Simplicity is the ultimate sophistication. - Leonardo Da Vinci
Last week's market recap:
- The S&P 500 closed the week up .82%. Year-to-date the index is up 8.31%
- NASDAQ closed the week up .30%. YTD the index is up 16.13%
- U.S. Aggregate Bond index was down -1.10% for the week. YTD the index is up 2.97%
- 10-Year Treasury Rate increased, ending the week at 3.52% up from 3.30% the prior week.
- Fed Funds Target rate is currently 4.75-5.00%
- The 1-Year Treasury is yielding 4.88%
- A 6 Month Treasury is yielding 5.06%
The week ahead:
- Earnings (Bank of America, Netflix, Tesla, Procter & Gamble, etc.)
- Housing Market Updates (housing starts, building permits, and existing home sales)
- PMI’s: Purchasing Managers’ Index shows the direction of economic trends in the manufacturing and services sectors.
What is moving capital markets?
Last week, the S&P 500 increased based on somewhat encouraging inflation data and the market pricing in potential rate cuts. Stocks have continued to go up this year despite recession worries and despite the bond market screaming rate cuts. Rate cuts in 2023 should NOT be bullish for stocks as it would mean something bad happened and the economy needs support.
This market is anything but simple. Below is a list of just some of the trends pushing and pulling the markets:
- Year-over-year inflation is trending lower. Three-Month over Three-Month inflation ticked higher (see chart below). Many expect Year-over-Year inflation to continue to trend lower for the next few months, but then stall out above the Fed’s target. If this occurs, how will the Fed react?
- The labor market remains healthy, but there are signs of softening. A softening labor market is probably good for equity markets as it helps ease inflation, but not if it softens too much, or too fast.
- Dollar Strength: The dollar strengthening last year was a headwind for equities. Recently the dollar has been weakening. A slow weakening of the dollar should be a tail wind for US equities.
- Debt ceiling headlines should increase this summer. Politicians from both sides of the isle will probably be willing to push the issue down to the wire for political advantage.
- Earnings Recession: We may be in the middle of an earnings recession. Will this earnings season be better or worse than markets expect?
We recognize there are many additional headlines that are meaningful to the markets, but in an attempt to SIMPLIFY:
A market with higher volatility and sticky inflation may need a new approach to building portfolios. Fixed income has become more appealing and adding non-correlated alternative investments may also make sense. Diversification is extremely important!
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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