July 15, 2024

Financial Markets

  • Artificial intelligence (AI) related stocks had sizeable price gains driven by robust earnings growth and positive earnings outlooks. Stocks in other sectors lagged.  Therefore, large-capitalization (cap) and growth stock indices outperformed smaller-cap and value indices in U.S. and foreign markets.
  • Government bond yields moved up and down during the quarter but ended higher as sticky inflation data shifted interest rate forecasts to fewer cuts in 2024.
  • The U.S. dollar strengthened as better than expected economic data pointed to high for longer interest rates.

Overview of the Economy

  • Earnings reports for the first quarter were better than expected with the majority of companies beating analysts’ forecasts, helped by solid sales growth.
  • Certain economic activity in the U.S. has been slowing. Consumer spending, exports, housing starts, and factory orders weakened.  While the labor market has remained strong with the three-month moving average of new jobs added staying above 240,000 and wage growth still above the inflation rate, some data has started to point to cooling such as the number of job openings declining back to near pre-pandemic levels and the number of continuing unemployment claims growing.
  • Inflation has proven to be sticky due to sharp increases in prices for services, but some goods prices are down.
  • Surveys continue to show weak manufacturing activity around the world, although with some improvement, while services activity remains in expansion.

Notable Events

  • The Federal Reserve Open Market Committee (Fed) kept the fed funds rate steady but raised its projection for the rate at year-end. Other central banks began to cut rates, including the European Central Bank (ECB).