in construction, financial services, and manufacturing. Inflation has been cooling, but our data shows pay is heating up in both goods and services.”
Job openings and labor turnover remained flat from January to February and continue to be in a downward trend, which peaked in December of 2021. This indicates that the labor market has remained resilient, robust and is not showing signs of weakness.
The U.S. unemployment rate for March is 3.8 percent, remaining unchanged from February.
Both the labor force participation rate, at 62.7 percent, and the employment-population ratio, at 60.3 percent, were little changed in March. These measures showed little change over the year.
The Consumer Price Index (CPI) for All Urban Consumers increased 0.4 percent in March on a seasonally adjusted basis, the same increase as in February. Over the last 12 months, the all items index increased 3.5 percent before seasonal adjustment.
The Core CPI (all items less food and energy) index rose 3.8 percent over the last 12 months. The energy index increased 2.1 percent for the 12 months ending March, the first 12-month increase in that index since the period ending February 2023. The food index increased 2.2 percent over the last year.
Advance estimates of U.S. retail and food services sales for March 2024, adjusted for seasonal variation and holiday and trading‐day differences, but not for price changes, were $709.6 billion, up 0.7 percent from the previous month, and up 4.0 percent above March 2023. Total sales for the January 2024 through March 2024 period were up 2.1 percent from the same period a year ago.
The yield curve between the 2-year and 10-year Treasury Bonds currently is -.32 and currently has been in this range since the beginning of November. The last 6 recessions have happened after the 2-year and 10-year yield curve reversed and turned positive.
The Federal Reserve’s Balance Sheet currently shows $7.454 trillion in assets. The Fed’s Balance sheet was at its highest in April, 2022 at $8.965 trillion in assets. The Federal Reserve has reduced its assets by 17%
QUESTION FOR CONSIDERATION
Despite the expanding economy, has the stock market already factored in anticipated higher growth due to the elevated valuations of certain companies? Are these companies being valued as if they are flawless, and do their high valuations entail elevated expectations? Moreover, can these companies meet the heightened expectations for earnings?
THE BOTTOM LINE
In the realm of financial markets, unexpected twists in economic indicators often trigger a wave of speculation and concern among investors. The recent revelation of GDP figures falling below expectations, coupled with persistent inflation and uncertain interest rate cuts, has brought forth discussions on the specter of stagflation. As an investment advisor, it is crucial for me to dissect these economic nuances and provide guidance on navigating potential challenges while optimizing investment portfolios.
Last week’s GDP report delivered sobering news, with growth figures coming in at 1.6 percent, below the anticipated 2.5 percent. This shortfall underscores the complexities and challenges embedded in the current economic landscape. Concurrently, inflationary pressures have remained resilient, defying expectations of a swift downturn. Such persistence in inflation rates, juxtaposed with sluggish GDP growth, raises valid concerns regarding the emergence of stagflation.
Stagflation, a term resonating from the economic turmoil of the 1970s, represents a troubling scenario characterized by stagnant economic growth coupled with stubborn inflationary trends. Historically, this confluence of factors has posed significant challenges for policymakers and investors alike, often leading to market volatility and erosion of purchasing power.
The mention of stagflation understandably triggers apprehension among investors. However, it is essential to provide context by putting the current situation in a broader economic framework. While the specter of stagflation looms, it is crucial to acknowledge the nuanced dynamics at play. Economic conditions today differ significantly from those of the past, with structural changes, technological advancements, and evolving policy responses shaping the landscape.
In times of economic uncertainty, a prudent approach to investment is paramount. Diversification remains the cornerstone of risk management, offering resilience against market volatility and unforeseen challenges. By spreading investments across a spectrum of asset classes, sectors, and geographies, investors can mitigate specific risks while harnessing the potential for growth.
History has repeatedly demonstrated the efficacy of maintaining a well-diversified portfolio in combating inflationary pressures. While inflation erodes the purchasing power of money, investments in assets such as equities, real estate and commodities can serve as effective hedges. Moreover, a diversified portfolio provides exposure to opportunities that may thrive in inflationary environments, such as certain commodities or sectors.
Amidst the prevailing economic uncertainties, the temptation to adopt a defensive stance or engage in market timing may seem enticing. However, attempting to predict market movements with precision is fraught with risks. Instead, maintaining a long-term perspective and staying invested in accordance with one's financial objectives is prudent. Through disciplined asset allocation and periodic rebalancing, investors can navigate market fluctuations while capitalizing on long-term growth prospects.
The intersection of subdued GDP growth, persistent inflation, and uncertain interest rate dynamics has sparked discussions surrounding stagflation. While concerns abound, astute investors recognize the importance of maintaining a diversified portfolio tailored to their risk tolerance and investment horizon. By embracing uncertainty with resilience and strategic foresight, investors can navigate the current economic landscape while pursuing their financial goals and that is The Long and Short of it!