Sensational Stocks, Nightmare Electricity, and Loathsome Inflation

Mike Leslie
June 13, 2024

Electricity prices for the U.S. remain at an all-time high while the Federal Reserve kicks the can on rate cuts.

Inputs that matter: The Federal Reserve on Wednesday projected only one rate cut for the remainder of 2024.

  • The central bank’s "terminal rate" for 2024, or the rate at which its benchmark fed funds rate will peak, went up to 5.1%, equivalent to a target range of 5% to 5.25%.
  • In March, the Fed projected three rate cuts this year, with the Fed funds rate hitting 4.6%.

The opportunity: Financial markets entered 2024 with a head of steam, propelled by the belief that Fed rate cuts were coming soon.

  • Treasury rates have widened considerably this year, with the 10-year Treasury note yield moving 60 bps higher since year-end.
  • The Secured Overnight Financing Rate (SOFR), the reference rate for most leveraged loans, still hovers at 5.3%.

Zoom in: Despite the gloom, the S&P 500 has surged 11% to date following a blowout return of 24% in 2023, and all three major U.S. market indexes have touched record highs in 2024 without help from the Fed.

  • Bitcoin recently reclaimed its previous all-time high, and other cryptocurrencies have increased appreciably this year.
  • Precious metals have made new highs, and some industrial metals have retested multi-year highs.
  • Copper recently neared $11,000 per metric ton for the first time.

Between the lines: Meanwhile, China’s consumer price index (CPI) grew by 0.3 percent year-on-year in May, matching April’s figure and falling slightly short of economists’ expectations.

  • The Chinese government has implemented various measures to stimulate economic activity, including incentives for housing purchases and consumer goods trade-ins, as well as initiatives to boost job creation and domestic demand.

Follow the money: While equities markets continue to shine, commercial office space is expected to continue deteriorating.

  • Fitch Ratings supports the grim outlook with the surprising amount of office space on the market for lease, sustained higher interest rates, and severely restricted commercial real estate (CRE) lending by banks.

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