Market Change of Direction?

After a challenging April, the stock and bond markets changed direction after Fed Chair Jerome Powell indicated, the next rate move will “most likely” be a cut.

A couple days later, Powell’s comments looked promising, as the US April jobs number came in lighter than anticipated, creating 175K jobs.

Throw in favorable corporate profits, all adds up to a market breaking its recent slump.

For the week, the Dow moved higher by 1.22%, the S&P 500 .62%, the Nasdaq 1.49% and the Russell 2000 1.58%.

Foreign stocks moved higher by 1.21% and emerging markets led most markets, up 3.11%.

Certainly helped, Apple announced a $110 billion stock buy-back program, the largest ever.   Interesting……

Bond yields reversed direction with the 10-year US Treasury finishing the week with a yield of 4.497%.

Questions: Is the economy gradually starting to slow?  Will inflation reverse its recent run higher, move and stay consistently lower?  Are higher market interest rates starting to have economic impact? 

The US economy is not a speed-boat.  Perhaps similar to a huge Yacht.  Unless the vessel sustains a major direct hit, it takes a while to turn the economy to the right or to the left (not politically speaking).

It may be a little early to conclude the economy is slowing, especially when roads are crowded, restaurants booked, travel booming and corporate profits rising.

I’m thinking, the next few months will shed clarity to the direction and the speed of the economy.  Time always answers mostly all questions.

The week is light on economic data, however there are several important non-technology profit reports to be reported.

This week, we’ll hear from Lowes, Tyson foods, Simon Property Group, Disney, Ferrari, Wynn, Occidental Petroleum, Toyota, Uber, Planet Fitness and many more.

The 2 economic pieces of data that will be released, may have more impact than usual.  On Tuesday, we’ll hear the consumer credit report.  Many are watching the levels of consumer debt, especially credit card debt within lower to middle income households. 

On Wednesday we’ll hear a report on wholesale inventories.  Keep in mind inventory purchases were a detractor from last week’s Gross Domestic Product (GDP) report.

Each year the President of the United States puts forth their desired tax changes.  Most of these changes don’t come to fruition in the short-term, however it signals intentions clearly.

So, what’s on the agenda?  Raise the corporate tax rate to 28%, Increase the cost for corporations to buy back their own stock, Eliminate subsidies for Oil and Gas, Real Estate, and Cryptocurrency transactions.

Require billionaires to pay at least 25% tax on income.  Increase the top tax rate from 37 to 39.6% for single filers earning over 400K and for joint filers earning over 450K.  Take a look at our Key Financial Data for 2024 (click here) to compare where those earning 400K and 450K respectively today.

Increase the capital gains tax for wealthy taxpayers and much more!

I believe everyone knows the United States cannot withstand its current level of debt and continued deficit spending indefinitely.  This applies to both political parties.

It may be true that taxes (revenue) need to increase to deal with the debt, however without a structured plan detailing the path towards true solvency, it’s hard to jump on board and pay more willingly.

When our government goes after the so-called billionaires and trillionaires for additional taxes, it seems the increase lands squarely on small business owners.  Small businesses don’t have lobbyists, the time or the money to have an impact.

Let’s hope in time, we develop a detailed plan of attack to our debt issue, in a favorable manner, that is not political however impactful for all!

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