Skip to main content
Locate Branch or ATM cart
Locate Branch or ATM cart
mail

Monthly Economic and Investment Outlook

June 2024 Economic and Investment Outlook

United States

stock market bull statue
  • Q1’s real GDP was revised down from the first estimate of 1.6% to 1.3% (seasonally adjusted annual rate). However, Q1 real GDP growth remained at 2.9% y/y. The revision primarily reflected an adjustment for slightly weaker consumer spending.
  • The job market remains strong, with the U.S. economy generating 272k jobs in May, well above the consensus of 185K. The unemployment rate rose to 4.0%, from 3.9% in April. Average hourly earnings rose 4.1% y/y compared to 3.9% last month.
  • Through March 2024, the Case-Shiller Home Price Index is up 47.4%, compared to February 2020 (pre-COVID). Meanwhile, the Consumer Price Index through March was up 20.4% versus February 2020 levels.
  • U.S. existing home sales fell -1.9% m/m in April. Overall, existing home sales remain depressed, with 4.14 million homes sold at a seasonally adjusted annual rate.
  • Both supply and demand in the U.S. housing market appear to have ebbed, with mortgage rates remaining at elevated levels. Higher mortgage rates and home prices create a challenging environment for the U.S. housing market, which represents 3-5% of U.S. GDP.

    current mortgage rates vs homeowner 

     

  • April’s headline Personal Consumption Expenditure (PCE) price index held steady at 2.7% y/y, the same as 2.7% in March. Core PCE, excluding volatile food and energy prices, remained unchanged at 2.8% y/y, from the previous month, and in line with economists’ expectations.
  • May’s ISM manufacturing index remained in contractionary territory for the 2nd consecutive month. At 48.7%, the index remains above the 2023 average of 47.1%, but continues to indicate manufacturing weakness. Production showed some strength, while new orders and order backlogs slowed.
  • The ISM services index rebounded nicely in May, rising 4.4 percentage points to 53.8%, a nine-month high, from 49.4% the previous month.
  • The Conference Board’s Leading Economic Index (LEI) fell in April. The LEI has fallen in 26 of the last 27 months. Still, no recession in the U.S.


    leading index net contributions
    Source: Piper Sandler
       

Global

  • The final manufacturing PMIs for May reaffirm that the outlook for the Eurozone’s industrial sector is slowly improving. The PMI improved from 45.7% in April to 47.3% in May. However, the recovery remains uneven throughout the Eurozone, illustrated by Spain’s PMI of 54%, compared to Italy’s 45.6%.

    eurozone manufacturing pmis
    Source: Oxford Economics/S&P Global
          

  • The Eurozone’s composite PMI, which includes both manufacturing and services, remains solidly in expansion territory at 52.2% in May. Much like the U.S. economy, the Eurozone’s economic growth is driven by the service sector.
  • The European Central Bank (ECB) lowered the key deposit rate to 3.75% in early June, given the progress made on inflation and despite signs of its stickiness. The rate cut, the first in five years, was seen as a preventative move to keep monetary policy from becoming too restrictive, as inflation is anticipated to fall from current levels.
  • ECB President Lagarde stated that this is a moderation in policy restrictiveness, and there is a “strong likelihood” that it will lead to further cuts, if the data signals disinflation.
  • Eurozone’s May flash headline CPI of 2.6% y/y was slightly higher than expected, and above the 2.4% posted in April. Core inflation also rose from April’s 2.7% to 2.9% in May. Higher inflation was driven primarily by an increase in energy prices and wages.

    current mortgage rates vs homeowner
    Source: Piper Sandler
       

  • While Brent crude oil prices have backed off from their recent springtime peak, oil prices remain relatively high to where they were five years ago, prior to the pandemic. While almost all prices and wages are higher today than five years ago, Brent crude prices are up approximately 23% , similar to the U.S. headline CPI increase over the same time-period. It appears energy prices are increasing in-line with overall inflation.
  • The China Caixin manufacturing purchasing index rose from 51.4% in April to 51.7% in May, the highest level since June 2022. China’s emphasis on manufacturing and exports is reflected in the PMI’s monthly improvement.

Fixed Income

  • The recent batch of weaker-than-expected economic data raised the number of expected 25 basis points cuts in the federal funds rate (FFR) from two to three over the next twelve months. However, the recent weaker economic data does not mean the economy is falling into a recession.

     
    federal funds rate changes
     Source: LSEG Datastream and © Yardeni Research. 
    *12-month futures FFR minus FFR all divided by 25.


