Last week, the markets saw modest rallies in all three major stock market indices. The NASDAQ led the charge, registering a 2.4% increase, while the Dow Jones Industrial Average saw a marginal rise of 0.3%, and the S&P 500 Index recorded a gain of 1.3%. Continued strength in technology, particularly those companies related to artificial intelligence such as Nvidia (NVDA), carried the week. While acknowledging the significance of market leaders such as NVDA and other AI giants, it’s essential to note that favorable returns are evident across all market sectors. This observation comes amidst the backdrop of the U.S. economy maintaining its status as a growth juggernaut. Last week’s new jobs report showed that for May 2024, the U.S. economy added 272,000 new jobs, which was well above economists’ forecasts for only 180,000 new jobs. The solid growth in new jobs and related wage growth leads us to believe that the Fed remains comfortably on the sidelines regarding rate cuts. The 10-year U.S. Treasury closed the week at 4.43%, eight basis points lower than the previous week. 

U.S. & Global Economy 

Economic data from last week suggests that the Federal Reserve, convening this week, will likely maintain its current stance on interest rates, opting to stay on the sidelines. We at Valley National Financial Advisors and all major economists agree that the next move by the FOMC will be to lower the Fed Funds Rate. However, not everyone agrees on when this will happen. Last week, we saw an explosive job number, as highlighted above. At the same time, we saw lower levels on the US PCE and Core PCE Index, which are the Federal Reserve’s preferred inflation measures. See Chart 1 below from Valley National Financial Advisors and Y Charts. The economic data released last week shows that the U.S. economy continues to grow and add jobs, and inflation continues to slowly but steadily decrease. The combined impact suggests that Fed Chairman Jay Powell is nearing completion of his goal, alluding to the elusive concept of a soft landing.  

Policy and Politics 

Despite ongoing global unrest, with conflicts in Ukraine and Israel persisting, there’s also notable progress in the expansion of democracies. Major leadership elections in Mexico saw Claudia Sheinbaum elected as the country’s first female president, while in India, over 652 million people voted, reaffirming their support for Prime Minister Narendra Modi. While unrest and suffering persist globally, it’s important not to overlook the positive developments. Often, these movements garner more attention from markets and worldwide economies than the prevailing negatives. 

Economic Numbers to Watch This Week 

• U.S. Consumer Price Index YoY for May 2024, prior 3.36%. 
• U.S. Core Consumer Price Index YoY for May 2024, prior 3.62%. 
• U.S. Inflation Rate for May 2024, prior, 3.36%. 
• U.S. Target Fed Funds Rate as of May 2, 2024, current rate 5:50%. 
• U.S. Producer Price Index YoY for May 2024, prior 2.17%. 
• U.S. Core Producer Price Index YoY for May 2024, prior 2.37%. 
• U.S Index of Consumer Sentiment for June 2024, prior 69.10. 

Last week, economic reports showed a growing economy (strong new job creation) with inflation retreating (PCE falling). This week, investors will get a fresh set of data, including Core CPI, the week’s FOMC meeting results, and the consumer sentiment index on Friday. Just understand and appreciate that the markets are more efficient than investors. If you look at where all the major stock market indexes have gone in the past year (hint: higher), you will see why investors should pay attention to long-term trends and only invest for the long term. Please contact your advisor at Valley National Financial Advisors with any questions. 

“Spring: a lovely reminder of how beautiful change can truly be.” — Tracy McMillan.

By: Chief Investment Officer, William Henderson

 Last week, we were waiting for three significant events to unfold:

• The FOMC (Federal Open Market Committee) meeting results.
• EPS announcements of a few mega-tech firms.
• Jobs and unemployment data.

We started on Wednesday with Federal Reserve Bank Chairman Jay Powell and the FOMC first announcing no change in interest rates and reaffirming that rate cuts are unlikely to happen at the March 2024 meeting. That news initially poured cold water on the markets, but this was short-lived as upside earnings surprises by META (Facebook parent) and Amazon.com changed the course of the markets for the week as all major indexes ended higher (Dow Jones Industrial Average, +1.4%, S&P 500 Index +1.4%, and the NASDAQ +1.1%). The week ended with more positive news; we saw higher weekly new jobs created, continued low unemployment, and another rise in Consumer Sentiment. The 10-year US Treasury moved lower by 12 basis points to close the week at 4.03%.  

