I recently took a look at a whole bunch of economic data charts compiled by economists and strategists from the financial world. Much of this information shows that the U.S. economy can still achieve a soft landing coming out of the interest rate hiking cycle of the past few years.
Regarding the stock market, there are mixed reviews with some showing further room to run in this current bull market while others expect a pullback, especially with uncertainty picking up as we approach the November elections.
Here are a few of those charts that I wanted you to see:
Shelter and auto insurance have been the two stubborn pieces of inflation that haven’t subsided yet. The good news is that rents and mortgage rates are rising much slower or even dropping in some areas, which should help get inflation down to the Federal Reserve’s target of 2% sometime in 2025.
Because inflation has taken up all the oxygen in the room over the past few years, disposable income outpacing inflation is not a well-known statistic, but here it is. Both employee compensation and disposable personal income have increased more than inflation since the pandemic. Also, inflation is expected to continue to drop through the rest of this year, so consumers should see their disposable income increase, assuming their salaries remain the same.
Chicago Board Options Exchange (CBOE) Volatility Index, more commonly known as the VIX, is an options-based measure of expected S&P 500 volatility over the next 30 days. When this indicator is consistently below 20, stocks tend to perform well. This was the case in the mid-1990s, mid-2000s, and much of the 2010s. When the VIX spikes, it is an indicator of a recession, of which the four most recent are shown as the shaded regions in the chart above. So, we could be in a period of low VIX, which is good for stocks, or about to enter a period where the VIX spikes. Interest rate and election forces will be what moves this index through the rest of this year.
To summarize, the economy and markets have done well so far in 2024 but it feels like we are at an inflection point now. The two big influencers are interest rates and the elections. These will dictate how we finish up in 2024. It should be an interesting ride into the end of the year.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassemanagement.com
