2024 | July 1

The Markets

Stocks Flat

The S&P 500 posted a tiny weekly decline while the NASDAQ rose slightly as both indexes remained near record-high levels in a quiet week of trading. The Dow slipped, remaining about 2% below the record that it set six weeks earlier.

The U.S. Federal Reserve’s preferred inflation gauge moved closer to the Fed’s long-term inflation target of around 2.0%. Excluding energy and food prices, the core Personal Consumption Expenditures Index rose at an annual rate of 2.6% in May, marking the slowest price growth in more than three years.

The first half of 2024 produced lopsided results across the U.S. equity market. Through June 26, a single information technology sector stock contributed around 30% of the overall total return of the S&P 500, according to S&P Dow Jones Indices. In addition, just five tech-oriented stocks accounted for more than half of the index’s year-to-date total return.

At midyear 2024, an index that measures investors’ expectations of short-term U.S. stock market volatility was slightly below its year-end 2023 level and down 35% from its year-to-date high reached on April 15. With the exception of April, there have been few big movements in the CBOE Volatility Index (VIX), which has generally remained below its historical average. 

Expectations are positive heading into earnings season, which opens in mid-July as major banks begin reporting second-quarter results. As of June 21, analysts surveyed by FactSet were expecting companies in the S&P 500 to post an average earnings increase of 8.8% compared with the same period a year earlier—potentially the fourth consecutive quarter of year-over-year earnings growth.

A monthly labor market report due out on Friday will show whether May’s acceleration in jobs growth was an anomaly or the start of a trend. In May, the economy generated a better-than-expected 272,000 jobs, up from the 165,000 jobs added in April. May’s wage growth also exceeded expectations.

Source: John Hancock Investment Management

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During the 20^th century, manufacturing drove economic growth in many countries. As Japan recovered from the devastation of World War II, it produced inexpensive goods that carried the label, “Made in Japan.” As wages rose, manufacturers moved production and the labels on low-cost goods changed to “Made in China,” “Made in Vietnam,” and “Made in India,” among other places.

The Economist cited Harvard Professor Dani Rodrik, explaining that manufacturing boosted economic development for three primary reasons. It helped less developed countries:

• Produce goods that could be sold in global markets.
•  Improve productivity through technological advancement.
• Create jobs by putting unskilled laborers to work.

As manufacturing has become more capital intensive, we’ve begun to see a change. Instead of pursuing manufacturing, emerging countries are now outsourcing services. Recently, an example of this type of cross-border commerce went viral when a social media post showed a cashier at a Japanese fried chicken joint in New York City working via screen from the Philippines.

“The importance of services is growing in part because they are gaining some of the attributes of manufacturing. Start with cross-border commerce. Trade in services reached nearly $8 [trillion] last year, up 60% from a decade ago. Trade in manufacturing is three times bigger—but only grew 25% over this period,” reported Arjun Ramani and Mike Bird of The Economist.

The sophistication of outsourced services varies. For instance, “The Philippines is a giant when it comes to all kinds of outsourced back-office business. Ghana is Africa’s IT hub. Turkey is known for health tourism…”

Only time will tell whether service exports can improve standards of living in emerging countries as manufacturing does.

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Charles Schwab

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Emily Triano

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