June 2024
The following facts and statistics describe the financial situation in the United States for the month of June 2024 and for the year to date.
The S&P 500 is up 3.4 percent for the month of June and 14.8 percent year to date.
The S&P 500 P/E ratio currently is at 28.47, trailing 12 months and has a forward P/E based on issued guidance of 22.66 (the 5-year average forward P/E is 19.2 and the 10-year average is 17.8).
The NASDAQ is up 5.7 percent for the month of June and up 18.77 percent year to date.
The Dow Jones Industrial Average is up 1.28 percent for the month of June and up 4 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 estimated (year-over-year) earnings growth rate for Q2 2024 for the S&P 500 is 8.8 percent, which is below the 5-year average earnings growth rate of 9.5 percent, but it is above the 10-year average earnings growth rate of 8.4 percent. If 8.8 percent is the actual growth rate for the quarter, then it will mark the highest (year-over-year) earnings growth rate since Q1 2022 (9.4 percent). It will also mark the fourth consecutive quarter of year-over-year earnings growth (John Butter, FactSet).
Eight of the eleven sectors of the S&P 500 are expected to report year-over-year earnings growth led by the Communication Services, Health Care, Information Technology, and Energy sectors. On the other hand, three sectors are expected to report a year-over-year decline in earnings led by the Materials sectors. (John Butters, FactSet)
From the same month one year ago, the PCE price index for May increased 2.6 percent. Prices for goods decreased 0.1 percent and prices for services increased 3.9 percent. Food prices increased 1.2 percent and energy prices increased 4.8 percent. Excluding food and energy, the PCE price index increased 2.6 percent from one year ago.
Real gross domestic product (GDP) increased at an annual rate of 1.4 percent in the first quarter of 2024, according to the Bureau of Economic Analysis. In the fourth quarter of 2023, real GDP increased 3.4 percent.
Compared to the 4Q 2023, the deceleration in real GDP primarily reflected decelerations in consumer spending, exports, State and local government spending, and a downturn in federal government spending. These movements were partly offset by an acceleration in residential fixed investment. Imports accelerated.
According to ADP Employment 152,000 jobs were added in May with an annual pay increase of 5 percent. “Job gains and pay growth are slowing going into the second half of the year,” said Nela Richardson, Chief Economist, ADP. “The labor market is solid, but we're monitoring notable pockets of weakness tied to producers and to consumers.”
The number of job openings changed little at 8.1 million from March to April. Over the month, the number of hires and total separations were little changed at 5.6 million and 5.4 million, respectively. Within separations, quits (3.5 million) and layoffs and discharges (1.5 million) changed little.
The unemployment rate currently is at 4.0, and the number of unemployed people is at 6.6 million; this changed little in May. A year earlier the jobless rate was 3.7 percent, and the number of unemployed people was 6.1 million.
The labor force participation rate, at 62.5 percent, and the employment-population ratio, at 60.1percent, were little changed in May.
The Consumer Price Index (CPI) for All Urban Consumers was unchanged in May, on a seasonally adjusted basis, after rising 0.3 percent in April. Over the last 12 months, the all items index increased 3.3 percent before seasonal adjustment.
The "all items less food and energy" index rose 3.4 percent over the last 12 months. The energy index increased 3.7 percent for the 12 months ending May 31. The food index increased 2.1 percent over the last year.
Advanced estimates of U.S. retail and food services sales for May 2024, adjusted for seasonal variation and holiday and trading-day differences but not for price changes, were $703.1 billion, up 0.1 percent (±0.4 percent) from the previous month and up 2.3 percent (±0.5 percent) above May 2023. Total sales for the March 2024 through May 2024 period were up 2.9 percent (±0.5 percent) from the same period a year ago.
The yield curve between the 2-year and 10-year Treasury Bonds currently is -.39 and 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 $7.252 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 19.1 percent
QUESTION FOR CONSIDERATION
Why is it important to conduct quarterly reviews of one's investment portfolio, especially in a bull market, and what should investors consider regarding risk management and tax implications?
THE BOTTOM LINE
As an investment advisor, I know that it is crucial to emphasize the importance of conducting quarterly reviews of your investment portfolio. In the current environment, where the stock market has experienced a significant rally, this practice is more important than ever. Regular reviews can help ensure that your investments align with your financial goals and risk tolerance and that you are not overexposed to any particular stock or asset class.
The recent rally in the stock market has brought substantial gains for many investors. However, it also increases the risk of becoming overly concentrated in a single stock or asset class. This can happen when certain investments outperform others and lead to a portfolio that may not be as diversified as initially intended. Diversification is a fundamental principle of investing because it helps spread risk across different types of assets; this reduces the impact of poor performance by any single investment.
When performing a quarterly review it is imperative to evaluate which investments are performing well and which are underperforming. Ensure that your portfolio remains aligned with your target asset allocation, adjusting as necessary to avoid overconcentration in any single stock or sector. Investors should respond to changes in the market and their personal financial situation by making necessary adjustments to their portfolio.
If and when adjustments to your portfolio are needed, and depending on the type of account the changes are being made to (qualified retirement accounts versus non-qualified accounts), it is essential to be aware of the tax implications of selling investments. Realizing gains can trigger capital gains taxes, which can erode the profits you've worked hard to achieve. Short-term capital gains (on assets held for less than a year) are taxed at your ordinary income tax rate, while long-term gains benefit from lower tax rates.
One strategy to offset short-term capital gains is tax-loss harvesting. This involves selling underperforming investments to offset the gains from winning investments, thus reducing your overall tax liability. Another option is to be mindful of holding periods to maximize tax efficiency. Sometimes, holding an investment a bit longer can significantly reduce your tax bill.
Given the complexities of managing investments and taxes, it is highly recommended to consult an investment advisor or tax professional. These experts can provide personalized advice tailored to your unique financial situation; this will help you make informed decisions that align with your long-term goals.
Advisors can assist in performing detailed analyses of your portfolio's performance and risk exposure. They can identify and apply strategies to minimize your tax liability while maximizing your investment returns. They also will help keep you updated on market trends, regulatory changes, and new investment opportunities.
In conclusion: regular quarterly reviews of your investment portfolio are a vital practice, especially in a bullish market. They help ensure that you stay on track with your financial objectives, manage risks effectively, and navigate the complexities of investment taxation. Partnering with an investment advisor or tax professional can provide the guidance and expertise needed to make the most of your investments in today's dynamic market environment.
And that’s the Long and Short of It!