2024...Echoes of 2010-2011?

The current economic and investment environment is similar to the recovery period following the 2008 financial crisis, particularly in 2010 and 2011. Key indicators, from the labor market to manufacturing and services, reflect patterns of uneven recovery and cautious optimism. Understanding these similarities can help us better navigate today’s economic landscape. Here’s a closer look at how different indicators are performing and what they mean for the economy.

Labor Market

The labor market is showing varied trends across different sectors, similar to the recovery after the 2008 financial crisis. In May, more people quit their jobs in accommodation and food services, while fewer did so in government jobs. Quits increased in construction, professional services, and retail, similar to the early 2010s when some sectors bounced back faster. The leisure and hospitality sector saw a big drop in quits, the lowest since August 2020, indicating stabilization. Hiring rates have leveled off, although they are still lower compared to last year, resembling the slow but steady hiring growth of the early 2010s.

Manufacturing and Services

The manufacturing and services sectors are still getting back to normal after the pandemic, similar to the recovery after the 2008 financial crisis. Supplier deliveries are stabilizing after major disruptions. Employment in both sectors was still shrinking in June, showing ongoing labor market challenges like in 2009-2010. However, the ISM Manufacturing PMI showed a slight increase in industries reporting growth, similar to the gradual improvement in manufacturing activity during that period.

Trade and Logistics

Freight container rates have generally gone up this year, but not on all routes, similar to the uneven global trade recovery seen in 2011-2012. For example, routes like Rotterdam to New York and Los Angeles to Shanghai haven't seen sharp increases. The ISM Manufacturing's prices paid component has risen along with freight costs over the past year, showing similar inflation pressures in the supply chain as in the early 2010s.

Real Estate and Home Improvement

The housing market is strong, with Redfin reporting a new high in home prices at the end of June, similar to the boom of 2012-2013. Median sale prices increased by 4.9% year-over-year to $397,954. Home improvement spending also saw a significant rebound in May, reflecting the post-recession trend when spending on home upgrades surged as the economy stabilized.

Market Sentiment and Investment Trends

U.S. large-cap equity ETFs saw strong inflows, while interest in cyclical sectors declined, similar to early 2010s market behavior. Despite this, investment-grade and government bonds still attracted funds, showing cautious investor sentiment. Large speculators and hedge funds increased their short positions in small caps, echoing the careful approach to riskier investments seen after the financial crisis.

Earnings and Valuation

The U.S. Earnings Revisions Index has turned negative, indicating caution in corporate earnings outlooks, similar to the early 2010s. Job openings are declining, suggesting a slowdown in the Employment Cost Index, like the gradual labor market recovery post-2008. Since October 2022, the S&P 500's forward P/E ratio has risen by nearly 39%, and forward EPS has increased by 10.3%, showing a significant rise in valuation multiples, similar to the market re-rating after the financial crisis.

Consumer Spending and Inflation

Consumer spending shows mixed signals, similar to the early recovery phase after 2008. In May, the PCE index highlighted housing and utilities as major inflation drivers, reflecting early 2010s inflation trends. The personal savings rate slightly increased in May, while wage and salary growth remained strong, with a six-month annualized change of +6.1%, mirroring the post-crisis recovery in consumer financial health.

Summary

The current economic environment, with mixed recovery signals, is much like the early recovery phase after the 2008 financial crisis, particularly from 2010 to 2011 . A key difference, however, is that 2010-2011 was not an election year. At that time, we saw uneven sector recoveries, cautious market sentiment, and specific inflationary pressures, similar to today. Understanding these parallels can help us communicate to our clients the present economic landscape more effectively.

Worth noting the S&P 500 Index was up 16% and 32% respectively in 2012 and 2013.

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