  • Should the Fed decide to cut the FFR later this year, it will be important for the financial markets to understand why rates were cut. Did the Fed cut because of slower economic growth or lower inflation? The markets may react differently to the rate cut depending on the reason why.
  • After negative performance returns in April, the fixed income market rebounded in May, but performance remains mixed year-to-date. Returns are positive across all major fixed income asset classes over the past 12 months.
  • Yields on the U.S. Treasury have traded in a fairly-wide range over the preceding 12 months (3.65% - 5.02%), most likely a reflection of the fixed income markets struggle to determine the future strength or weakness of the U.S. economy and to anticipate the timing and direction of the Federal Reserve’s next fed funds interest rate move.

    Barron's 
     Source: BARRON'S

  • The lack of certainty and clarity in the direction of interest rates, both at the short and long ends of the yield curve, reinforces our decision to remain benchmark neutral in duration in our fixed income investment strategies.

Tactical Fixed Income Allocation

  • Neutral duration to the fixed income strategy’s respective benchmark as fixed income markets digest economic data and attempt to anticipate the Fed’s next interest rate move.
  • Slight overweight to short-term investment grade corporates versus the respective benchmark to capture additional income with minimal incremental risk.

Equity Market

  • Both the S&P 500 and the NASDAQ Composite Index have recently hit all-time highs, after strong performance in May. The S&P 500 returned 4.96% in May, and 11.30% YTD. Similarly, the NASDAQ Composite Index was up 6.88% in May, and 11.48% YTD.
  • However, the return differential between growth and value styles has been noticeable over the years. The Russell 3000 Growth Index is up 5.96% in May, and 12.66% YTD. The Russell 3000 Value Index returned 3.25% in May, and 7.23% YTD.
  • The return differential is even greater when looking back ten years. The 10-year annualized return for the Russell 3000 Growth Index is 15.29% for the period ending May 31, 2024. The return for the Russell 3000 Value Index, over the same time-period, is 8.50%, a difference of more than 6.50% per year.
  • The Artificial Intelligence (AI) craze and technology capital expenditures by large companies has fueled another rally in growth stocks. Growth may continue to lead the equity markets, if higher margin and asset light businesses have staying power.

          
    annualized trailing 10yr
    Strategas Research Partners
         

  • According to Strategas, “AI” mentions during S&P 500 company earnings calls may be past the hype cycle for “AI”. That certainly does not suggest the “AI” investment theme is over, but rather durable fundamentals will be necessary to propel equity prices higher from these levels.



    S&P 500 company mentions ai

Tactical Equity Allocation

  • Overweight to U.S. Large Cap stocks with an emphasis on equities with quality, defensive, and strong cash flow characteristics.
  • Underweight to International Developed with no exposure to Emerging Markets. Although valuations remain attractive relative to U.S. equities, these asset classes may be pressured by a stronger U.S. Dollar and slower economic growth.
  • Slight exposure to gold, to serve as a hedge, in a geopolitically tense global environment.
Notices & Disclosures
Past performance is no guarantee of future results. Products and services offered through F.N.B. Investment Advisors, Inc. are not FDIC insured; and are not insured by any Federal Government Agency, are not deposits or obligations of or guaranteed by First National Bank of Pennsylvania or its affiliates and may go down in value. The material has been extracted from various sources that F.N.B. Investment Advisors, Inc. believes reliable, but we cannot guarantee the accuracy or integrity of the material. This material is for your private information, and we are not soliciting any action based upon it. Any projections, market outlooks or estimates contained herein are forward-looking statements and are based upon certain assumptions. Other events that were not considered may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly herein will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with their investment advisor. You can review your registered investment advisors or the investment advisory firm at the SEC's Investment Adviser Public Disclosure page - http://www.adviserinfo.sec.gov/IAPD/Default.aspxRedirect icon.

Redirect icon - For your convenience, First National Bank (FNB) provides links to third party service providers. By clicking this link you agree to leave FNB’s website and will be routed to a third party site outside the control of FNB. FNB does not provide, and is not responsible for, the products, services, or overall website content available at a third-party site. FNB does not endorse or guarantee the product, information or service on any third party’s website. FNB’s privacy policy does not apply to the linked website; we encourage you to read and evaluate the privacy and security policies of the site you are entering.

0 items in your cart

Cart Proceed to Checkout

Product video