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We are reducing our second quarter 2024 forecast for GDP growth to 1.8% from 1.9%, primarily because residential fixed investment (housing) is poised to detract from economic growth after making a strong contribution in 1Q. We made a small increase to our expectation for election-year spending by state and local governments that keeps our full-year 2024 growth forecast at 1.7%. The key market-moving debates are on the persistence of inflation, consumers' capacity to drive two-thirds of a $28 trillion economy, and whether housing can continue to supplement economic growth without lower interest rates. The more-specific debate on consumers is whether softness in the 1Q GDP report is the start of a meaningful slowdown or whether spending is just normalizing after a strong run. Our outlook for the consumer is about the same as it was a month ago. We are more optimistic that inflation will moderate towards the Fed's 2% target, but have become more concerned about housing. We are, however, reducing our estimate of 2Q Personal Consumption Expenditures by 10 basis points to 2.3%. We now expect residential fixed investment to fall 2.2% versus our previous expectation for a 0.7% decline. Mortgage rates stuck near 7% are straining affordability and forcing prospective buyers to the sidelines. The news on inflation was encouraging in June. We are reducing our estimate of core PCE inflation in 2Q to 2.8% from 3.0%, which would be a nice decline from 3.7% in 1Q. Last month, we surprised some readers by predicting that back-to-school merchandise would be in stores right after the July 4 weekend. Target beat us by more than a week. The Walmart Superstore we visited had rollback prices on many school supplies. We continue to believe that back-to-school season is the next critical test for U.S. consumers. Our 3Q GDP estimate is now 1.6%, down from 1.8%, and our 4Q estimate is 1.9%, down from 2.0%. Our 2025 estimate is 2.0%.

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Halfway through 2024, sector breadth has deteriorated somewhat from strong levels earlier in the year -- but remains better than that at mid-year 2023. Communication Services and Information Technology at mid-year 2023 were high-teen percentage points higher than the benchmark index; currently, they are, on average, beating the broad market by high-single to low-double-digit percentages. While only these two sectors are ahead of the S&P 500, multiple sectors -- including Energy, Financial, Utilities, Consumer Staples, and Healthcare -- currently are beating or slightly lagging the index's average annual appreciation of 10% since 1980. Materials and Consumer Discretionary are up 4%-6% year to date, while Real Estate -- deeply negative for much of 2024 -- is down less than 2% as of mid-year. The Consumer Discretionary sector, one of the top-three performers in 2023, was ninth among 11 sectors in 2024 to date. Spending by consumers, particularly those in the middle and lower tiers of the economy, is being constrained by high interest rates, high costs for everyday goods, and the burden of high rents. The reality of weak consumer goods spending was evident in the 1Q24 GDP report as well as in April and May retail spending. For the market to build on its healthy first-half gains, we will look for breadth to improve into year-end.

The Vickers Top Insider Picks is a daily report that utilizes a proprietary algorithm to identify 25 companies with compelling insider purchase histories based on transactions over the past three months.