Post 4th of July News

As we start a new month and the second quarter, I could not help but ponder the profound statement of Churchill, he of course was talking politics, but its application to one’s investments consideration seems quite appropriate at this moment. But first, the numbers:

Last week (shortened by the 4th of July Holiday) The S& P 500 was off 1.2%, the Dow Jones Industrial average lost 2% The Nasdaq was down 1.2% and MSCI-EAFA lost 2.6%. 10-year treasuries yield rose to 4.06%

As we look forward to the third quarter, the first half of the year was good news both for stock and bond investors. The breath of the market broadened from the big 7 leading the charge. With Churchills words, the point is experiences in youthful idealistic pursuits, tends to help one gain wisdom and with wisdom comes practical conservatism.

As mega tech led the market, and growth stocks were somewhat the place to be, the realities of additional Federal Reserve rate increases, an inverted interest rate yield curve, and probable inflation continuation, make conservative and defensive shifts necessary. The cooling of the job growth number, (we just got from the Labor Department number of 209,000 new jobs less than the expected 225,000 for June,) suggests the recession, despite White House denials, is still looming in the second half of 2023.

Second-quarter earnings season begins next week with several large U.S. banks set to report. Also, the latest inflation data will be closely watched by investors and economists alike. Do not be surprised if earning estimates are revised downward and the overall S&P earning number ends up about 3%.

Citigroup, JPMorgan Chase, and Wells Fargo will be next week’s earnings highlights, all on Friday morning. Cintas, Conagra Brands, Delta Air Lines, Fastenal, and PepsiCo are also scheduled to report on Thursday. Friday also brings reports from BlackRock, State Street, and UnitedHealth Group.

The economic-data highlight of the week will be the Bureau of Labor Statistics’ consumer price index for June on Wednesday. Economists’ consensus estimates call for a 3% increase in the headline CPI from a year earlier, which would be a point less than in May. The core CPI is seen rising 5% year over year, 0.3 percentage point less than a month earlier. Both would be the slowest rates of inflation since 2021. The BLS also releases the producer price index for June on Thursday. Again, I remind all that as inflation is easing, real wages are failing to keep up so the impact has been record expansion in personal credit card debt. Credit companies are even offering grocery financing.

Other data next week include a pair of sentiment indicators. On Tuesday, the National Federation of Independent Business will release its small business optimism Index for June. On Friday, the University of Michigan releases its consumer sentiment index for July.

All of this should give good indication and support to market sentiment going forward this quarter.

On the real estate front, the consensus of opinion is that commercial real-estate is offering investors good opportunities which of course makes sense in light of the covid and post covid related beating the sector has endured. However, though we are invested in the real estate sector as income generation and inflation sensitive protection, the predominate allocation in warehousing and rental housing still looks strong, as such we will leave it to the fund managers to make that call as we have confidence in their expertise.

Mike