Market Update: May 17, 2024

 

Welcome to the Monthly Market Update from Signature Wealth Management. I’m Brian Ransom, Research Director from Signature Wealth and here’s what happened in the market this month.

Let’s start off with a quick inflation update and how that has affected the markets. We did get a CPI reading for the month of April which came in at 3.4% year/year. This is a very slight drop from March. The market actually took this month over month drop positively. At the very least, inflation isn’t increasing and is holding steady around 3-3.5%.

Again, steady inflation was viewed as a positive sign by the market. Currently, expectations from the Fed are an equal probability of 1-2 rate cuts by the end of the year.

And the stock market rallied on this news as we are back at all-time highs following a brief pullback for the month of April.

This may come as a bit of a surprise for a lot of people who were expecting a recession and a bear market. But the strength of the US economy lies with the US consumer, who remains in a very strong spending position. Currently, the average US consumer has significantly more in assets than liabilities. Their debt payments as a percent of disposable income there in the top right has increased since the pandemic but has effectively returned to the pre-pandemic trend and flatlined. We are well below the leverage level seen heading into the Global Financial Crisis in the 4^th quarter of 2007. We are seeing some above trend delinquencies on credit cards and auto loans so there is some signs of increasing pressure on consumer spending.

We’re also seeing weakness in the consumer with their personal savings rates. Savings rates have fallen off significantly from 2020 all-time highs. Some of the reduction in personal savings may have been in response to the record highs in 2020 & 2021. But they are the lowest since the years preceding the Global Financial Crisis. Household excess savings in the top right has been below the pre-pandemic trend since 2021. That has resulted in a reduction in total excess savings. There is still some excess savings waiting to be worked off, however.

This ultimately means that the largest driver of economic growth, consumer spending, is still in great shape. They have a little bit of excess savings left over from the pandemic. They have assets that dramatically exceed liabilities. And their debt load as a percent of disposable income is far from threatening. This has translated into a solid economy despite all the inflation, geopolitical headwinds, and rising interest rates. But excess savings is declining and we are starting to see cracks in loan delinquencies. And that is going to have a negative effect on consumer spending, slowing the trajectory of economic growth as we’ve seen over the last few quarters in the GDP growth figures. But that is unlikely to cause a recession by itself.

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Sources:

1.  Bureau of Labor Statistics. Consumer Price Index. “12-month percentage change chart, selected categories (past 20 years).” Updated May 15, 2024. Retrieved from https://www.bls.gov/cpi/
2. FactSet Research Systems. (n.d.). Policy Rate Tracker (markets). Retrieved May 17, 2024, from FactSet Database.
3. FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved May 17, 2024, from FactSet Database.
4. J.P. Morgan Asset Management. Guide to the Markets. U.S. 2Q 2024. Updated April 30, 2024. Slides 17, 20, & 21. Retrieved from https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/

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The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.