By Rick Schwerd | May 17, 2024
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on June 7.
Economic Data Keeps Goldilocks Environment in Place
Wednesday’s Consumer Price Index (CPI) data came in a tad better than expected and Retail Sales showed zero month-over-month growth. These data points, added to the recent trend of softening, yet still solid economic growth, and improving, though slowly declining inflation. First-quarter GDP came out at the end of last month and was a lower-than-expected 1.6 percent. As we discussed in our last update, the April labor market data was also softer than expected.
Aside from the inflation data, it is understandable to think that lower GDP growth, softer jobs data and weaker retail sales growth would all be negative. However, the economic data is providing conditions that are beneficial for financial markets. A slowing yet still growing economy should allow inflation to continue to moderate, which, in turn, keeps potential Federal Reserve rate cuts on the table for later in the year. Companies generally perform better in a declining interest rate environment.
Dow Jones Hits 40,000
The Dow Jones Industrial Average hit 40,000 for the first time yesterday, coming seven years after surpassing 30,000. All the major large-cap stock indexes hit new records this week, fully recovering from April’s pullback. We thought it would be a good time to review the different indexes we regularly discuss:
- Dow Jones Industrial Average – Likely the most famous of the stock market indexes, the Dow measures the performance of 30 prominent, publicly traded companies, including the likes of Apple, Caterpillar, Home Depot, Johnson & Johnson and Proctor & Gamble. It tends to be more value-oriented vs. growth-oriented. One unique aspect is that it is price-weighted, meaning stocks with higher prices have a greater impact on the index’s movement than those with lower prices. For example, price moves in Goldman Sachs, with a stock price of 464.54, will have a greater impact on the index than Apple, with a stock price of 189.84, even though Apple is a much larger company by market value.
- S&P 500 – Widely regarded as the one of the best indicators of overall health of the U.S. stock market, and the favored index for market prognosticators. The S&P 500 tracks the performance of 500 of the largest publicly traded U.S. based companies. The index is market-capitalization-weighted, meaning that larger companies, like Microsoft, have greater influence on the index’s movements than smaller companies.
- NASDAQ – The NASDAQ tracks the performance of more than 3,000 companies listed on the NASDAQ Stock Exchange, covering a wide range of industries with a strong emphasis on technology and biotech companies. It is often viewed as a key indicator of the performance of tech and growth stocks within the U.S. Like the S&P 500, it is also market-cap weighted.
As mentioned above, the Dow hit 40,000 before pulling back a little bit. The index is now up 5.5 percent over the last month and 5.75 percent for the year. The S&P 500 crossed 5,300 for the first time this week. It is also up 5.5 percent over the last month and is more than 11 percent higher year to date. The NASDAQ is also more than 11 percent higher this year and has gained nearly 6.5 percent over the last month. Bonds joined the party as well, rallying recently on the softer economic data and better news on inflation.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Saratoga National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships. He is also co-portfolio manager of the proprietary North Country Large Cap Equity Fund.