April kicked off with down markets and uncertainty about rate cuts and inflation, but as we head into Q3, we are seeing some indicators that things are improving. But are those changes here to stay, and what do they mean for the upcoming months?
Here is a look back at the 2024 Q2 markets and economy, and how the rest of the year might unfold:
The Federal Reserve and Interest Rates
The Federal Reserve opted to keep interest rates where they’re at during the June meeting. This marked the seventh meeting in a row that the Fed did not change interest rates. Currently, rates are still sitting at 5.25 percent to 5.50 percent.
The Fed reiterated that before they cut rates, they want the inflation rate to fall closer to 2%, and the economy to show signs of cooling off. Fed Chair Jerome Powell has said that the inflation rate does not have to be at 2 percent for them to start dropping rates; the data just has to show that it is moving sustainably closer to that target.
As of mid-July, those numbers have begun to show marked progress. Consumer prices fell in June for the first time since July 2022, and inflation dropped 0.1 percent for the first time in awhile, bringing the current inflation rate down to 3 percent.
Those numbers are a good sign; if those trends continue, the Federal Reserve might plan to cut rates in September, which would be great news for home buyers and small businesses.
2024 Q2: Market Performance
The markets were off to a sluggish start in April. Investors kicked off the year optimistically, but when it became clear that the Fed would not be cutting rates anytime soon, the markets began to fall.
But that didn’t last too long. Buoyed by more promising inflation numbers and excitement for AI companies like Nvidia, the markets began to rebound. The US market index rose 3.48 percent in the second quarter, bringing stocks up 23.78 percent over the past 12 months.
Overall, however, it’s been a good year for investors. The S&P 500 is up about 15 percent for the year to date, and the Nasdaq Composite is currently up 18.1 percent.
The yield curve remained inverted in the second quarter, which marks two years since it inverted. This happens when short-term US treasury debts (like bonds) have higher yields than longer-term marketable securities.
It also happens to be a warning sign for an impending recession, though it’s not a guarantee. A more long term inversion is a more reliable indicator that a recession could be coming, though it’s only one of several figures that helps to measure the health of the economy.
If the Fed does cut interest rates, that could help alleviate the inversion and give the bond market (which has really taken a hit from the high interest rates over the past few years) a boost.
You can read more about yield curve inversions in our post, The Inverted Yield Curve: What You Should Know.
2024: What might be in store for the economy
It’s looking more and more likely that the Federal Reserve has pulled off the “soft landing” that it was hoping for. Their goal was to bring down the inflation rate and slow the economy without throwing the country into a recession, which is no small feat.
But there is still much to come in the final months of the year, including a contentious election, ongoing geopolitical tensions, and unknowns about the Federal Reserve’s next moves – all of which could have implications for the markets and economy.
About Michael
Michael is a CFP® with over 15 years of experience working with families accumulating and preserving wealth. Do you need help planning for your financial future? Contact us today to set up a meeting to talk about your goals.