How will the stock and bond markets perform this summer?
First, our time horizon needs to be realigned. Remember the days when we purchased stocks or a stock mutual fund knowing a 3 to 5-year time horizon, at least, should be expected?
Today, the financial news media is fixated on the next 30 days, constantly exacerbating the negative possibilities. Why? It’s a rating game! We tend to pay more attention to negative stories than “feel-good” stories. Ratings equals money in pockets. How many feel-good stories do we hear on CNN or Fox?!
This spring and summer, similar to the last few, will provide a plethora of information for the markets to trend in either direction.
I find contrarian movements in the market very interesting. Often the market loves to climb a wall of worry! Why is that? For starters, wall of worry information is already known to investors and quickly gets priced into market valuations. It’s the unknown that shocks the markets.
It’s widely known, we have a debt-ceiling issue, an inflation issue, a computer-chip supply issue, housing shortage issue, and more. Depending on your political side of the aisle, I’m sure you can add to the list.
Why is the market hanging in there?
85% of the S&P 500 companies have reported 1st quarter earnings with profits falling just (2.2%). Expectations after 10 rate hikes were for profits to shrink by (6.7%).
We should not doubt the resiliency of consumer spending and for Corporate America to “figure it out.”
If corporate profits are in the bottoming process and we’re fortunate for the Fed to sit back for a few months, we need Congress to quickly negotiate the increase in the debt ceiling. If this happens, I’m thinking the market will continue to climb the wall of worry. in a positive direction. Wishful thinking? I hope not!
If the debt-ceiling issue is handled in a similar manner to 2011, we should expect the stock market to provide buying opportunities.
Investors who have an asset allocation based on the specifics of their own situation will be just fine. Keep in mind, the economy moves from a trough to a peak, back to a trough to peak, over and over. There are different reasons and periods of time within each economic cycle.
Markets/Inflation Last Week
The Nasdaq composite was the lone stock index rising last week, up .40%. The Dow, the S&P 500 and the Russell 2000 were all down. International and Emerging market stocks also followed the US downward.
The 10-Year US Treasury yield finished the week @ 3.46%. The 1-month T-bill now has an annualized rate of 5.68%. The 1-month rate is reflecting the uncertainty of the debt-ceiling.
Last week we received reports on the Consumer Price Index and the Producer Price Index. The Producer Price Index has now fallen 2.3% year over year however the Consumer inflation index is remaining persistently resilient now 4.9% year over year. Both have shown significant improvement from the peak last year. Our Federal Reserve believes they will begin to cut rates in late 2024. The market is pricing in rate cuts later this year!!
April retail sales and housing data will be released this week. Of course, the most short-term pressing information will be the debt-ceiling negotiations. Let us hope for a quick resolution of the debt-ceiling.
Going forward, we must deal with our national debt and continuous deficit spending. If we fail to do so, at some point, the peak to trough period discussed earlier will be much longer than normal.