July 8, 2024 12:50 PM

The Weekly Wire: Growth Expectations Diverging

Weekly market commentary from Orion’s Chief Investment Officer – Wealth Management, Rusty Vanneman, CFA, CMT, BFA.

Wealth Management

By: Rusty Vanneman

Topics: Portfolio Management

We hope you had a safe and enjoyable holiday last week. Despite the holiday-shortened week, there was plenty of news and market action. Both the S&P 500 and NASDAQ indices reached new all-time highs. Notable stocks, including Meta (Facebook) and Tesla, saw significant gains, with Tesla up 27%, erasing its year-to-date losses. Bond yields also moved lower after two weeks of increases.

A major driver of the lower yields and strong stock gains on Friday was the June unemployment report. The unemployment rate rose to 4.1%, its highest since Q4 2021. Although the headline number of 206K jobs gained beat expectations of 190K, other details were less positive. For instance, May's strong job gain was revised down from 272K to 218K, and April's from 165K to 108K. Annualized wage growth also fell below 4% for the first time since June 2021. In addition, initial jobless claims have been trending higher, and job openings trending lower. As the head economist for Strategas recently wrote: "Small cracks, but not big cracks. U.S. economic data is slowing but are not overly worrisome yet." The markets seem to agree, with long-term bond yields slightly lower and increased expectations of a Fed rate cut in September.

This week, all eyes will be on key inflation data, with the Consumer Price Index (CPI) and Producer Price Index (PPI) released. Federal Reserve Chair Jerome Powell will also give his semiannual testimony before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. Additionally, second-quarter earnings reports begin, with major financials like JPMorgan, Wells Fargo, and Citi reporting on Friday. Delta Air Lines reports earlier in the week. Given the recent airport traffic and the long lines at their Sky Lounges, earnings might start on a positive note.

Looking ahead, it will be interesting to see how the divergence between corporate earnings growth expectations and GDP growth reconciles. Corporate earnings have been strong, with S&P 500 companies showing over 8% year-over-year growth in operating earnings and 11%+ in reported earnings for the second quarter. This marked the fifth consecutive quarter of improving year-over-year earnings growth. Expectations are for above-average operating earnings growth of 12%+ in 2024 and 15%+ in 2025. This economic momentum supports the stock market and mitigates some valuation concerns. However, GDP growth was below average in Q1 2024, and recent economic data has deteriorated. The Federal Reserve Bank of Atlanta's GDPNow predicts Q2 2024 GDP growth at 1.5%. In other words, the overall economic growth has been below average given the 20-year average growth rate of 2.0%.

In summary:

Stay invested. Stay diversified. Stay disciplined.

If you have any questions or comments, please let us know at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust. See you next week!

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Key Data

Stocks, Bonds, Alternatives, & Real Assets as of July 5, 2024

Security Name	Risk Score	1 Wk	1 Mo	QTD	YTD	1 Yr	3 Yr Ann.
Global Equities (60% US, 40% Intl)	100	1.85%	2.76%	1.85%	12.67%	21.28%	5.90%
S&P 500 Total Return	102	1.98%	4.11%	1.98%	17.57%	27.10%	10.26%
Dow Jones Industrial Average	97	0.69%	1.58%	0.69%	5.52%	17.20%	6.37%
NASDAQ 100 Total Return	122	3.62%	7.22%	3.62%	21.73%	35.26%	12.38%
TV Benchmark	107	2.10%	4.30%	2.10%	14.94%	26.52%	9.67%
Morningstar US Large Cap	102	2.55%	5.38%	2.55%	20.84%	31.57%	11.04%
Morningstar US Mid Cap	113	-0.41%	-0.74%	-0.41%	4.82%	12.49%	2.73%
Morningstar US Small Cap	125	-0.90%	-1.30%	-0.90%	0.93%	10.56%	-0.25%
Morningstar US Value	98	-0.40%	-0.57%	-0.40%	6.39%	14.43%	7.53%
Morningstar US Growth	126	1.40%	3.93%	1.40%	12.50%	22.13%	1.94%
MSCI ACWI Ex USA	98	2.04%	1.34%	2.04%	8.20%	14.44%	1.61%
MSCI EAFE	101	2.17%	0.00%	2.17%	8.04%	15.08%	3.88%
MSCI EM	98	1.96%	4.63%	1.96%	9.79%	13.70%	-3.61%
Bloomberg US Agg Bond Index	27	0.71%	0.40%	0.71%	0.00%	3.99%	-2.83%
Bloomberg Commodity Index	70	1.60%	1.06%	1.60%	6.83%	6.03%	6.05%
Wilshire Liquid Alternative Index	25	0.47%	0.60%	0.47%	4.16%	7.89%	1.46%
US Dollar	10	-0.73%	0.98%	-0.70%	3.75%	2.03%	4.46%
Bloomberg US Treasury Bill 1-3mo	1	0.10%	0.47%	0.10%	2.78%	5.53%	3.14%

Source: Morningstar

The TV Benchmark represents an average of the S&P 500, Dow Jones IA, and NASDAQ 100 return indexes. The Orion Risk Score represents risk relative to the global equity market.

Interest Rates as of July 5, 2024

Rate	This Week	1 Wk Δ%
13-Wk Treasury Yield	5.22%	0.01%
10-Yr Treasury Yield	4.27%	-0.07%
Bloomberg US Agg Yield	4.99%	-0.10%
Avg Money Mkt Yield	5.13%	0.00%
Avg 30-Yr Mortgage Rate	6.99%	0.03%

Sources: Yahoo Finance, S&P Global, Crane Data, BankRate

Key Economic Data Last Week

Data Point	Expectation	Actual
ISM Manufacturing	49.2%	48.5%
ADP Employment	160,000	150,000
ISM Services	52.8%	48.8%
Nonfarm Payrolls	200,000	206,000
US Unemployment Rate	4.0%	4.1%

Sources: MarketWatch, First Trust

Key Economic Data This Week

Data Point	Expectation	Release Date
Consumer Credit	$8.0B	7/8/24
Consumer Price Index (CPI) YoY	3.1%	7/11/24
Core CPI YoY	3.4%	7/11/24
Producer Price Index (PPI) YoY	--	7/12/24
Core PPI YoY	--	7/12/24

Source: MarketWatch

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The views expressed herein are exclusively those of Orion Portfolio Solutions, LLC d/b/a Brinker Capital Investments a registered investment advisor, and are not meant as investment advice and are subject to change.

An index is an unmanaged group of assets considered to be representative of a select segment or segments of the market in general, as determined by the index manager for the purposes of managing a specific index. You cannot invest directly in an index.

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