Accurately forecasting the short-term direction of the markets and the economy is a task best left to the “experts” (who rarely get it right). Few walked into 2023 believing that growth stocks, right out of the gate, would completely dominate value stocks. Most believed the 2022 trend of value significantly outpacing growth would continue into and through, most of 2023.
Overall, the Q1 earnings that have been reported so far are better than expected. The Fed last week raised rates by another .25%, as expected, and suggested a possible pause. The jobs number for the month of April was still solid, however slowing a bit.
Our reality is we have a slowing overall economy, the Fed planning to hold interest higher for longer, and of course the belief that the recent banking issue will impact the economy. As of now, markets, consumers and corporate America are showing resiliency. Let’s hope this continues through the summer.
United States DEBT!
Here we are in the month of May, now hearing the chorus of “Sell in May and Go Away,” especially as our fearless leaders get together to “negotiate” the debt ceiling. Treasury Secretary Janet Yellen has suggested the United States will not be able to meet it’s total obligations as early as June 1st, unless the debt ceiling is lifted.
I would like to believe the United States will never default on it’s debt. I do not believe we’ll default this time around. My concern however, is the potential short-term market volatility that may occur between now and when the debt ceiling is truly lifted. If I were a gambler, I’d bet we’ll patch a short-term fix or 2, kicking the can down the road for a couple of months. Definitely not the solution needed…. Unless the two sides produce a timely agreement, consumer confidence will take a hit, which is vital for the economy to continue growing, as we’ve learned from experience.
Many clients have expressed concern about what our overall debt situation will eventually do to our economy. Paying over $600 billion in interest alone is a huge expense thrust on the US taxpayer. All of us can agree the amount of interest needed to pay will only escalate over the next several years. For now, I’ll spare you our Congressional Budget Office (CBO) projections. Am I concerned? Of course, however in the short-term, there are other issues that must take precedence.
The markets last week finished mostly lower with the Dow down (1.24%), the S&P 500 (.80%) and the Russell 2000 off (.51%). The Nasdaq composite was flattish up .07%.
Foreign stocks and emerging markets stocks finished the week up .35% and .66% respectively.
Bond yields: a 1-month US T-bill is yielding 5.48%, a 12-month bill is yielding 4.78%. A 10-year bond is yielding 3.435%. Talk about an inverted yield curve!
This week, the markets will trade on the release of April’s Consumer Price Index (CPI) and Producer Price Index (PPI), in addition to additional corporate earnings reports. The next Federal Reserve meeting takes place on June 14th, so the Fed will use April and May’s inflation data when formulating their interest rates decision. A lot can happen within this period. Keep in mind, it does not have to be all bad!!
Even with the continued negativity and market volatility, most stock and bond indexes are positive for 2023.