Private Client Group

June 25th, 2024

U.S. Treasury Rally Slows, Consumer Spending Down, Corporations Flush With Cash

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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

Source: Federal Reserve Bank of St. Louis2

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!

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

1 Wall Street Journal. June 17, 2024. https://www.wsj.com/finance/investing/a-big-bond-rally-is-promising-some-help-for-home-buyers-1ca5c75f?mod=hp_lead_pos2&mod=djemRTE_h

2 Fred Economic Data. June 18, 2024. https://fred.stlouisfed.org/series/DGS10

3 Zacks Investment Management reserves the right to amend the terms or rescind the free-Market Strategy Report offer at any time and for any reason at its discretion.

4 Axios. June 18, 2024. https://www.axios.com/2024/06/18/consumer-retail-spending-slowdown-economy

5 Yahoo Finance. June 14, 2024. https://finance.yahoo.com/news/us-consumer-sentiment-unexpectedly-falls-141504234.html

6 Yahoo Finance. June 13, 2024. https://finance.yahoo.com/news/us-corporate-stockpiles-grow-soaring-120053243.html

7 Zacks Investment Management reserves the right to amend the terms or rescind the free-Market Strategy Report offer at any time and for any reason at its discretion.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.

Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.

Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
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