Unshaken U.S. markets
U.S. markets have been on an epic run – the S&P 500 hasn't seen a 2% one-day drop in almost a year. Will this trend persist? History shows that U.S. markets have demonstrated similar strength in the past, sometimes for even longer periods, but volatility always makes a comeback. Currently, with emerging weaknesses in the consumer segment and labor market, and declining breadth across equity markets, it seems the market is set for a pullback. However, if there's one thing this market has consistently shown, it is its ability to defy even the strongest indicators.
Inflation has stuck around for your summer barbecues
Last year I wrote in this note to expect another guest at your summer barbecues: inflation. As the chart below illustrates, prices of summer barbecue essentials haven't moderated much since last Independence Day. Despite the Federal Reserve maintaining peak interest rates for 11 months, this has only been moderately successful in curbing price growth. The Fed now believes that the slowdown in inflation is sufficient to justify one rate cut this year – a move likely to be welcomed by the market. However, prices remain elevated, continuing to stretch consumer budgets.
Americans are working harder
More Americans are holding multiple jobs now than at any point before the pandemic. This trend could be driven by workers struggling to keep up with inflation and taking on additional jobs to make ends meet. Alternatively, it might be that employers, facing a tough hiring environment, are retaining workers but cutting back their hours. Reduced hours mean lower income, which could force workers to find second jobs. Either way, the increase in workers juggling multiple jobs is a concerning sign for the strength of the labor market.
The U.S. is flexing in the global energy market
For the past six years, the U.S. has topped the charts in crude oil production, setting records unmatched by any nation in history. This highlights a significant shift in the U.S. stance on energy production. Interestingly, President Biden, who campaigned on a clean energy agenda, has permitted more drilling than former President Trump did, indicating a readiness to support traditional energy production if it benefits consumer prices. Looking forward, regardless of the outcome of the presidential election, we expect U.S. energy production will remain robust. This suggests investors shouldn’t overlook this long-underinvested segment of the market.
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