1. Unchanged Inflation

The latest consumer price index (CPI) data released for May indicated prices were unchanged versus April! This is just the second 0.0% reading in the last three years (the last was July of 2022).

Source: Bureau of Labor Statistics. As of 6/12/2024.

The YoY headline CPI, MoM Core CPI and YoY Core CPI all rose less than market participants expected.

Source: Bureau of Labor Statistics. As of 6/12/2024.

Shelter continues to drive the majority of the increase in CPI, providing continued optimism that the outdated methodology of the CPI shelter metric means it will eventually close the gap with real-time measures that are far lower.

Source: Bureau of Labor Statistics. As of 6/12/2024.

For example, YoY owners’ equivalent rent metric in the most recent CPI report was 5.7% versus the Zillow Rent Index at 2.9%.

Source: Bureau of Labor Statistics, Zillow. As of 6/12/2024.

2. Despite Falling Inflation, Fed Increases Its Rate Outlook

The US Federal Reserve held rates steady, which was widely expected. However, the published Summary of Economic Projections (SEP) indicated policymakers remain cautious.

When Fed officials last updated their forecasts in March, the median expectation was for three interest rate cuts before the end of 2024 and for the core personal consumption expenditures price index (PCE) rate to fall to 2.6% by the end of the year. This week, Fed officials penciled in only one hike for the balance of the year and raised its 2024 inflation view to 2.8%. The median forecast for the longer-term Fed funds rate rose to 2.8% from 2.6%, suggesting Fed officials see a higher neutral rate of interest than they had earlier in the year.

Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual assumptions of projected appropriate monetary policy, June 2024

Source: Federal Reserve Summary of Economic Projections. 1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average of the two middle projections. 4. Longer-run projections for core PCE inflation are not collected.

FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate

Source: Federal Reserve Summary of Economic Projections. Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run.

3. Snap Elections in France Rattle Markets

French stocks experienced a sharp decline as the prospect of a far-right government under Marine Le Pen's National Rally party gained traction, raising concerns about potential policy shifts. In response, President Macron dissolved parliament and called for snap legislative elections in June and July, creating a period of heightened political uncertainty that has impacted the French stock market.

Markets fear that the National Rally’s control of parliament would cause a budget blowout like the one the United Kingdom experienced during the short tenure of Prime Minister Liz Truss.

The spread between benchmark French and German yields—a market barometer for the risk of holding France’s debt—rose to as much as 0.82 percentage points, the highest level since 2017.

And the country was the worst performer within the MSCI ACWI Index.

Source: FactSet/MSCI. As of 6/14/2024. Past performance does not guarantee and is not a reliable indicator of future results.

4. Apple Is Back, and so Is Narrow Index Leadership

One of the narratives in the first quarter of this year was changing market leadership, as Apple shares lagged the broader market by more than 20%. However, the company has staged a dramatic Q2 comeback, fueled by enthusiasm around its artificial intelligence (AI) announcements.

Source: FactSet/MSCI. As of 6/14/2024. Past performance does not guarantee and is not a reliable indicator of future results.

The company announced that it will incorporate AI tools into its upcoming suite of devices by leveraging a new partnership with OpenAI that will bring ChatGPT to Apple apps. You can read more about it in this WSJ article, Apple Intelligence: A Guide to Apple’s AI-In-Everything Strategy.

Investors have applauded the company’s latest move and believe it will reinvigorate sales of the iPhone, its biggest revenue driver. The newest AI features will only be available in the company's most powerful phones, meaning customers will have to upgrade to get access.

After this move, the combined contribution from Apple and NVIDIA makes up more than 100% of the MSCI ACWI Index’s Q2 return. Looking at sectors, information technology is currently the Q2 leader with a return of 12% (as of 6/14). However, if you were to exclude those two companies, the sector return would only be 3%.

Source: FactSet/MSCI. As of 6/14/2024. Past performance does not guarantee and is not a reliable indicator of future results.

5. Where Are Consumers Expected to Spend $1.1T This Year?

The WSJ recently published an article titled “The Unlikely New Real-Estate Darling: Restaurants” that highlighted the boom in this area of the economy as consumers are spending more and more money on food away from home.

According to the National Restaurant Association, the average household spent 54% of its food budget on food away from home last year, up 10% from 2003.

We have found multiple compelling opportunities in this industry, especially among fast-casual concepts. Some of our reasons why include:

These businesses are inherently complex due to the nature of their offerings: perishable items consumed on demand necessitate precise inventory management, complex supply chains, and packaging solutions that preserve food quality for takeout and delivery. This provides an opportunity for differentiation.
The industry is intensely competitive. However, there is ample opportunity for those that can provide a unique value proposition (things such as taste, perceived health, and price) given the frequency of meal consumption: breakfast, lunch, and dinner, seven days a week, all year round.
These businesses are increasingly benefiting from enhanced accessibility and convenience with the advent of delivery services, a trend accelerated by the pandemic.

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