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Stocks Move Higher; Investors Encouraged by FOMC Minutes 

Overview: Stocks across the globe were higher last week, led by international developed (MSCI EAFE) and emerging markets (MCSI EM), which were up 2.2% and 2.0%, respectively, on the week. In the U.S., the S&P 500 index rallied 2.0%, finishing its fourth positive week in the past five weeks. Investors were encouraged by the June FOMC minutes that showed the Fed’s dual mandate of maximum employment along with stable prices continues to improve. The minutes emphasized price pressures are “diminishing,” but also noted more data is required to give them greater confidence to begin cutting interest rates. In economic data, the June employment report showed the labor market slowing, with a downward revision of 111,000 jobs to prior month’s reports offsetting a solid 206,000 gain reported for June. In addition, the unemployment rate increased to 4.1%, the highest level since November 2021. According to the CME FedWatch data, markets now are pricing in two rate cuts in 2024, with the first expected in September. Key inflation data will be released on Thursday with the headline Consumer Price Index (CPI) expected to fall from 3.3% in May to 3.1% for June. 

The Effect of Tourism on European GDP (from JP Morgan): Summer travel is more than just sightseeing; it’s a critical economic driver for many countries. The European Commission estimates tourism makes up to 10% of the EU’s annual GDP and as much as 25% for some individual countries. With the UN predicting 2024 will be the biggest year for international travel to Europe since 2019, there is good reason to believe that tourism, along with other factors, could boost the EU economy. Travel spending falls under the consumption bucket of GDP. Private consumption growth in the eurozone peaked at a booming 6.7% y/y in 2Q21, but, as rising energy costs squeezed consumers, it fell sharply in 2022. However, with energy woes subsiding, real wages rising and travel activity recovering, consumption could be poised for a comeback. This would allow the more services-oriented economies in Southern Europe to sustain their stronger contributions to GDP. Additionally, all EU countries, but especially those in Southern Europe, are set to benefit from the almost 300 billion euros the Recovery Fund plans to deploy over the next three years. Moreover, the larger economies, such as Germany, are slowly recovering as evidenced by stabilizing PMIs and industrial confidence. However, long-term challenges such as the aging population still pose risks to growth. Consensus forecasts show the EU accelerating while other developed economies slow down over the next two years. Although investors have long worried about the EU’s sluggish economy, a mix of foreign and domestic factors seems to be shifting in its favor.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, Factset, CNBC.

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