Cents and Sensibilities

Despite recent market and political volatility, the foundations of the U.S. economy remain healthy.

• YOY vs WOW – We end the week on a bit of a down-turn, but YOY market increases remain strong.

• Economic Resilience – Second-quarter GDP growth exceeded expectations at 2.8%, with healthy consumption growth of 2.3%. Future growth is expected to cool but remain positive.

The stock market's pivot away from tech giants toward small-cap, value, and cyclical sectors is continuing and raising concerns about its longevity.

• Inflation and Interest Rates – With inflation cooling to 3.0% year-over-year, analysts now anticipate up to three Fed rate cuts by year-end (beginning in September).

• Earnings Growth – Second-quarter earnings are surpassing expectations, driven by sectors like finance, energy, and healthcare, while tech takes a backseat. Earnings growth is projected to exceed 16% in the fourth quarter.

Though the dominance of tech giants on the market may show a down-shift, they continue to comprise a significant portion of the S&P 500 Index.

• Overall Trends – The top 10 stocks now comprise a third of the S&P 500's market value, with big tech like Amazon, Microsoft, and Alphabet leading in growth and concentration.

• Sector Weights – Information Technology leads the pack, making up 32.4% of the S&P 500, while Financials account for about 12.4%.

• Talk To Me – Communication Services is the most concentrated sector, with the top 10 companies representing 96.5% of its market cap, and Alphabet alone making up 25.8%.

The U.S. economy is strong, but showing signs of slowing (ultimately a good thing for the Fed to consider interest rate cuts).

• Economic Growth – After a slow start to the year, the economy experienced a boost in the second quarter, exceeding expectations with a total production of $22.9T sold in goods.

• Employment Trends – Job growth is slowing, with 206,000 jobs added in June, but this is still below the 10-year median. The unemployment rate rose slightly to 4.1%.

• Inflation and Interest Rates – Inflation has decreased to 3% in June, down from 3.3% in May, but still above the Fed's 2% target.

• Mortgage Rates – 30-year mortgage rates have dipped to 6.8% since May, but remain well above the 10-year median of 3.95%.

Gallup's Economic Confidence Index (ECI) remains at -35 in July, reflecting continued negative sentiment about the U.S. economy despite the healthy growth in Q2.

• Confidence Trends – After gaining 20 points from November to March, the ECI has returned to December 2023 levels. It reached a low of -58 in June 2022, the worst since the Great Recession.

• Economic Evaluations – Nearly half of Americans (46%) rate current economic conditions as "poor," while only 22% view them as "excellent" or "good."

• COL – 13% of Americans still cite high living costs as a top concern.

As August begins, we see signs that the depreciation rate for used vehicles is stabilizing, with last week's rate slowing to match typical seasonal patterns.

• Depreciation Trends – After significant declines, the depreciation rate for used vehicles is now aligning with normal rates for this time of year.

• Inventory Turn-over – The estimated Used Retail Days-to-Turn is rising and is now at roughly 53 days.