Trust Investment Management
Performance among equities and fixed income was mixed in the second quarter. U.S. large cap and emerging markets rallied 4.28% and 5.00%, respectively. While U.S. small cap saw the most prominent decline of -3.28%, weighing down its YTD return, developed international was nearly flat. In fixed income, high yield bonds continued their advance with a 1.09% return. U.S. aggregate bonds managed to post a small but positive gain, thanks to a robust return in June. Global bonds continued to struggle. Although the second quarter began with concerns over persistent inflation, over time the general price level for goods softened. The favorable inflation data helped support the markets and suggested that the Fed should begin cutting rates later this year.
The Fed decided to maintain the target range for the federal funds rate at their last meeting. The U.S. Bureau of Labor Statistics released the Consumer Price Index Summary mid-June. The index for all items less food and energy rose 0.2% in May, which was cooler than expected and down from the 0.3% reported for the previous month. The latest projections from the CME Group’s FedWatch tool suggest that there is a 75% probability the Federal target rate will be 50 basis points lower by the end of this year (suggesting two 25 basis point cuts).
The Federal Reserve Board and Federal Open Market Committee released their economic projections from the June FOMC meeting. Meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2024 to 2026 and over the longer run. The median projected change in real GDP is 2.1% for 2024, and 2.0% for both 2025 and 2026. The projected unemployment rate is 4% for 2024, rising to 4.2% in 2025 before dropping to 4.1% in 2026. Inflation is expected to continue declining before reaching the Feds target 2% rate in 2026. The Organization for Economic Cooperation and Development (OECD) commented that global activity has proved surprisingly resilient so far and their GDP growth projections for 2024 and 2025 are positive for the U.S. and global economy in general. Inflation is continuing to decline, the labor markets are healthy, and the economy remains resilient. The Fed appears to be gliding the economic plane smoothly onto the runway, for the moment.
