Investors have been eagerly awaiting the Fed’s first rate cut to signal the change in monetary policy. While inflation data ran hot in the first quarter, it is now showing signs of easing and they expect this trend to continue for various reasons they discuss in the outlook. This should provide the Fed an opportunity to cut rates as early as September and could provide a boost to stocks that haven’t been part of the artificial intelligence enthusiasm.

• Economic growth as measured by Gross Domestic Product (GDP) is cooling as expected from the strong second half of 2023. Economists and the Fed continue to think GDP in 2024 will be close to 2%, which is the goldilocks scenario investors are hoping for. 
   
• Through mid-June the S&P 500 is up nearly 15%, continuing to hit all-time highs as anticipation for Fed rate cuts and artificial intelligence fuels investor optimism. 
   
• Small cap and value stocks have lagged, similarly to much of 2023, as many stock indexes were pushed higher by large technology companies with big index weights.  
   
• The strength of the U.S. dollar continued to drag international equities down. Developed and emerging international market returns are positive this year but lagging U.S. large cap gains.  
   
• Bonds had a rough start to the year but have made up a lot of ground recently and major broad market indexes are flat heading into quarter end. 
   
• The possibility of increased volatility seems high with stretched valuations and a narrowly driven market. Bonds offer diversification and relatively high yields. We think any volatility might be short-lived and could provide opportunities.

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