Inflation Rising, But Less, Stocks Rise, Jamie Speaks Truth, and Stonewall

May 20, 2024

APRIL INFLATION NUMBERS:  After a few months of discouraging inflation data, April provided some relief. The Consumer Price Index rose 0.3% in April, bringing the annual, 12-month number down to 3.4% (it was 3.5% last month, and 3.2% the month before). The "core" CPI (removing food and energy) rose 0.3%, and the twelve-month number is now 3.6%, down from 3.8% last month, and the lowest that number has been since 2021. The core inflation number is the one the Fed watches more closely, and thus investors were buoyed by these numbers. This will likely lead investors to believe that the Fed will take a rate hike off the table, and perhaps begin cutting some time this year. A big driver of recent inflation has been rent increases, and that slowed in April.

RETAIL SALES FLAT IN APRIL:  From March to April, retail sales were unchanged. Consumers increased spending on food and gasoline but slowed down on bigger ticket items such as cars and furniture. 

STOCKS RISE ON INFLATION DATA: U.S. stocks experienced a broad-based rally this past week, cheered by the return of cooling inflation after three months where inflation refused to budge and showed signs of rising further. This renewed hopes that the Fed will cut interest rates later this year. The fact that retail sales came in flat added to that thesis.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

DOWNS AND UPS:  The overall market, below represented by the S&P 500, has had a couple of very different months, and we still have a lot of May left!

MORE CENTRAL BANKS HOLD ON INTEREST RATES:  The central banks of both China and the Philippines announced last week that they are not moving their key interest rates. 

GOOD FOR JAMIE:  Last week, the CEO of JPMorgan Chase, Jamie Dimon, publicly urged the U.S. government to reduce its fiscal deficit soon. It will get "far more uncomfortable" if the issue continues to be overlooked, said Mr. Dimon. "Any country can borrow money and drive some growth, but that may not always lead to good growth. So, I think America should be quite aware that we have got to focus on our fiscal deficit issues a little bit more, and that is important for the world." For fiscal 2023, the U.S. government deficit was $1.7 trillion. So far this year, it is $855 billion. He stated that he did not believe it will lead to big problems in the next couple of year, but it will cause a problem at some point, so why wait to address it.

CHINA TRIES TO FIX ITS REAL ESTATE CONUNDRUM:  The Chinese government is making a big effort to fix its overbuilt, overleveraged real estate market. The central bank is putting $42 billion into a program to buy excess housing inventory and convert it into affordable housing. The government is easing mortgage rules to lower down payment requirements and urging local governments to buy unsold homes. This is not enough to fix China's real estate problem, but markets reacted positively.

DATA CENTERS GROWING ELECTRICITY DEMANDS:  According to Goldman Sachs research, data centers currently consume 1-2% of overall electric power. By the end of the decade, that is expected to double. U.S. utilities will need to spend abound $50 billion in new generation capacity to support new data centers. In Europe this will grow even more because about 15% of the world's data centers reside there. With growing data centers, and the oldest power grid in the world, Europe has a more challenging task to keep up with the electricity demand. 

TOTAL STATE TAX BURDEN:  Visual Capitalist recently did an analysis of the total tax burden in each state in the U.S., meaning the combination of property tax, individual income tax and sales and excise tax. The top taxing states are New York (12.0%), Hawaii (11.8%), Vermont (11.1%), Maine (10.7%), and California (10.4%). The lowest are Alaska (4.9%), New Hampshire (5.6%), Wyoming (5.7%), and Florida and Tennessee (both 6.1%).  

JAPAN'S ECONOMY SHRINKS:  In the first quarter of 2024, Japan's economy contracted. Inflation caused by a weak yen (the yen is trading at a 34-year low compared to the U.S. dollar) is hurting consumers. The economy shrank by 0.5%. The Japanese economy was flat in the fourth quarter of 2023.

A GREAT GOLF DAY:  On Monday, Cairn University held its annual golf classic at the Stonewall, a beautiful golf club in Elverson, Pennsylvania. It started out as an iffy day weatherwise, but two of my foursome were optimistic and wore shorts. It turned out to be a perfect golf day. Stonecrop Wealth Advisors was one of the sponsors, and we got a couple of pictures with our sign on the 17th hole. As usual in these events, I pulled up the rear in my foursome, but I was the tallest.

Have a great week!

Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545

dmacgray@stonecropadvisors.com

"The career doesn't get any easier. A career stays tough." Dabney Coleman (1932-May 16, 2024)

"So in everything, do to others what you would have them do to you." Matthew 7:12 (NIV)

SOURCES:

APRIL INFLATION NUMBERS: https://www.bls.gov/news.release/cpi.nr0.htm

RETAIL SALES FLAT IN APRIL: https://www.census.gov/retail/sales.html

GOOD FOR JAMIE: https://www.cnbc.com/2024/05/15/jpmorgan-ceo-jamie-dimon-urges-us-to-deal-with-its-fiscal-deficit.html

CHINA TRIES TO FIX ITS REAL ESTATE CONUNDRUM: https://gritcap.io/p/game-stopped

TOTAL STATE TAX BURDEN: https://www.visualcapitalist.com/visualizing-the-tax-burden-of-every-u-s-state/

DATA CENTERS GROWING ELECTRICITY DEMANDS: https://www.goldmansachs.com/intelligence/pages/AI-poised-to-drive-160-increase-in-power-demand.html?chl=em&plt=briefings&cid=0517&plc=body

MORE CENTRAL BANKS HOLD ON INFLATION: https://www.wsj.com/economy/central-banking/chinas-central-bank-holds-key-policy-rates-steady-c43a2b6f AND https://www.wsj.com/economy/central-banking/philippines-central-bank-keeps-rates-steady-to-guard-against-inflation-ef438a5c JAPAN'S ECONOMY SHRINKS: https://www.wsj.com/economy/japans-economy-shrinks-again-as-inflation-hits-consumers-pocketbooks-cb7da5b7

(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.

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