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Summer 2024 Investment Outlook – July 23

Is the growth momentum sustainable?

At a glance

Easing business sentiment and slower U.S. labor market growth supported hopes for a Federal Reserve interest rate cut in September. U.S. equity markets continue their positive trend led by the technology sector.

Number of the week:

16.7%

The S&P 500’s return in the first two quarters of the year.

Term of the week:

Earnings per share

A company’s net income subtracted by preferred dividends then divided by the number of common shares of stock it has outstanding. The number indicates how much money a company makes for each share of its stock and is a widely used metric for estimating corporate value.

Quote of the week:

The June U.S. jobs report softened from recent robust growth. The unemployment rate ticked up to 4.1%, with more people seeking jobs. Average hourly earnings growth slowed to 3.9% for the past year, from 4.1% in May. While nonfarm payrolls added 206,000 jobs, April and May saw negative revisions totaling 111,000 jobs. Despite the dip, the average monthly gain in 2024 is a solid 222,000.

Robert Haworth, CFA, Senior Vice President, Senior Investment Strategy Director, U.S. Bank

Global economy

Quick take: U.S. business sentiment faltered in June, with services businesses joining manufactures indicating contracting activity. U.S. job market data showed slowing wage gains despite still-solid payroll growth. Foreign purchasing manager surveys suggest a broad expansion in the global economy led by services.

Our view: The global economy continues to see moderating growth, especially across manufacturing activity, and inflation is decelerating. Despite higher interest rates, the U.S. Bank Economic Team sees conditions consistent with a soft landing in the U.S.

Equity markets

Quick take: Halfway through 2024, the S&P 500 continues to drift higher, led by large technology stocks. Fundamental and technical backdrops remain supportive of higher equity prices.

Our view: Waning inflation, moderating interest rates and stable earnings projections are providing valuation support and a basis for U.S. equities to trend higher.

Bond markets

Quick take: Treasury yields fell last week, boosting bond returns. Longer-maturity bonds performed best with labor market data decelerating, increasing the odds of two rate cuts by year-end.

Our view: The prospect of gradual interest rate cuts creates a generally favorable backdrop for high-quality bonds, but meeting investor expectations for cuts depends on making further progress toward the Fed’s 2% inflation target. We continue to see opportunities in blending high-quality bonds near decade-high yield levels with modest exposures to somewhat esoteric higher yielding bonds like non-agency mortgages, high-quality collateralized loan obligations and reinsurance for those eligible.

Real assets

Quick take: Real assets traded poorly versus the S&P 500 during the July 4 holiday-shortened week. Commodities performed the best, led by metals. Infrastructure posted modest gains but were unable to hold pace with the broader market. Real Estate posted negative returns for the week, with most subsectors down despite falling interest rates.

Our view: Diversified publicly traded real estate trusts remain inexpensive relative to private real estate. Tangible assets with stable cash flows present relative opportunities if currently strong investor sentiment erodes. Commodities can be compelling due to their potential for inflation protection.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The NASDAQ Composite Index is a market-capitalization weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded blue chip stocks and is the most widely used indicator of the overall condition of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. The Institute of Supply Management Manufacturing Index, also called the Purchasing Manager's Index, measures manufacturing activity based on a monthly survey, conducted by the Institute for Supply Management, of purchasing managers at more than 300 manufacturing firms.

Insights from our experts

How we approach your long-term investing success

We use a data- and process-driven three step methodology to develop an investment strategy unique to you.

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Disclosures

Investment products and services are:
Not a deposit • Not FDIC insured • May lose value • Not bank guaranteed • Not insured by any federal government agency

U.S. Wealth Management – U.S. Bank is a marketing logo for U.S. Bank.

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

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The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.