Summer 2024 Newsletter

Ah June! Long days and warm weather, green grass, flowers blooming, the month when schools close for the summer, folks plan vacations, and often activity on Wall Street begins to slow for the season. The Fed signaled that a rate cut sometime later in the year was likely but were careful to point out the caution light was still flashing for a potential rebound in inflation. For now, they might start planning the journey, but they are not ready to hit the road any time soon. We continued to see mixed data about the economy; but inflation seemed to be going in the right direction, albeit slowly, and consumer confidence was proving resilient. Equity markets seemed comfortable with this state of affairs. With the Republican and Democratic Conventions still several weeks away, the nominees seemed certain. Then the next U.S. Employment Report was due out July 5. The month of June ended with domestic equity markets solidly in the black (see Griff Curtin’s week ending June 28^th, ‘What Happened Last Week’.”[1]

  As expected, the month of July began with Fireworks. Since the 4^th was on a Thursday, various public and private displays could be seen throughout the week. Fireworks book-ended July with the opening of the 2024 Summer Olympics in Paris in a stunning ceremony on July 26. What wasn’t expected were several events in between which made for a raucous July. On July 13^th, Donald Trump was injured in an assassination attempt which resulted in one death and 2 other serious injuries. Congress called for an investigation of what appeared to be serious missteps by the Secret Service, and on July 23^rd, one day after she testified in Congress, the head of the Secret Service resigned. Just days before, after spending most of the month insisting that he was indeed running for a second term as President, Biden came out of a long weekend of retrospection and announced he was quitting the race and throwing his support to V.P. Harris. In other news, Taylor Swift concerts set to take place in Vienna were canceled after the government uncovered what appeared to be a serious threat of a terrorist attack at the venue. A hoped-for cooling of the Hamas-Israeli conflict did not materialize, as tensions threatened to reignite attacks. A much different political scenario and a darker mood brought July to a close, with a selling frenzy in the markets.

  Paul Broughton, portfolio manager for Advisors Capital, in ‘Where's The Fire,’ spoke about what likely triggered the selloff: mega cap tech companies whose earnings reports were, “decent to good, but not great,” the latest Jobs report showing unemployment at 4.3 %, the highest since October of 2021; and the Japanese Yen currency disruption; creating fear in the market that we were in danger of slipping into a recession. The S& P fell 8.5% from the July 16th high through early August. Since then, however, markets have stabilized and rallied. He attributes this to “the collective realization that inflation is heading in the right direction; and the economy continues to be stable and resilient.” [2]

  The July retail sales report showed consumer spending to be healthy, although perhaps more discerning.[3] But the economy is still walking a tightrope between a controlled cooling of inflation and the beginning of a recession. Fed Chairman Powell commented at the Central Bank’s Annual Symposium on August 23rd, that “the time has come for the Fed to lower its benchmark rate. The Direction of Travel is clear”, but “timing and pace of the cuts will depend on incoming data, the evolving outlook, and the balance of risks.”[4] Equity markets and the Fed may well have different views of that balance. Kevin McCreadie wrote for Advisorpedia.com recently “that for some time the market was mainly focused on the Fed, taking bad news about the economy as good news, thinking it would make the Fed more likely to begin cutting rates. Conversely, good news on Inflation was seen as bad news, in that it would likely cause the Fed to postpone taking action.”[5]

  McCreadie sights the recent steep decline in the market as evidence that “this Paradox” may be losing favor, and markets could continue experiencing volatility as bad news for the economy is seen as bad news for the equity markets as well. Among the risks are a possible continuation of Japan interest rate hikes and volatility in the currency market; companies perhaps reaching a point in spending on AI where  the potential future revenue may not be enough to justify sky high share prices; the massive government debt with which both political parties will need to deal; and potential sector volatility as one or the other presidential candidates is ahead in the polls at a given time, and from whose election particular sectors might benefit.[6]

  As we head into fall and the peak of County Fair season, we may find ourselves on another wild ride with more spins and turns than a Tilt-A-Whirl. Not to worry! We have learned through experience how to maintain our balance and stick to our discipline. Whether or not the economy remains resilient enough for a soft landing, opportunities in the market will present themselves. Meantime, our guard will be up. The Fed, having determined the direction in which to travel, will eventually begin the journey. It’s likely to feature some rest stops along the way. If they decide to visit a Midway along their journey, let us hope they don’t stay too long at the Fair.

  We wish you a lazy, hazy end of summer, and a happy autumn. Your trust in us means more than words can say.  Please reach out to us with any questions or concerns; we love hearing from you. Thank you for your support.  

The Galarneau Group,

Debbie, Preston, and Katie

Disclosure: These are the opinions of The Galarneau Group and not necessarily those of Cambridge Investment Research, and are for informational purposes only, and should not be construed or acted upon as individualized investment advice.