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  • Writer's pictureDoug MacGray

High Interest, Slowing Economy, Disturbing My Routine

June 3, 2024


FIRST QUARTER GROWTH RATE REVISED:  Earlier, the U.S. Bureau of Economic Analysis (BEA) announced that the U.S. economy grew at a 1.6% annualized rate in the first quarter. Last week, the BEA announced its revised estimate of 1.3%. Part of the reason for the revision is that "upon further review" consumer spending rose by 2.0%, not the 2.5% earlier announced by the BEA.


U.S. STOCKS END THE WEEK SLIGHTLY POSITIVE: Tech stocks struggled most of the week, causing downward pressure.  Salesforce fell 20% on Thursday after disappointing earnings were reported. Similarly, Dell Technologies and Marvell Technology announced disappointing earnings and they each lost double digit percentages on Thursday. But, energy, utility, and real estate stocks gained, fighting off the losses in the tech sector, indicating that investors are moving from high growth stocks to safer, more stable stocks at the moment, or at least diversifying. 



LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  



BROAD 2024 RALLY:  The S&P 500 has eleven sectors. Ten are up so far this year. The only sector that is negative is real estate. The consumer discretionary sector is barely positive.  Communication Services leads the way at over 20% up. Other sectors up double digits are Energy, Financials, Utilities, and Information Technology. 


CHICAGO AREA ECONOMY SLOWING:  The Chicago Business Barometer, also known as the Chicago PMI fell in May to its lowest level since May of 2020, and we all remember what was happening in May of 2020. This was the sixth consecutive month where this index has contracted. On Monday, the national equivalent will be released showing overall health of U.S. business activity.  


FED RATE CUTS:  According to Bloomberg, in January, the overall market was anticipating five interest rate cuts for 2024. By the beginning of May, the expectation was down to two rate cuts. Now, one rate cut for 2024 is priced into the market.


WILL THE ECB LOWER RATES?:  Many have expected the European Central Bank (ECB) to lower interest rates next week, its first cut of this cycle. But, its key, core inflation indicator rose in May, and now that expectation is up in the air.


IF YOU ARE IN A PASSIVE S&P 500 INDEX FUND, YOU ARE PROBABLY CONCENTRATED:  The top ten companies in the S&P 500 now account for 35% of the entire index, the highest percentage recorded in over 50 years, even higher than the dot.com bubble. Nvidia has contributed 39% of the S&P 500's market cap gain year-to-date.  


HOVERING AROUND 7%:  The average 30-year mortgage rate in the U.S. continues to hover around 7%.



TOO MUCH DEBT:  According to the U.S. Department of the Treasury, in the first seven months of fiscal year 2024, spending on net interest on debt reached $514 billion. This is more than was spent on national defense ($498 billion) and Medicare ($465 billion). Only Social Security cost more ($837 billion). Interest on debt is the fastest growing part of the budget. In fiscal year 2020 it totaled $345 billion. In fiscal year 2023, it totaled $659 billion, going from 1.6% of GDP to 3.1% of GDP. It is on track to be $870 billion this year.


A WELCOME INTERRUPTION:  When my kids were first born, I started a habit that I continue to this day. To get some initial peace in my day, and to wake up slowly (which I need), I would get up before everyone else, get a cup of coffee, and read the paper. To this day, I still get up early, pull up the news on my tablet, and get a cup of coffee. Once I am fully awake, I then move on to other routines to keep myself physically and spiritually healthy, and then I am ready for the day. On Friday, three of the grandkids spent the night. I got up on Saturday to start my routine. It was pretty early. As soon as I sat down with my cup of coffee, I heard the pitter patter of little feet. There was Judah and Lydia who followed me down the steps. "Can we sit with you and watch a show?" They were messing up my entire routine! And it was awesome. They cuddled up on the couch with me while I pulled up Looney Tunes cartoons. Sometimes it's good when routines are disturbed.


Have a great week!


Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.



Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545


"Love is the single most powerful and important word and notion n culture and language.   Until the power of love supersedes the love of power, we have no chance of ever being successful." Bill Walton (1952-2024)


"Let not the wise man boast of his wisdom, or the strong man boast of his strength, or the rich man boast of his riches." Jeremiah 9:23 (NIV)


SOURCES:

IF YOU ARE IN A PASSIVE S&P 500 INDEX FUND, YOU ARE PROBABLY CONCENTRATED: https://gritcap.io/p/following-a-lackluster-april-may-was-on-fire


(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved


*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

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