This market overview comes from information from our friends at the Wells Fargo Investment Institute. If you would like a copy of the report this information came from, please let us know. Here in Houston, we are recovering from Hurricane Beryl, and we hope everyone is safe and doing well.

U.S. Economic Overview

In the second quarter of 2024, the U.S. economy showed signs of slowing down. The unemployment rate rose to 4.1%, the highest since November 2021, while nonfarm payrolls increased by 206,000, aligning more closely with pre-pandemic levels. Consumer weaknesses became evident, with credit-card delinquency rates reaching a 12-year high and lower savings rates. Despite these challenges, a potential reduction in Federal Reserve rates later this year could support real income growth if inflation continues to ease.

International Economic Overview

Europe: experienced an uneven recovery, with economic stability threatened by election-related turmoil and rising populism, especially in France. June business surveys indicated moderate service-sector growth due to tourism, while manufacturing faced significant declines. Inflation easing to 2.5% in June improved consumer purchasing power.

Asia: Manufacturing in Asia gained momentum, driven by tech industries in Taiwan and South Korea, while China showed minimal growth. Vietnam and India outperformed, benefiting from supply-chain shifts away from China.

Stock Market Review and Strategy

U.S. Equities: The U.S. stock market had mixed results. Large-cap stocks rose by 4.3%, driven by the "Magnificent 7", which contrasted with the negative performance of mid- and small-cap stocks. Information Technology and Communication Services sectors led the gains, while Materials and Industrials lagged.

International Equities: Developed market equities slightly declined by 0.2%, whereas emerging market equities increased by 5.1%, with strong performances in Asia, particularly in India and Taiwan.

Bond Market Review and Strategy

U.S. Fixed Income: Treasury yields fell as inflation stabilized, though economic softening was evident. The Treasury yield curve remained inverted, suggesting pessimism about future economic growth. Investment-grade corporate bonds performed modestly, while high-yield bonds outperformed due to their lower sensitivity to interest rates.

Municipal Bonds: Performance remained flat. The municipal yield curve inversion mirrored the U.S. Treasury curve, but these bonds are still considered resilient during economic downturns.

International Fixed Income: Unhedged developed market bonds dropped by 3.9%, affected by a strong U.S. dollar. Hedged bonds and emerging market bonds also faced challenges.

Real Assets Review and Strategy

Energy: The Bloomberg Commodity Energy Subindex rose by 3.0%, though crude oil prices declined slightly. OPEC+ plans to gradually unwind production cuts starting in October 2024, maintaining supply control to prevent a glut.

Metals: Precious metals, especially gold and silver, performed well, driven by strong demand and geopolitical tensions. Industrial metals also saw gains, although China's economic fragility poses risks to continued growth.

Conclusion

The second quarter of 2024 highlighted several economic and market dynamics. The U.S. economy showed signs of slowing, but potential Fed rate cuts might provide some relief. Internationally, Europe and Asia faced mixed economic conditions, impacting market performances. U.S. equities were driven by a few large-cap stocks, while bond markets reflected economic uncertainties with an inverted yield curve. Real assets and alternative investments presented both opportunities and challenges, influenced by global supply dynamics and economic shifts. Investors should consider these factors when making strategic decisions for the latter half of the year.




Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy and security or instrument or to participate in any trading strategy. Additional information is available upon request.