Market Monitor: June Mid-Month Update

Headlines and Highlights
  • Inflation softens notably; Fed unswayed: The Consumer Price Index was flat last month for the first time in nearly two years and wholesale prices fell – data that was promising but not yet convincing enough for the Federal Reserve to lower interest rates. Overall inflation came in at a yearly rate of 3.3% while core inflation was 3.4%, the lowest since April 2021. The Fed kept rates at 5.25% as expected despite acknowledging “modest further progress” toward its 2% inflation goal. The S&P 500 responded by climbing to the latest in a series of all-time highs on improved prospects for rate cuts. In the first half of June, the index rose 3.0% and was up 14.6% in 2024.
  • Europe’s central bank kicks off rate cuts: The European Central Bank became the first of the world’s giant central banks to reduce interest rates, a long-awaited action that its peers are expected to take within months. The ECB’s move heralds a loosening of restrictive global monetary policies aimed at cracking down on high inflation that is now on the wane. The Frankfurt, Germany-based bank lowered its benchmark rate to 3.75% from 4%, the highest in the bank’s 26-year history. Smaller central banks in Canada, Sweden and Switzerland also have dropped their rates recently.
  • World economy perking up: The global economy is performing better than expected this year thanks largely to U.S. growth that has remained “exceptional” in the wake of fierce monetary tightening, according to the World Bank. The bank, an international development organization that lends money to developing countries, upgraded its forecast for global GDP growth this year to 2.6%, up from 2.4% in January and the same as last year.
Chart of Interest

market monitor

Inflation watch: CPI has fallen to 3.3%. Housing is taking longer to come down, slowing overall progress.
Sources: Bureau of Labor Statistics, Altair Advisers

Key Takeaways
  • Housing costs remain the most stubborn element of inflation to subdue, rising 5.4% in May from a year earlier and continuing to defy expectations for an increased slowdown. Housing, or shelter, accounts for more than a third of the Consumer Price Index.
  • Labor-market conditions have returned to their pre-pandemic level, according to Fed Chair Jerome Powell – a welcome development for policymakers who have been waiting for it to slow before lowering rates. In the latest evidence of cooling, new jobless claims, a proxy for layoffs, jumped to their highest level in 1½ years even after employers added 272,000 new positions in May.
  • The Fed’s new median rate projection for 2024 signals just one rate cut, down from two at its last meeting. But market expectations as measured by the CME FedWatch Tool still call for two, particularly given the softening in the labor market along with inflation.
  • Markets have been mixed in June despite the initial surge responding to positive inflation news. While benchmarks for U.S. large-cap stocks (+3.0%), U.S. REITs (+0.9%), taxable bonds (+1.7%) and municipal bonds (+1.1%) all were positive in the first half of the month, small caps (-3.0%) and international developed stocks (-2.5%) pulled back.
  • Retail sales rose less than expected last month, suggesting that consumers are feeling more financial stress in the face of above-average inflation and borrowing rates. The tepid 0.1% increase over the previous month, coupled with revised figures showing that sales fell 0.2% in April, illustrate a distinct downshift from stronger consumer spending earlier this year.

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