Fed Slowing Demand?

Is the Fed starting to slow demand for goods and services?  I believe the current answer is “Yes!” 

  • Mortgage interest rates have doubled off the low, now over 6%.
  • Lumber (which is priced in US dollars per 1000 “board feet”) is priced @ $585 today, down from $1456.
  • Used Car sales are starting to slow.
  • Oil, which can certainly reverse in moments, is @ $110… down from $122 just a week ago.
  • The energy sector is the only S&P 500 sector in the black, however is down (15.4%) in June
  • Consumer confidence is starting to roll over.  Hard not to with all the bull we hear on various news stations.
  • The pace of most home sales is starting to decelerate.
  • Market interest rates are up sharply across the board.

This week we’ll hear a few impactful numbers.  On the Corporate Earnings front – FedEx, Mastercard, Lennar, and Darden Restaurants reporting may shed some light.

Housing data will also be front & center as we’ll hear reports on existing home sales, new home sales, and weekly mortgage applications.

Many experts are attempting to calculate whether or not we’ll end up in a recession.  I’ll leave that prediction to all of the TV talking bobbleheads (who seem to get it wrong, just about all of the time). 

I do expect consumer spending, which is critically important, to begin to slow for the obvious reasons.  All of us are paying more at the pump, the supermarket, and many other items.  Even those who can afford higher prices without a negative impact will start to cut back.  It’s simply a normal human reaction with the enormous amount of negativity snowballing forward. 

So, what does this mean for the stock and bond markets?  I’m thinking stock prices are getting close to a low, however we’ll start to hear company profit reports and their estimates going forward.  Many are expecting forward guidance for sales and profits to ramp lower, which can place additional pressure on the stock market.  Consumer spending and the employment picture will be of significant importance going forward for the shorter term.

Bond yields have risen at perhaps the fastest pace in history.  If the economy is going to slow, consumer spending will slow, bringing down inflationary pressures.  If this happens, we could see a “flight to quality,” meaning investors buying up longer-dated government bonds that now pay a decent yield, for the first time in years. 

There is one thing I believe is factual:  This current situation will end… it’s just a bit uncomfortable, until we can see the forest for the trees.  Hopefully sooner than later!!!  Hang in there!!!

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