Market Analysis and Economic Outlook Report for H2 2024

Our team at Infinite Giving is pleased to present our Market Analysis and Economic Outlook Report for the second half of 2024. As a Nonprofit Registered Investment Advisor, our goal is to provide you with insightful and actionable analysis of the current economic landscape. 

By providing these semi-annual reports on key market trends, our hope is to better inform our nonprofit clients about the potential impacts and opportunities for new financial strategies. 

In our mid-year update, we shared the cautious optimism for the U.S. economy’s outlook. A few observations continued to hold true on interest rates, yields, and industry performance by sector. 

With a keen understanding of these factors, we aim to support your organization's mission and financial health, helping you navigate the economic environment with better informed decision-making. Here is our analysis and the potential economic impacts as we head into 2025.

Interest Rates

The Federal Reserve recently ended 2024 with their third rate cut of the year, reducing the central bank's target rate to between 4.25% and 4.5%. In its statement announcing the cut, the Fed now projects just two interest rate cuts for 2025.  

In early 2025, we could see a potential rate cut if economic conditions soften, especially if inflation nears the Fed’s 2% target. However, any such decision will be heavily influenced by incoming data on employment and inflation trends.

Yields

As of the latest Treasury auctions in November 2024, the yield curve remains inverted, although the gap between short-term and long-term yields has begun to narrow slightly, signaling potential stabilization in market sentiment. Current key yields are as follows:

• 2-Year Treasury Yield: Approximately 4.1%, reflecting sustained demand for short-term securities amid uncertainty about the economic outlook.
• 10-Year Treasury Yield: Approximately 4.34%, with modest increases influenced by market expectations of slower rate hikes in 2025.
• 30-Year Treasury Yield: Approximately 4.6%, a slight uptick due to higher inflation expectations over the long term.

The persistence of the inverted yield curve highlights ongoing concerns about economic slowdown, with the potential for a mild recession in late 2024 or early 2025. These dynamics underscore the need for nonprofits to manage liquidity carefully while optimizing their investment strategies for a possibly turbulent environment.

Economic Indicators

• Inflation: Inflation is expected to continue its gradual decline, ending 2024 around 3.5%. Core inflation, however, may remain sticky, hovering near 3.2%, reflecting persistent pressures in services and housing.
  
  
• Employment: The labor market is anticipated to remain tight but show slight softening in early 2025. Unemployment could tick up modestly to 3.8%-4.0% as the effects of tighter monetary policy take hold.
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• GDP growth: The the full year 2024 is expected to settle between 1.6%-1.8%, with early 2025 growth moderating further to around 1.2%-1.5%. Sectors like technology and healthcare are likely to drive activity, while higher interest rates dampen residential investment and discretionary spending.

Sectoral Performance

• Technology: AI, cloud computing, and cybersecurity investments remain key growth drivers. Early 2025 may see a slowdown in valuations due to rising borrowing costs, though long-term fundamentals are strong.
  
  
• Energy: Renewables are set to see continued investment as sustainability initiatives expand. Oil prices are expected to remain range-bound at $70-$80 per barrel, supported by OPEC+ policies and stable demand.
  
  
• Consumer Goods: Holiday spending is likely to be solid in Q4 2024, but higher interest rates may curtail big-ticket purchases in early 2025. Retailers catering to budget-conscious consumers may perform better.

Predictions and Outlook

1. Monetary Policy: While rate cuts in early 2025 are plausible, they are not guaranteed. The Fed will tread cautiously, prioritizing inflation containment over stimulating growth.
   
   
2. Stock Market: Modest gains are expected for Q4 2024 and early 2025, supported by earnings growth in technology, healthcare, and consumer staples. However, geopolitical tensions and election-year uncertainties may introduce bouts of volatility.
   
   
3. Housing Market: Mortgage rates are likely to stay elevated, keeping housing demand and price appreciation subdued. Early 2025 could bring slight relief if rates ease.

Nonprofit Impact

The nonprofit sector continues to navigate a complex economic environment. Higher interest rates, inflation, and market volatility have contributed to increased operational costs and fluctuating investment returns. Additionally, economic uncertainty may affect donor behavior, leading to changes in giving patterns.

Strategic Considerations for Nonprofits:

• Diversify revenue streams and adjust fundraising strategies to respond to potential fluctuations in donations.
  
  
• Reassess investment portfolios to align with more conservative risk profiles in light of economic uncertainties.
  
  
• Prioritize cost-control measures and increase efficiency to ensure continued mission fulfillment without compromising financial stability.
  
  
• Monitor interest rate changes to optimize reserves and ensure FDIC coverage where applicable.

Conclusion

The economic outlook for the end of 2024 and early 2025 continues to be a period of cautious optimism tempered by challenges. While inflation is gradually moderating and the labor market remains strong, high interest rates and potential economic slowdown are factors to consider in financial planning. For nonprofits, adjusting financial strategies to accommodate these conditions will be crucial for maintaining long-term financial health and mission success.

Nonprofit leaders should focus on strategic diversification of income sources, prudent investment practices, and efficient operational management to navigate the evolving economic landscape.

A Registered Investment Advisor like Infinite Giving is the only option that serves as a true fiduciary for your nonprofit, and we also typically offer much lower fees than big banks or brokers.

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*This updated report reflects predictions based on current data and trends. We encourage nonprofit leaders to stay informed and consult regularly for insights tailored to their unique circumstances.

Infinite Giving Advisory Services LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Infinite Giving and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Infinite Giving unless a client service agreement is in place. This content is provided solely for informational purposes. Investors’ experiences may vary from the content. Nothing in this presentation constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Infinite Giving manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.