As long-time Barron’s pundit Randall Forsyth aptly wrote in this weekend’s edition, “Which one of these doesn’t belong? Inflation above target. Solid labor market. Booming stock market. Federal Reserve interest rate cuts.” The obvious answer, Fed interest rate cuts, is also seemingly the one thing supporting risk markets here in 2024. Should Chair Powell and his colleagues decide to postpone policy moves into next year, markets could see unexpected volatility arise.
As for the U.S. consumer and the economy writ large, Goldilocks herself might be envious. The “not too hot, not too cold” metaphor equates to the perfect environment for investors. And, after a decade of paltry bond yields, even fixed income investors can get excited. Whether or not the economy can sustain this equilibrium longer-term is anyone’s guess, but for now, it pays to stay invested.
The 3rd reading of 2023 Q4 GDP showed the economy grew at a stronger than expected +3.4% rate, with Personal Consumption up +3.3% and the Core PCE Price Index rising +2.0% QoQ. The Atlanta Fed GDPNow Forecast has the economy slowing to a +2.3% growth rate, which may be a welcome occurrence given the Fed’s current battle against inflation. Unless, of course, it portends Stagflation, which is an increasingly popular topic in the fixed income arena.
The Fed’s favorite inflation indicator, the Personal Consumption Expenditure index, rose +0.3% in February, and is up +2.5% YoY. The Core PCE also gained +0.3% MoM, and shows ex-food & energy prices are higher by +2.8% YoY. Headline CPI was up a hotter than expected +0.4% MoM in February (+3.2% YoY), while Core CPI was up +0.4% MoM and +3.8% YoY. Producer prices surged +0.6% MoM, but have only risen +1.6% YoY.
The Employment picture in the U.S remains stable, with the jobless rate coming in at 3.9% in February, higher than expected, although Nonfarm Payrolls increased by a better than forecast +275k. Average Hourly Earnings have risen +4.3% YoY, and the Labor Force Participation rate edged up to 62.5%. Initial Jobless Claims remain consistent around the 210k level.
With inflation down considerably from it’s peak, although still above the Fed’s professed target of 2.0%, the FOMC must remain on guard against prematurely cutting interest rates. Markets are slowly embracing this go-slow Fed approach, and expectations are moving towards 3 cuts here in 2024, down from the 5-6 moves anticipated at the start of the year.
To read further about domestic and international equity, fixed-income, and alternative investments, please open the full paper below:
Nottingham Advisors offers both institutional and individual clients experience, sophistication, and professionalism when helping them achieve their goals. With over 40 years of serving Western New York and clients in more than 30 states, Nottingham tailors each solution to fit the specific needs of each client.
For more information about Nottingham’s offerings, visit www.nottinghamadvisors.com or call 716-633-3800.
Nottingham Advisors, Inc. (“Nottingham”) is an SEC registered investment adviser located in Amherst, New York. Registration does not imply a certain level of skill or training. Nottingham and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Nottingham maintains clients. Nottingham may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. For information pertaining to the registration status of Nottingham, please contact Nottingham or refer to the Investment Advisor Public Disclosure Website (www.adviserinfo.sec.gov). Any subsequent, direct communication by Nottingham with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.
This newsletter is limited to the dissemination of general information pertaining to Nottingham’s investment advisory services. As such nothing herein should be construed as the provision of personalized investment advice. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Adhering to the assumptions, theories and principles serving the basis for the information contained herein should not be interpreted to provide a guarantee of future performance or a guarantee of achieving overall financial objectives. As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. Furthermore, this newsletter contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. As such, there is no guarantee that the views and opinions expressed in this article will come to pass. This newsletter should not be construed to limit or otherwise restrict Nottingham’s investment decisions.
This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. Some portions of this newsletter include the use of charts or graphs. These are intended as visual aids only, and in no way should any client or prospective client interpret these visual aids as a method by which investment decisions should be made. We have provided performance results of certain market indices for illustrative purposes only as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. It should not be assumed that your account performance or the volatility of any securities held in your account will correspond directly to any benchmark index. A description of each index is available from us upon request.
Investing in the stock market involves gains and losses and may not be suitable for all investors. Past performance is no guarantee of future results.
For additional information about Nottingham, including fees and services, send for our Disclosure Brochure, Part 2A or Wrap Brochure, Part 2A Appendix 1 of our Form ADV using the contact information herein.
