Enthusiasm for artificial intelligence (AI), optimism about inflation, and expectations that the United States Federal Reserve (Fed) will begin to lower rates this year have helped global and U.S. stock markets, overall, push higher in 2024. Share prices increased more slowly in the second quarter, though. Here's what happened:

• Off to a rocky start. Overall, stocks declined in April after inflation numbers came in higher than economists had expected. That sparked concern the Fed might leave rates higher for longer than many investors hoped.

"Markets had expected the Fed to start cutting interest rates in June with three reductions in total expected this year, but that shifted dramatically following the release [of the Consumer Price Index]," reported Jeff Cox of CNBC. Markets now expect the first rate cut in September.

• Bounding ahead. U.S. stocks rallied in May and June as companies in the Standard & Poor's (S&P) 500 Index reported strong earnings growth for the first quarter of 2024. Overall, earnings, which represent companies' net profits, grew 6 percent, and 78 percent of S&P 500 companies were more profitable than analysts had expected, according to John Butters of FactSet.

Investor optimism also was bolstered by May inflation data that showed inflation was headed in the right direction – lower. Sarah Hansen of Morningstar reported, "Bond markets recovered in the second quarter, boosted by improving inflation and a firmer, more confident outlook for rate cuts."

• Inspired by AI. Most of the top performing stocks in the S&P 500, to-date, have been technology companies, which are reaping the benefits of strong corporate spending on AI, reported Iuri Struta of S&P Global Market Intelligence in late June. However, technology companies may not deliver the results share price valuations suggest investors expect anytime soon. The Economist explained:

"…for AI to fulfill its potential, firms everywhere need to buy the technology, shape it to their needs and become more productive as a result. Investors have added more than $2trn to the market value of the five big tech firms in the past year—in effect projecting an extra $300bn-400bn in annual revenues according to our rough estimates…For now, though, the tech titans are miles from such results."

• Looking for the way down. The Fed anticipates zero to two rate cuts this year. While many central banks around the world already have begun lowering rates, the Fed has yet to act. Last week's employment report suggested the economy might be losing steam, and that could lead to the first Fed rate cut. The report indicated employers added more jobs than expected, but fewer than were added in the previous month.

"The path toward a rate cut in September is far from certain, but Friday's data provide more evidence that the U.S. labor market is losing steam…It's worth remembering that the other half of the Fed's dual mandate is maximum employment, and weakening labor conditions have certainly prompted central banks to cut rates in the past," reported Megan Leonhardt of Barron's.

• It's not what you think! In May, a Harris poll for The Guardian found that a lot of Americans share some incorrect beliefs about stock markets and the economy. Poll participants said: (1) the S&P 500 Index was down for the year (49 percent); (2) the United States is in a recession (55 percent); and (3) unemployment is at a 50-year high (49 percent). All of these statements are incorrect.
• The S&P 500 is up more than 16 percent year to date and has chalked up 34 record-high closes so far this year.  
• The U.S. economy is growing. The last U.S. recession was in 2020, during the pandemic.
• Unemployment is low – near a 50-year low for much of 2024 to date.

While inflation has fallen sharply, it affects economic well-being and opinions about the state of the economy. "[A majority of] respondents agreed 'it's difficult to be happy about positive economic news when I feel financially squeezed each month,'" reported Lauren Aratani of The Guardian.

For more information on how to be financially prepared, contact our office at (405) 340-1717 or email greg@womackadvisers.com 

Greg Womack

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Phone: (405) 340-1717

www.womackadvisers.com