Stocks are up 8.8% in 2024 through May 7, as measured by the S&P 500, but markets have cooled and the large-cap index is down 1.3% in the second quarter.
Some investors are inching toward the sidelines amid worrisome economic news: slowing economic growth, a softening labor market and rising core inflation.
Economists call this scenario “stagflation,” and it’s a five-alarm fire to investors. In late April, the U.S. Commerce Department reported that first-quarter gross domestic product growth slowed to a tepid 1.6% – far slower than the 3.4% GDP increase for Q4 2023.
Simultaneously, the core U.S. inflation rate soared to 3.7% in the first quarter of 2024, above expectations of 3.4%. That’s up from a mild 2% rate in the fourth quarter.
Rising inflation and slower GDP growth have thrown a wrench in the U.S. Federal Reserve’s reported plans to start cutting interest rates. Only a few months ago, some economists predicted six interest rate cuts in 2024.
That’s bad news for stocks, which use low rates and a robust GDP as the rocket fuel they need to thrive. Now the stock market may be running out of gas as the threat of 1970s-like stagflation and resulting market…
