Market Update with Marc Chandler

June 13, 2024 — The U.S. economy is continuing to prove to be more resilient than many economists and policymakers expected. It is being fueled by consumption, which has been aided by average wages rising faster than inflation and a relatively large cyclically adjusted fiscal stance. The Congressional Budget Office estimates the budget deficit will be around 5.6% of the total value of all goods and services produced in the US (GDP). They further predict this deficit will increase to 6.1% of GDP next year.

Recent economic reports such as the jobs report and CPI report reflect subtle signs below the surface that the economy is slowing. The Bureau of Labor Statistics estimates that about 1.24MM jobs have been created in the first five months of the year, down from 1.50MM in the January-May 2023 period.

Yet, due to the quirkiness of GDP math, the US economy may be growing faster in the second quarter than it did in the first. The 1.3% annualized rate in Q1 was held back by inventories, trade, and a slowing in government spending. In Q2, those headwinds slackened, and growth is likely to return above 1.8%, which the Federal Reserve estimates is the long-term sustainable (non-inflationary) pace.

Due to the current global environment, this remains an unusual business cycle. While some indicators, like the yield curve and economic leading indicators, suggest a potential slowdown, the overall outlook remains positive for this year. Historically, economic growth tends to be steady during presidential election years, with a few exceptions like the 2000 tech boom and the 2008 financial crisis. There's a chance growth might slow down next year, but for now, the signs point towards continued economic activity.

US interest rates might have hit their highest point for now. Short-term rates (2-year) went up over 5% in April but then dipped to around 4.7%. This drop happened because inflation wasn't as bad as expected in May, and the Federal Reserve is even considering lowering rates later in 2024. Rates on longer-term loans (10-year) also rose in April but have fallen since. These government interest rates are a benchmark for setting consumer and business rates.

The Federal Reserve recently adjusted its predictions for interest rates. Earlier this year, they thought they would lower rates three times in 2024. Now, they expect only one cut this year. However, they added an additional rate cut in 2025, followed by four rate cuts then. Fed officials will re-visit these projections in September.

This shift in the Fed's outlook, while suggesting a slightly less accommodative monetary policy, doesn't diminish the strong M&A environment. M&A activity remains high and there are plenty of valuable opportunities for businesses to invest in growth. Don’t miss out on an opportunity to expand your market share, access new technologies, and unlock synergies. With careful planning and execution, M&A can propel your business to the next level.

Marc Chandler

Chief Market Strategist, Bannockburn Global Forex

(An Oak Street Funding affiliate)

About Oak Street Funding
Indianapolis-based Oak Street Funding, a First Financial Bank company, provides customized financial solutions for businesses in various industry sectors and third-party loan servicing for financial institutions. Oak Street Funding incorporates industry knowledge, easy-to-use technology and exceptional employees to deliver top-quality service and capital products to niche businesses nationwide. With in-house sales, underwriting, and servicing teams, and direct access to the CEO and executive team, Oak Street Funding is well-positioned to meet lending needs of borrowers in all stages of the business life cycle.

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