If you can keep your head while they are losing theirs…, you’ll be a man, my son. - Rudyard Kipling
Last week's market recap:
- The S&P 500 was down -4.6% for the week. Year-to-date the index is down -22.50%.
- Large-Cap Value leads performance YTD at -15.61%
- NASDAQ closed the week down -5.1% and is down -31.36% YTD.
- 10-Year Treasury Rate increased, ending the week at 3.68% from 3.45% the prior week.
- Fed Funds Target rate is 3.25%
- The 1-Year Treasury is yielding 4.16%
- A 6 Month Treasury is yielding 3.88%
- What is your savings account rate? If it didn’t increase recently, you may want to find a new savings account.
The week ahead:
- New Home Sales
- Pending Home Sales
- Q2 GDP
- Friday: PCE inflation rate (The Fed’s preferred inflation gauge)
- Consumer Sentiment
Last week the Fed hiked interest rates .75% as expected. The surprise was in the details of the Fed’s dot plot. Now markets are expecting an additional 100bps of expected hikes going into year end. The Terminal Rate forecast is now 4.5%-4.75%. Terminal Rate is an extremely important data point to watch.
Inflation control is the Fed’s #1 priority. A hard landing scenario continues to become more and more likely.
Another thing that was noticeable was Powell’s insistence that the Fed’s inflation target is closer to 2%, not 3% or 4%. That’s a long way off from the 8.3% inflation rate we’re at now. This means the market is preparing for hikes into 2023 and a much higher terminal rate than expected just two weeks ago.
Stocks are pricing in numerous rate hikes, runaway inflation, earnings revisions, layoffs, crashing home prices, energy shortages, a potential sovereign debt crisis (the US Dollar is too strong), and sprinkle in a chance of nuclear war. Things may be bad, but rarely as bad as the herd’s panic. If you can keep your head while they are losing theirs (make good decisions, not emotional ones), you’ll probably be in a better position.
The week ahead is packed with important economic data. Volatility should be expected.
The chart below shows the Futures market pricing in a Terminal Rate of 4.61% in May of 2023. This is a HUGE move up in just three weeks.
Please reach out to us to discuss in more detail.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
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