U.S. Economy 

The U.S. economy continues to chug along nicely, confounded most experts and economists. Experts continue to point to the 1970s and 1980s as a guide for what the Fed should do now. 1970 was over 50 years ago, and we did not have iPhones, ChatGPT, or CNBC at our fingertips for data and information flow. We at Valley National Financial Advisors focus instead on the current data right in front of us, which continues to be positive across the board. As mentioned, last week, new jobs created measured 350,000 vs. expectations of +216,000, and the unemployment rate stayed at 3.7%, below the long-term average. See Chart 1 below from Valley National Financial Advisors and Y Charts showing the U.S. Unemployment Rate and the U.S. Inflation Rate. Both are important measures for the Fed as their mandate is “full employment” and “2% inflation.” We are at the employment mandate but only nearing the inflation mandate (3.35%), so to us at Valley National Financial Advisors, it makes sense that Fed Chairman Jay Powell is watching the data and waiting before embarking on an interest rate-cutting path.

Weekly readers of The Weekly Commentary know that the U.S. economy is 70% consumer-driven, and a healthy, working consumer will continue to consume. Last week, the U.S. Index of Consumer Sentiment (previously called Consumer Confidence) came in at 79.00, well off the 50.00 reading last summer when experts stubbornly predicted a recession. See Chart 2 below from Valley National Financial Advisors and Y Charts. A rising Consumer Sentiment Index displays increased consumer confidence, typically evidenced during expansionary periods. This confidence indicator certainly makes sense to us at Valley National Financial Advisors, as employment opportunities abound and American companies continue to make money, hire, and expand operations, especially within the U.S. borders. 

Policy and Politics 

It is a quiet week for Washington, and members of Congress wrangle over a spending bill for aid to Ukraine and Israel and money for border security. These issues will languish, and Washington will eventually do what it does best, which is to spend money. Global turmoil in the Middle East continues, with the United States and the United Kingdom leading retaliation strikes in Syria. We are concerned about this issue and worry that 1) it will last longer than anticipated and 2) spill over into a much greater Middle East conflict. 

What to Watch This Week 

• U.S. Consumer Credit Outstanding for Dec 2023, released 2/7/24, prior $23.75 billion. 
• U.S. Initial Claims for Unemployment Insurance for the week of Feb 3, released 2/8/24, prior 224,000. 
• 30 Year Mortgage Rate for the week of Feb 8, released 2/8/24, prior 6.63% 

It is too early in the new year to start sounding repetitive clarions about the U.S. economy, the consumer, and the stock market. Still, the data in front of us tells a positive story about the economy’s strength and the consumer’s resilience. Our expectations for rate cuts have been clear in that they are closer to May/June of 2024 than March 2024. Fed Chairman Jay Powell confirmed this notion last week at his press conference and on 60 Minutes. Why fight the Fed? If there is good news in this rate path, when the economy slows in 2024, rate cuts will boost a slowing economy. Lower rates later in 2024 will eventually be a natural tailwind for the equity and fixed-income markets. The salient point is that the next direction on rates is lower, not higher. We need to pay attention to the current data, not the data from the ’70s or ’80s because the market and information flow are different today than they were 50 years ago. Reach out to your financial advisor at Valley National Financial Advisors for assistance.

MARKET HEAT MAP

The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

“Sometimes your joy is the source of your smile, but sometimes your smile can be the source of your joy.” – Thich Nhat Hanh

Equity markets ended the week a bit higher, with the Dow Jones Industrial Average gaining 1.43%, the S&P500 notching a 2.50% gain, and the NASDAQ ending up 3.25%. The continued positive momentum in the economy and lessening chances for another rate hike by the Federal Reserve in September added some needed optimism to the markets. Trading was quiet in front of the Labor Day Holiday Weekend, but things got back to normal this week. With less than four months of trading left in the year, Wall Street will be getting back to business. Watch for important market moves and salient economic releases as we move forward this week.

The Importance of Navigating Cybersecurity?

Essential Cybersecurity Measures for Clients (a five-part series)

By: Rob Ziobro, VNFA Assistant Vice President, Technologies

This week, I would like to remind you to Be Mindful of the Information You Share: Social media platforms encourage sharing, but oversharing can put you at risk. Cybercriminals can piece together personal information from various sources to orchestrate targeted attacks. Be cautious about what you post online, especially details like your full birthdate, home address, or vacation plans. 

Be sure to check back next week as we conclude this series. I hope you all had an enjoyable and safe Labor Day weekend.

Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five- and 10- year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Mortgage Bankers Association.

MARKET HEAT MAP

The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

“There is something so special in the early leaves drifting from the trees–as if we are all to be allowed a chance to peel, to refresh, to start again.”– Ruth Ahmed

Tune in Wednesday, 6 PM for a pre-recorded “Your Financial Choices” show on WDIY 88.1 FM. Laurie will address questions submitted online during the next live broadcast.

Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.