"Never risk what you have and need for what you don’t have and don’t need." - Warren Buffet
Last week's market recap:
- The S&P 500 closed the week up 1.03%. Year-to-date the index is up 20.47%
- NASDAQ closed the week down 2.03%. YTD the index is up 37.43%
- U.S. Aggregate Bond index was down -.40% for the week. YTD the index is up 1.89%
- 10-Year Treasury Rate increased, ending the week at 3.96% up from 3.84% the prior week
- Fed Funds Target rate is currently 5.25-5.50%
- The 1-Year Treasury is yielding 5.39%
- A 6 Month Treasury is yielding 5.51%
The week ahead:
- Earnings Week – Apple, Amazon, Toyota, Starbucks, Merck, etc.
- Labor Market Data: JOLTS jobs openings
- ISM Manufacturing Data – This is important. Read below.
What is the ISM Manufacturing Survey? Why does it matter?
The ISM (Institute for Supply Management) publishes reports on business. Their index survey is considered a leading economic indicator. Within the report, many will focus on “New Orders Minus Inventories.” This shows the difference between new orders and inventories and it’s a big component of the business cycle. You want to see.. Orders up and inventories low. This usually means the business cycle is heading towards expansion. Over the past few months we’ve been seeing the opposite. Orders are down and inventories are higher. This is great for fighting inflation, but this leading indicator would not be supportive of an economy heading into economic expansion. It’s also important to understand, this is one of piece of data among many leading indicators.
Last week, as expected, the Fed raised interest rates again by .25%. They were dovish in their messaging, but mentioned (as usual) “they are data dependent” and future hikes could occur IF inflation is not under control. The Fed Funds rate is now “Restrictive,” meaning the Fed Funds Rate is higher than year-over-year inflation.
There is no shortage of new data points to watch in the upcoming months. Some of the most important are obviously, Inflation data (CPI), Corporate earnings and margins, wages, the labor market, dollar strength, etc (ISM data).
Right now, the market is not pricing in an immediate recession. In fact, we’re seeing a healthy broadening of the markets. If/when the market gets worried about an economic slowdown, you should expect to see defensive sectors and treasuries rallying. This can change quickly, but we’re not seeing this right now.
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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