This Week’s Noise
August ISM Manufacturing printed 47.2 vs. consensus 47.5, now in contraction for a fifth consecutive month (FactSet)
JOLTS job openings report on Wednesday,
ADP private payrolls, initial jobless claims, and ISM services on Thursday.
Friday gives us the employment report. Consensus estimates are that Nonfarm payrolls are expected to increase by ~165K in August Factset
Current Market Outlook (6 to 12 months)
Market
A shift away from Artificial Intelligence (AI) winners will push markets around due to their larger market caps relative to the broader S&P. An economic soft landing seems to be the narrative for stocks for the remainder of ’24. Volatility is expected as the market figures out exactly what the economic picture looks like. Elections tend to exacerbate tensions and expectations. Remember, “Hating the government is not an investment philosophy.”
Economic
As of this week, we expect 200bps or 2.00% Fed Funds rate cuts over the next 18 months. As previously stated, a soft landing is underway. The latest data and comments have indicated that the Fed may have a path to cut rates. We don’t expect the Fed to march back down to near 0% after that 18-month stretch. If that is the case, the economic picture is much worse than anyone expects.
Long-Term View (4 to 7 years)
In the long term, we believe the US economy will continue to outperform other world economies. This is supported by a combination of re-shoring manufacturing, new investments resulting from the Inflation Reduction Act, US energy independence, and higher productivity due to the implementation of Artificial Intelligence (AI) software/systems.
We started 2023 off predicting the broad stock market would return to the old highs in one to two years. It took only one year. We believe the US stock market should be 40% to 60% higher by the end of 2028. An S&P 500 index of 7,000 to 8,000 appears possible.
Bonds have re-emerged as an important part of asset allocation as yields have risen. We expect a diversified bond portfolio to produce returns of 3% to 5% above inflation for the next 5 to 7 years.
“Things that have never happened before happen all the time.”
? Morgan Housel, The Psychology of Money
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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
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