THE WELL-TH NOTES

By 213 Strategic Partners on July 1, 2024

Weekly data-driven insights on the markets and economy

Fourth Week of June 2024

Minor Movement. The S&P 500 was up just 0.1% Thursday as investors looked ahead to fresh inflation data for clues as to when the Federal Reserve will begin to lower interest rates. The Nasdaq added 0.3% while the Dow Jones gained 112 points, or 0.3%. Notably, semiconductor stocks were in the red, raising questions on whether the artificial intelligence trade can continue to sustain markets in the back half of this year. Micron slipped more than 6% and Nvidia slipped 1.6%.[i]

Yield Pause. U.S. Treasury yields were muted as the final week of June began, with investors focusing on Friday’s key inflation report. The 10-year Treasury yield was marginally lower at 4.25% on Monday. The 2-year Treasury yield was less than 1 basis point higher at 4.73%.[ii]

Mild Expectations. Forecasts for the May personal consumption expenditures (PCE) index show inflation continuing to slow, driven by falling gas prices and more deflation in consumer goods. Economists expect the overall PCE index to rise 2.6% y/y in May, slightly lower than the 2.7% increase seen in April. On a monthly basis, the PCE index is expected to be flat from April, at 0.26%. Core PCE, which excludes volatile food and energy prices, is expected to moderate to 2.6% annual growth in May from 2.8% growth in April.[iii] Investors will continue to watch this data for indications of the Fed’s rate cut plans this year.

Meta Rejection. Apple has rejected overtures by Meta Platforms to integrate the social networking company’s AI chatbot, Llama, into the iPhone months ago. Apple was not actively planning on integrating Llama into iPhones because it does not consider Meta’s privacy practices stringent enough.[iv] In the beginning of 2024, Meta stock raced out to a nearly 40% gain, helped by strong fourth-quarter earnings and plans for its first-ever dividend, but shares sank 10.5% following Meta’s first quarter earnings report.[v]

“Vibecession”. A recent report found concerns about inflation and interest rates are now at a two-year high. Although buying power has risen, inflationary data has cooled and the job market has remained strong, 84% of adults still rank inflation among their top concerns, followed by housing prices and interest rates. At the same time, 55% are optimistic about their household finances over the next year, driven in part by confidence in the labor market and continued wage increases. However, workers remain at least somewhat sour on the state of the economy. The disconnect between the economy’s overall strength and its perceived weakness among households is characterized by the term “vibecession.”[vi]

Powerful Growth. Data centers and electric vehicles are expected to ramp up U.S. power demand by about 300 terawatt-hours (TWh) by the end of the decade. Rystad Energy says a solar capacity increase by 237 gigawatts (GW) between 2023 and 2030 and wind capacity growth by 78 GW should be enough to meet this increased U.S. power demand from data centers and EVs. U.S. electricity demand had been flat at around 4,000 TWh since around 2010. Now electricity demand is accelerating from the rapid build-out of data centers needed to develop generative artificial intelligence and from government and corporate climate pledges that hinge on electrifying industries such as transportation.[vii]

Election Stability. Presidential election years are typically good for stocks. The S&P 500 has generated an average return of 7% during presidential election years since 1952. This year has seen the best start to an election year on record, with the S&P 500 up 14.6% year-to-date and up nearly 31% from its October 2023 low. So, what’s different? Gains are typically higher when incumbent presidents run for reelection, most likely because investors crave stability – and this year, both nominees of the major parties have occupied the White House.[viii]

Sprint Sensation. 16-year-old sprinting sensation Quincy Wilson is turning heads at the U.S. Olympic Team Trials for track and field in Eugene, Oregon. He qualified for the men’s 400m final with two record-breaking runs, a 44.66 in round one and 44.59 in the semi-finals. The previous under-18 world record was set in 1982 by Darrell Robinson. Wilson has the fourth-fastest time heading into final qualifications, with a legitimate shot at making the three-man 400m team. If he makes the team, Wilson would be the youngest U.S. Olympic track and field Olympian since Cindy Gilbert in 1972 and youngest U.S. Olympic male runner ever.[ix]

[i] Kim, Hakyung and Sarah Min, “S&P 500 is little changed as traders await key inflation data: Live updates,” CNBC, June 27, 2024, https://www.cnbc.com/2024/06/26/stock-market-today-live-updates.html. Accessed June 27, 2024.

[ii] Kim, Hakyung and Jenni Reid, “Treasury yields are flat as investors gear up for inflation data,” CNBC, June 24, 2024, https://www.cnbc.com/2024/06/24/treasury-yields-are-flat-as-investors-gear-up-for-inflation-data.html. Accessed June 27, 2024.

[iii] Hansen, Sarah, “Forecasts for May PCE Report Show More Improvement On Inflation,” Morningstar, June 26, 2024, https://www.morningstar.com/economy/forecasts-may-pce-report-show-more-improvement-inflation. Accessed June 27, 2024.

[iv] “Apple, Meta not in talks currently for AI partnership, Bloomberg News reports,” Reuters, June 24, 2024, https://www.reuters.com/technology/artificial-intelligence/apple-meta-not-talks-currently-ai-partnership-bloomberg-news-reports-2024-06-24/. Accessed June 27, 2024.

[v] Deffenbaugh, Ryan, “IBD Stock Of The Day Meta Eyes Buy Point After Report Of AI Talks With Apple,” Investor’s Business Daily, June 24, 2024, https://www.investors.com/research/ibd-stock-of-the-day/meta-stock-ai-push-apple-intelligence/. Accessed June 27, 2024.

[vi] Dickler, Jessica, “Concerns about inflation peak as Americans struggle to shake off a ‘vibecession’,” CNBC, June 25, 2024, https://www.cnbc.com/2024/06/25/we-may-be-in-a-vibecession-as-inflation-fears-peak.html. Accessed June 27, 2024.

[vii] “Data centers, EVs to significantly boost US power load by 2030, consultancy says,” Reuters, June 25, 2024, https://www.reuters.com/business/energy/data-centers-evs-significantly-boost-us-power-load-by-2030-consultancy-says-2024-06-25/#:~:text=NEW%20YORK%2C%20June%2025%20(Reuters,Rystad%20Energy%20said%20on%20Tuesday. Accessed June 27, 2024.

[viii] Goodkind, Nicole and Matt Egan, “Here’s why this presidential election has markets charging higher,” CNN, June 24, 2024, https://www.cnn.com/2024/06/24/investing/premarket-stocks-trading/index.html. Accessed June 27, 2024.

[ix] McCarvel, Nick, “Quincy Wilson, 16, Breaks U-18 World Record Twice on Way to 400m Final at U.S. Trials: ‘All I’m Doing Is Heart’,” Olympics, June 24, 2024, https://olympics.com/en/news/quincy-wilson-16-breaks-u18-world-record-twice-400m-final-usa-trials-all-heart. Accessed June 27, 2024.