Model Portfolios | July Update

S&P 500 5460.48 10-Year UST Yield 4.40% :: June 30, 2024

“In politics it is necessary either to betray one's country or the electorate. I prefer to betray the electorate.”

-Charles de Gaulle

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COMMENTARY

The S&P 500 closed in record-high territory on seventeen occasions during June and it finished the month at 5,460. Since bottoming in late October 2023 at a closing low of 4,117, the S&P 500 has risen 32.6%. Following this strong eight-month advance, the S&P 500 is currently trading at 22.3 times our calendar year 2024 earnings estimate.

Below is a list of the ten highest S&P 500 closing levels, all of which occurred in June:

According to ICI, Money Market Fund Assets hovered around $6.1 trillion in June. Here is our recent post highlighting the most attractive money market and CD rates available nationwide. We update the list every month.

The NAHB/Wells Fargo Housing Market Index (HMI) fell two points to 43 in June, the lowest reading since December 2023. Readings above 50 are indicative of favorable single-family home builder sentiment. Persistently high mortgage rates were blamed for the weakness in the index. The current sales conditions index fell three points to 48, the measure of sales expectations over the next six months declined four points to 47, and the prospective buyer traffic index fell two points to 28. The NAHB Chief Economist noted that “a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%”. Regionally, the Northeast was the strongest, holding steady with a reading of 61, and the West was the weakest, with a reading of 41. The Midwest and South were slightly weaker at 47 and 46 respectively.

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INFLATION UPDATE

The Fed’s preferred inflation measure is the personal consumption expenditure (PCE) price index. The most recent PCE inflation report showed the index was unchanged in May. The core PCE, which excludes the food and energy components, rose 0.1% during the month.

The pace of headline PCE inflation peaked at 7.1% year-over-year in June 2022 and has been hovering around 2.5% so far this year. The core PCE rate peaked at 5.6% in February 2022 and has decelerated to 2.6%. The most recent three-month annualized headline PCE inflation rate is 2.4% and the three-month annualized core-PCE rate is 2.7%. Although the latest inflation figures have been encouraging, our view is that the Fed is unlikely to feel comfortable lowering the federal funds rate at the upcoming July meeting. Fed officials want to see further evidence that inflation is moving sustainably to their 2% inflation target.

Headline PCE:

+0.0% seasonally adjusted in May, following 0.3% in April

+2.6% year-over-year

+2.4% latest 3 months annualized

+3.0% latest 6 months annualized

Core PCE: (excludes food and energy)

+0.1% seasonally adjusted in May, following +0.3% in April

+2.6% year-over-year

+2.7% latest 3 months annualized

+3.2% latest 6 months annualized

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FEDERAL RESERVE UPDATE

The next FOMC meeting is scheduled for July 30th and 31st. We do not anticipate any monetary policy change at the July meeting. Fed Chair Powell has laid out two potential paths toward rate cuts in the coming months. Either the inflation rate will decelerate toward a sustainable 2% rate, or the unemployment rate will rise more rapidly than the Fed intends. As shown in the CME FedWatch Tool below, investors currently anticipate the initial 25 basis point rate cut at either the September 18th or November 7th FOMC meeting.

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MONEY SUPPLY

Below is the monthly update of the Marketimer and Brinker Fixed Income Advisor Model Portfolios through June 30, 2024.