
Yet again inflation pushed and pulled markets over the course of Q2 but perhaps not as meaningfully as it had dating back to early 2022. Markets felt the pinch in April following a hotter than expected reading but have since rebounded handsomely. Absorbing the news from the Federal Reserve in June to expect just a single rate cut in 2024. The expectation for a cut is now September as recent inflation readings have been more favorable. We feel as though that may be premature and is more likely nearer to or post-election. It is interesting to note that the European Central Bank, along with several others around the world, did indeed cut rates over the course of Q2 while the Fed remained steadfast.
Generally speaking, the domestic economy remains healthy with just a slight tick up in unemployment, though coupled with a similar tick up in labor market participation. The Purchasing Manager’s Index (PMI) remains just below expansion territory but ticked higher in both May and June. And Gross Domestic Product (GDP), which of course is a monetary measure of good and services, remains in positive territory though has shown a measurable pullback from the second half of 2023. What gives us confidence looking ahead is the fact the Fed has remained stubborn. A June Consumer Price Index (CPI) reading of 2.97% is remarkable given where we were just two years ago. Should the data points above deteriorate, the Fed seemingly has a number of arrows in its quiver in the form of future rate cuts to stave off contraction and/or eventual recession. Just last week Fed chair Powell, when pressed by congress as to whether the ‘soft landing’ scenario (low unemployment coupled with low inflation) is already upon us, responded that “We are just going to keep our heads down and do our jobs and try to deliver what the public is expecting from us. We wouldn’t be declaring victory like that.” Leaving a victory dance of a mystery.

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The bottom line is markets reacted favorably. All three major indexes set record highs. Both the Tactical Allocation Portfolio (TAP) and Sector Equities (SEC EQ) models participated. TAP to a lesser extent as the hotter than expected inflation reading in April led to a handful of risk-management events leaving an above average allocation to cash. If you’ve been following our Weekly Market updates, you’ll know changes are coming to client accounts invested in that particular model as a result. We strive to adapt, but also not to force change based solely on current market conditions. We feel confident the ‘tweaks’ to the model will be favorable over the long term. For our fixed-income investors, Q2 saw more of the same. We will continue to offset equity risk with short term US Treasury Bills until we see a yields become far less attractive.
We have the pleasure of serving those who work with us and are available to discuss what this means to you and your household at any time. We appreciate the opportunity and look forward to what lies ahead.