Monthly Market Update

Soft Landing or Something More Sinister?

• Gross Domestic Product (3Q24): The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 2.1% on September 4, up from 2.0% on September 3^rd.
• Employment (August): Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate
• changed little at 4.2%, the U.S. Bureau of Labor Statistics reported. The labor force participation rate remained at 62.7% in August and is little changed over the year. Job gains occurred in construction and health care.
• Inflation (July): The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% on a seasonally adjusted basis, after declining 0.1% in June, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 2.9% before seasonal adjustment. The index for all items less food and energy rose 0.2% in July, after rising 0.1% the preceding month. The all items less food and energy index rose 3.2% over the last 12 months and was the smallest 12-month increase in that index since April 2021.
• The Producer Price Index (PPI) (July): The Producer Price Index for final demand increased 0.1% in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. On an unadjusted basis, the index for final demand advanced 2.2% for the 12 months ended in July.
• Retail and Food Services Sales (July): Advance estimates of U.S. retail and food services sales for July 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $709.7 billion, an increase of 1.0% (±0.5%) from the previous month, and up 2.7% (±0.5%) from July 2023.
• Personal Income and PCE (July): Personal income increased $75.1 billion (0.3% at a monthly rate) in July, according to estimates released by the U.S. Bureau of Economic Analysis. From the preceding month, the PCE price index for July increased 0.2%. Excluding food and energy, the PCE price index increased 0.2%. From the same month one year ago, the PCE price index for July increased 2.5%. Food prices increased 1.4% and energy prices increased 1.9%. Excluding food and energy, the PCE price index increased 2.6% from one year ago.

Fed Cut Coming in September, How Big?

The last FOMC meeting took place on July 31^st, 2024. The Committee decided to maintain the target range for the federal funds rate at 5.25% to 5.50% for the 8^th straight meeting. As of this writing, markets are pricing in a 73% chance of a -25 bps cut, and 27% of a -50 bps rate cut at the September 18^th, 2024 meeting.

Highlights of Jackson Hole:

• Fed is Planning to Cut Rates in September: “Our restrictive monetary policy helped restore balance between aggregate supply and demand, easing inflationary pressures and ensuring that inflation expectations remained well anchored. Inflation is now much closer to our objective, with prices having risen 2.5% over the past 12 months. After a pause earlier this year, progress toward our 2% objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2%”.
• Labor Market Conditions: “Even so, the cooling in labor market conditions is unmistakable. Job gains remain solid but have slowed this year.Job vacancies have fallen, and the ratio of vacancies to unemployment has returned to its pre-pandemic range. The hiring and quits rates are now below the levels that prevailed in 2018 and 2019. Nominal wage gains have moderated. All told, labor market conditions are now less tight than just before the pandemic in 2019—a year when inflation ran below 2%. It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon. We do not seek or welcome further cooling in labor market conditions”.
• Fed Focused on Achieving Dual Mandate Goals: “Overall, the economy continues to grow at a solid pace. But the inflation and labor market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate”.
• Rate Cuts Depend on Incoming Data: “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks”.

Monthly and YTD returns

Source: Morningstar asset class screening total return 1 month USD and total return YTD as of September 1^st, 2024

Definitions:

Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).

• • GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
  • The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
  • Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
  • The Consumer Price Index (CPI):Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
  • The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
  • The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work. Source: Bureau of Labor Statistics (BLS).
  • Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
  • Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
  • The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
  • The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

  Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

  Financial Markets – Monthly and YTD returns (Table): Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (JPM EMBI Global), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond), and Developed Markets Sovereign (excl. US) (JPM GBI Global Ex US). Source: Morningstar.

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  The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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