Zacks Investment Management

In this week’s Steady Investor, we dive into the latest market news that investors should watch out for, such as:
• An update on the U.S. Treasury bond rally
• Consumer retail spending slows down
• Corporate America remains flush with cash

Has the 10-Year U.S. Treasury Bond Peaked? The 10-year U.S. Treasury bond has been in rally mode since late April. As of last Friday, yields had fallen to 4.21%, marking the largest two-week decline of 2024 (remember, as bond prices rise, yields fall).¹

10-Year U.S. Treasury Bond Yields Have Been Trending Lower

Takeaways from 2024 So Far – Market Trends and What to Expect for the Rest of the Year

To stay ahead in the market, we recommend closely monitoring key financial indicators and market trends. To help you do this, we created our free June 2024 Zacks Market Strategy Report³, which offers some key takeaways from the Q1 earnings season and shares our insights on Q2 and beyond.

If you have $500,000 or more to invest and would like to learn more, download this report today!

Download Our Exclusive June Market Strategy Report³

The 10-year yield is influenced by expectations for the benchmark fed funds rate, which investors increasingly anticipate will be lowered this year. Of particular encouragement to these expectations was May’s benign inflation print, where CPI was flat month-over-month versus the 0.1% expected. Signs of cooling in the labor market with the unemployment rate rising to 4.0, and weaker-than-expected retail sales (see story below) have bolstered investors’ outlook for rate cuts, and may be driving some of the current demand for longer-duration Treasuries. Investors’ enthusiasm for bonds comes even as the Federal Reserve has continued to express caution about rate cuts in 2024. At the Fed’s June meeting, for example, 11 of 19 policymakers projected no more than one rate cut in 2024, with four officials signaling no cuts were likely in the year. Once again, the Fed’s outlook does not square with investors’ expectations, as futures markets showed a greater than 70% chance the Fed would cut rates twice this year.

Retail Sales Decelerate and Consumer Sentiment Falls – The U.S. Census Bureau reported May retail sales data this week, but the revision to April’s figures is arguably more newsworthy. Previously, the Census Bureau had reported flat month-over-month growth for retail sales from April to May, but that figure was revised down to a -0.2% decline. For May, retail sales registered at +0.1% month-over-month, which is fairly anemic growth at a time when the U.S. consumer is seen as a major support for the U.S. economy. A closer look at the data suggests it may be a bit premature to sound the alarm, however.⁴ Retail sales are not adjusted for inflation, and when excluding spending at gas stations—which saw lower prices in the month—retail sales were up 0.3%. One particular area of the report that gets a lot of attention is the so-called “control group,” which is retail spending less on autos, building supplies, food service, and gasoline. By this measure, May retail spending rose 0.4% month-over-month. Even still, it’s fair to say that consumers may be feeling a bit stretched, which is an argument supported by the latest University of Michigan’s consumer sentiment data. The sentiment index fell to a seven-month low in early June, falling from 69.1 to 65.6. Consensus had the index at 72.0.⁵

Corporate America Remains Flush with Cash – As U.S. consumers may be showing signs of running out of steam, corporate America is moving in the opposite direction. According to an analysis from the treasury advisory group Carfang Group, U.S. companies were holding a record $4.11 trillion in cash as of the end of Q1. Cash and cash-equivalent holdings were seen rising 12.6% year-over-year in Q1, and now stand approximately $1.28 trillion above their pre-pandemic baseline. Corporations have enjoyed a multi-year period of stronger-than-expected economic growth, and many hoarded cash in anticipation of a recession that never arrived. As interest rates moved higher, incentives to increase cash positions only grew, rising to the records we see today. There are no assurances that corporations will invest this surplus in new growth, or that some or many will increase share buyback programs—both of which would be steps towards increase equity shareholder value.⁶

Take a Look at Current Market Trends – The future of the market remains uncertain; therefore, it is prudent to prioritize data to make informed decisions.

In our free June 2024 Zacks Market Strategy Report⁷, we explore insights from the latest data on S&P 500 companies, highlighting the dominance of big tech, emerging strong sectors, increasing business investment, and reasons for optimism in the Medical sector. We also cover:

• Stock Market Insights from Q1 2024 Earnings Season
• Insights into the Q2 2024 Earnings Season
• Bottom Line for Investors
• …and much more!
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If you have $500,000 or more, fill out the form to get your free report today!

Download Our Exclusive June Market Strategy Report⁷

Disclosure