This week brings a load of reports for investors to chew on….
Last Friday’s jobs report showed the US economy added 236k jobs. This week, the following data will be released:
- Wednesday – Consumer Price Index Report (CPI)
- Thursday – Producer Price Index Report (PPI)
- Friday – Retail Sales Report
In addition, we’ll begin to hear results for 1st Quarter profit reports from JP Morgan, Wells Fargo, Delta, Citigroup, PNC and more.
The experts are estimating corporate profits will be down approximately (6.2%) for the quarter.
Profit reports are where the rubber hits the road. For the stock market to propel higher and stay higher, we need corporate profits to bottom. Only after bottoming, can profits start to increase. When this happens, stocks typically register sizable gains that usually stick.
I can only hope profits will bottom this quarter however I think we have a little further to go….
Over the weekend I read an article that suggests both consumer and business lending are now slowing because of the recent banking issue. Deposits over the current FDIC limits are being moved to other banks for protection. When a bank loses significant assets, their ability to lend is immediately minimized, as they simply do not have as much cash. The impact will take a while to be reflected in economic results. Logic suggests it will slow economic activity…. To what degree? Time will tell, as always.
Fed is Watching!
The Federal Reserve will be watching this week’s reports closely. The results will be factored into the Fed’s next interest rate decision on May 3rd. Most are speculating another ¼ point rate hike.
Will the slower pace of lending, shrinking corporate profits, and slower job gains convince the Fed to pause, and not raise in May? I believe the Fed will either need to pause now, or be faced with possible tougher decisions later in the year….
In early 2022, the Fed boxed themselves into a corner by continuing to stimulate the economy, and by keeping rates low. That wasn’t too long ago! I’m sure the Fed does not want to make additional mistakes, as there is so much at risk!! The Fed has indicated it prefers to tighten rates higher and longer to avert inflation from moving even higher. This is the reason I don’t believe a rate cut is anywhere in the cards, at this point.
Reason for Optimism
Covid, Inflation, the Fed, the Banking Issue, Debt Ceiling, Politics, and China threatening Taiwan are all good reasons for concern.
I do expect a continued bout of market and economic volatility in the short term, however looking forward, I’m confident our economy will emerge stronger, and our markets will again hit new highs.
Living through the tech wreck & 9/11 in 2000 through 2002, then the housing wreck from 2007 through 2009 are reasons for optimism. During those times, investors believed we would never recover, as those times were mighty painful. Well, we emerged to a stronger economy, and much higher markets!!
I do believe history will again repeat itself!!
Asset Allocation
Asset allocation involves dividing your investments among different asset classes, such as stocks, bonds and cash equivalents. The ultimate objective of asset allocation is to develop portfolios that are properly aligned with investment objectives, consumption needs, and risk tolerance.
To learn more about asset allocation and why it is so important, watch this 90-second video: https://www.youtube.com/watch?v=tWoCZ1892WE
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**“Economic forecasts mentioned may not develop as predicted and past performance does not guarantee future results.”
