Economy/Markets Buzzing Forward
2nd Quarter US Gross Domestic Product (GDP) reported at 2.4%.
50% of S&P 500 companies have reported 2nd quarter profits. 80% reported upside profit surprises with 64% beating on revenue. Very good so far!!
The GDP report and corporate profits suggest a recession is not in the cards, at least in the short-term.
Market indexes continued their climb higher on the back of positive reports. For the week the Dow rose .56%, the S&P 500 1.01%, the Nasdaq 2.02% and the Russell 2000 1.09%.
Over the pond, foreign stocks rose .62%, emerging markets up 3.99%.
The 10-year US Treasury yield remains range bound, ending the week yielding 3.957%.
Fed Raises Again
The Fed raised rates .25% as expected and signaled future hikes will be data dependent, as always. Even the thought of future hikes can’t stop our markets from moving higher at this time.
The Fed’s next interest rate meeting is September 20th. We’ll hear several reports prior that will impact their interest rate decision.
With the current pace of inflation moderating, let’s hope the Fed will now sit tight. Remember the Fed was raising rates thru 2007 right up to the beginning of the Great Recession.
The Week Ahead
A plethora of corporate profit reports this week, including Apple, Amazon, Occidental Petroleum, AMD, Caterpillar, Merck and more.
On Friday we’ll hear the June jobs report. The monthly jobs reports moderated over the last few months. Expectations for Friday is a gain in jobs of approximately 240,000 with the unemployment rate nudging lower to 3.6%.
Fixed Income (Bond) Expectations
Bonds play an important role in a portfolio of an investor approaching or continuing through retirement. Last year, many investors lost confidence in the bond market as the Fed hiked rates aggressively leaving the asset class with rare steep losses.
Today, rates in many bond sectors are attractive.
3 scenarios may play out in the bond market going forward.
- The economy and rates stay range bond. If this is the case, we should be able to keep the dividends paid, without loss of principle.
- The economy slows and market interest rates move lower. If this happens, we should keep the dividends and have capital appreciation potential.
- Inflation reasserts itself moving higher. If this happens, the Fed will most likely raise rates aggressively, leaving bonds susceptible to losses.
Most prognosticators believe scenarios 1 or 2 will play out. With supply and demand more normally weighted, the issue that can cause heightened inflation would be another supply issue, such as the prior computer chip issue. This is a reason the US needs to continue to move our important manufacturing back to the US.
I believe global trade is critically important, however I believe we have more leverage and control when we are not “dependent” on our competitors.
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