The markets are circling around all-time highs increasing investor confidence.
What is the reason for the all-time high?
- A combination of good 1st quarter corporate profits.
- A tame April jobs creation number.
- April’s CPI reading came in as expected without a surge higher.
- New unemployment claims have risen slightly.
- Market interest rates have dropped down off recent highs.
- The Fed does NOT want to raise rates.
Is this really good news? If the economy is starting to slow, the next concern could be, will we slow too far? Higher interest rates appear to be slowing the economy, not quite as soon as the Fed and most expected. For the time being, a slowing economy may continue to lift stocks due to lower interest rate optimism. I always say, be careful what you ask for!!
If the direction of the economy begins to slow too deeply, the Fed now has ammunition, as rates could be lowered making the cost of capital again more attractive. That is good news!!
Portfolio Positioning
We continually advocate making sure your investments are properly aligned with your goals, your on-going income needs as well as your concerns.
A portfolio allocated between stocks and bonds seems more appropriate than a couple years back, as interest rates on bonds are attractive. Adding additional asset classes in time may be prudent if the economy slows too deeply.
Within the equity market, diversification now makes sense in addition to just the tech sector. Most sectors of the economy have participated in the recent rally, which tends to be good news.
Let’s keep our fingers crossed the economy does not slow too deeply, the Fed cuts rates 2 to 3 times, only to normalize interest rates over the next several months and the election season is not too disruptive.
Have a wonderful Memorial Day weekend and look for next week’s blog after the holiday.
