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June Market Insight
As we approach mid-2024, it’s essential to review our past and consider how it may guide our future. The Federal Reserve has been unwavering in its commitment to reducing inflation to 2%. Since March 2022, the Fed has consistently communicated this goal to investors, analysts, asset managers, and economists. Despite no recent rate increases, the Fed's policy stance and objectives have remained unchanged. This certainty has allowed investors to shift assets into equities, confident that interest rates will likely remain stable. While the ultimate outcome of these measures is unknown, it's clear that inflation is no longer the threat it was two years ago, and current interest rates are not significantly hindering economic growth, despite remaining higher than in recent years.
S&P 500 corporate earnings have been consistently strong. After the economic downturn in 2020 due to Covid, record-setting earnings were reported in 2021, 2022, and 2023, despite higher operating costs caused by increased rates. In first quarter 2024, 78% of companies reported higher-than-expected earnings, and second-quarter earnings are forecasted to be the highest ever recorded for a single quarter. Full-year 2024 earnings are expected to grow by 11%, with a current estimate of nearly 14% growth for 2025. Barring any unexpected shocks, it's unlikely that institutional investors will be net equity sellers, given the expanding earnings and revenues. Although valuations are somewhat high, it's also unlikely that they will contract, especially with rates likely to be lower in the coming months or years.
U.S. employment data is also a key indicator of future economic output. Employers are currently striving to meet consumer demand by hiring more people. The unemployment rate remains low at 4%, with over 8 million available jobs and around 5.5 million job seekers. The first five months of 2024 have seen the creation of over 276,000 new jobs per month, a 30% increase from the last six months of 2023. While we do not anticipate the economy becoming overstimulated by lower rates in the future, we also do not foresee it suddenly contracting anytime soon.
