After considerable volatility from late February through April, markets have stabilized and have reached new record highs, seemingly unaffected by persistent uncertainty. Although unpredictable tariff policy, unprecedented executive actions, and a budget bill projected to dramatically expand the federal deficit remain ongoing concerns, market volatility in response to these developments has diminished.

Firings of senior officials – including those responsible for overseeing the collection and reporting of key economic and statistical data – could threaten the integrity and reputation of the organizations along with the financial market’s confidence in the data they provide. Even before these dismissals, we believe there was a noticeable decline in the quality of inflation statistics, with the Bureau of Labor Statistics increasing its use of estimates from a historical average of 10% to 30%.¹ As we examine the economy and markets, we note that the relationship between data and market responses may be evolving.

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As we seek to update you on the state and the economy, we recognize that many of our clients and colleagues have limited their news consumption since the election. We are an engaged community, many of us on edge over the chaos and potential harm we may experience over the next four years. We pledge to continue keeping you updated on our fact-based interpretations of the economy and markets. We will continue to add our analysis about how the facts impact our themes of climate solutions and the environment, racial and gender equity, sustainable and regenerative agriculture, and community wealth building.

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As we write, the 2024 general election in the United States is less than two weeks away, and values-aligned investors are keenly aware of the social and environmental issues that are on the line. With this letter, we aim to put the economy and markets in context of the upcoming election, and to put this election in some historical context as well.

The US economy continues to remain resilient. In the second quarter the economy grew at an annualized rate of 3%, accelerating from an upwardly revised 1.6% expansion in the first quarter. This is in line with the 3% year-over-year GDP growth as strong consumer spending driven by a resilient labor market and wage growth continues to support the US economy. Inflation pressures continued to ease, allowing the Federal Reserve greater confidence to shift their primary focus from lowering inflation to supporting the labor market. In September, they lowered interest rates by 50 bps (0.5%), making the first rate cut in four years.

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The first half of 2024 has brought significant volatility to stock markets, expectations about possible interest rate cuts, and to our political process in the United States. In our summer letter we aim to make sense of this volatility and help shed light on some of the possibilities in the months ahead. 

The US economy remains resilient, but growth is starting to slow, as many households have depleted their excess savings and as the labor market has begun to soften. Elevated interest rates, tightening lending standards and slowing consumer credit growth are expected to continue to be headwinds. US consumer sentiment has decreased to a 7-month low in June as higher prices continue to weigh heavily on Americans’ finances and impact their living standard.¹

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Against the headwinds of eleven Fed interest rate hikes, which started in March of 2022 and plateaued at 5.25%-5.5% in July of 2023, the US economy remains strong. ¹ Consumer spending withstood higher borrowing costs, persistent, but slowing, inflation, and the dwindling of pandemic era savings. 

Both the manufacturing and services purchasing manager index (PMI), which are indicators of economic resilience, were in expansionary territory as of March 2024. There was a slight deterioration in services PMI in the first quarter and consumer sentiment worsened due to higher inflation expectations, but real wage growth remains positive supporting consumer spending, which accounts for nearly 70% of the US GDP.

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