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Is this the Investing Dog Days of Summer?




At the risk of sounding like a broken record, as we enter the Dog Days of Summer the “soft landing” scenario remains intact. First half stock gains, while not enjoyed by all names, have resulted in some very good mutual fund and ETF returns. Fed policy appears to be working as hoped, and disinflation has restarted after brief pause.


As analysts, we’d love to have more exciting news to report, but we’re here first and foremost to help make you money over the intermediate-to long term. And it’s hard to argue with the results over the last 18 months.


While monetary policy has pleased investors, the economic outlook is not perfectly rosy. Signs of softening are there, especially in high-end items (housing, autos, non-durable goods). High rents and mortgage payments, coupled with stubbornly high prices on necessities, have held back spending on goods and kept consumer confidence constrained.


But spending on services is relatively strong, as older Americans with low mortgage rates and lofty investment account balances spend on travel, leisure, and entertainment. In addition, enthusiasm for all things related to Artificial Intelligence has continued, best seen in the performance of ship and cloud companies.


Since the key to the US economy is the consumer, the overall result is a moderate loss in economic momentum. First Quarter Gross Domestic Product was quite a bit slower than the Second Half of 2023, and the GDP Now forecast of Second Quarter 2024 growth is 1.7%. Not great, but the economy is still growing. In other words, there is no evidence of the tide turning and the economy falling into recession.


The pattern of disinflation resumed after a pause in March and April. The Core Personal Consumption Expenditures Index, the Fed’s preferred gauge, showed a slim .1% increase in prices from April to May. That’s the smallest increase since the Spring of 2020.


Fed policy appears to be working regarding inflation. Some of the progress has to be credited to other factors, such as the sharp decrease in import prices from China as they navigate their real estate induced slowdown. If the overall disinflation pattern continues, this could give the Fed the confidence they’ve been seeking that inflation is reliably headed toward their 2% target. Investors have been waiting patiently for the result, which could be a cut in interest rates as soon as September.



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