I think of a hero as someone who understands the degree of responsibility that comes with his freedom.” – Bob Dylan
Happy Memorial Day!
Last week's market recap:
- The S&P 500 closed the week up .35%. Year-to-date the index is up 10.29%
- NASDAQ closed the week up 2.52%. YTD the index is up 24.43%
- U.S. Aggregate Bond index was down -67% for the week. YTD the index is up 1.20%
- 10-Year Treasury Rate increased, ending the week at 3.80% up from 3.70% the prior week
- Fed Funds Target rate is currently 5.00-5.25%
- The 1-Year Treasury is yielding 5.27%
- A 6 Month Treasury is yielding 5.44%
The week ahead:
- Labor Market will be in the spotlight with JOLTS – Job Openings and Labor Turnover Survey
- Home Price Updates
- Eurozone Inflation
- Earnings: Salesforce, Dollar General, Lululemon, Macy’s, etc
As the economy goes through a mild recession or continues its rolling recession, eventually market leadership should broaden. We’ve been in a bear market for almost a year and a half. Opportunities are forming in both equities and fixed income.
Equities: Rebalancing and maintaining diversification continues to make sense. Most should remain focused on quality.
Fixed Income: The bond market is starting to take the Fed’s guidance of no rate cuts in 2023 more seriously. Earlier in the year, the Futures market was expecting 3 rate cuts in 2023. Now, it’s only expecting one cut by year-end. Short Term Treasuries (T-Bills) still remain favorable, but complimenting these with longer-duration investment grade fixed income has the potential to lock in yield with an opportunity for price appreciation if and when rates go lower. As you can see in the chart, bonds have significantly outperformed cash when the Fed starts cutting rates.
Source: JP Morgan
Are A.I. stocks a bubble?
A.I. mania is here. It’s a big wave. It should be cost savings for many companies. Corporate Executives have taken notice. A.I. was mentioned on 20% of Q1 Earnings calls by S&P 500 companies! A.I. may change the world, so the long term benefits could be huge. Common sense and experience tells us… you’ll do well if you can identify earnings growth that will exceed investors consensus expectations. Right now, investor expectations for A.I. is massive. In the short term, this may be a bubble as cost savings and profitably may take longer than expected. This doesn’t mean the bubble is ready to pop right now. Stay disciplined.
As always, let us know if you have any questions.
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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