In today’s Steady Investor, we look at key factors that we believe are currently impacting the market, and what could be next such as:
• Business activity accelerates in the U.S. and Europe
• Bullish investors piling into stock and bond funds
• What investors should know about the T+1 settlement
Business Activity Accelerates in the U.S. and Europe –Throughout 2023, the eurozone economy struggled to produce growth, ‘muddling through’ the first half of the year and contracting in the second half. The United States economy took a different path, growing solidly throughout 2023 and even accelerating into the final quarter. Now, it appears that the growth gap between the two economic areas is narrowing, with Europe showing signs of gaining strength in Q2 2024. For three consecutive months, eurozone business activity has increased, and in May posted its strongest indication of expansion in over a year. Eurozone Composite PMI, which combines manufacturing and services, rose to 52.3 from 51.7, led by increased activity in German services and manufacturing. The United States also showed acceleration in May, with Composite PMI rising from 51.3 in April to 54.4 in May. The combined strength in economic activity bodes well for global economic growth in the second quarter and also bolsters the possibility that corporate earnings could meet and possibly exceed expectations.1
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Fund Flows Show Investors Pouring Capital Back into Stock and Bond Funds –U.S.-based mutual and exchange-traded funds experienced significant outflows in 2022 and 2023. The tides appear to be turning. In 2024 year-to-date, these funds have seen $172 billion of inflows, while assets in money-market funds and other low-risk instruments have leveled off. Globally, fund flows into stock and bond funds have been the highest ever through April, totaling $468 billion. There are two key takeaways here. The first is a reminder that fund flow data is a lagging indicator – it often signals investors increasingly embracing a rally that has long been underway. In 2023, U.S. stocks posted a banner year, recovering strongly from 2022’s bear market and posting over +20% in gains. But investors did not respond last year with increasing equity and bond fund flows – money-market funds attracted more capital. Second, it is likely fair to categorize current rising fund flows as an indication that investor sentiment is becoming more positive. To quote the famous investor John Templeton, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” In our view, this fund flow data is a sign that investors are being slightly less skeptical and more optimistic, indicating plenty of runway yet for the bull market from a sentiment perspective.3
New Stock Settlement Rule Goes into Effect This Week – The Securities and Exchange Commission (SEC) recently amended a rule regarding trading and settlements, which went into effect this week. Known officially as T+1, the rule puts trade settlements for stocks, bonds, and related assets on a one-day timetable. That means that securities sold must be delivered in one day, and cash from sales will also be made available to investors on the same timetable. This marks a departure from the standard T+2 securities settlement that has been in effect since 2017. For many investors, the shorter settlement cycle provides more convenience and flexibility in trading, but it could also impact investment, trading, and tax decisions.4
How to Protect Your Retirement in This Economy – While there is no way to prevent market volatility, there is a way to protect your retirement assets through market fluctuations. We recommend finding a retirement strategy that takes the “what ifs” into account. Our free guide can help you prepare for what’s to come as you plan your ultimate retirement.
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