The Fed gives us much to think about…

“Time is your friend, impulse your enemy.”

John C. Bogle

Vanguard founder

Happy belated Father’s Day and I guess, happy Juneteenth? Well last week the Federal Reserve gave investors much to think about, while the Fed left rates the same they gave a hawkish projection of one or two possible rate hikes. This led to an initial euphoria as the markets soared on the news then went south into a hangover almost immediately and sold off on Friday. Breaking a six-day run but still posted the best week since March of this year.

The S&P 500 added 2.6%, the Dow Jones added 1.6%, the Nasdaq still led advancing 3.3%. foreign stocks also had a good week with the MSCI-EAFA adding 2.9% ad the British FTSE increasing 2.8% for the week.

Tomorrow US housing starts and on Thursday the Conference Board of Leading Economic Indicators for the US is to report. This along with the weekly jobless claims from the Department of Labor, and the US housing new home sales numbers, should give some indication on economic strength or weakness, but it is the inflation rate that will dictate the Federal Reserves next move. The Federal Reserve’s future decision seems to need more time to assess economic data going forward.

The tech rally continued unabated as optimism on the potential benefits of Artificial Intelligence may spread beyond the tech companies. The inflation numbers continue to show a deceleration with the headline rate, a year-over-year number of 4% down from April’s 4.9%. Further the core inflation number dropped to 5.3% below Aprils 5.5% increase. Time to pop the cork? Not yet, as real average monthly earnings only increased by .02% meaning the sticker shock at the grocery store has not been offset by an increase in real wages, not even close.

Optimism is also in short supply in the National Federation of Independent Business owners Small Business Optimism index though a slight uptick is still near the lowest levels in a decade. On Friday we will see if consumer confidence has the same opinion.

Looking Ahead, the aforementioned reports this week will help determine market direction but there seems little motivation to plow ahead in our recently entered bull market, caution will be the watchword in the near term to see how the economic numbers support or detract from corporate earnings. Overseas, things are still looking up, particularly for Japan, and Europe seems to have found its legs. Our increase in these potions seem to be bearing fruit. Looking at the losers from the last few quarters we still believe energy will turn positive and our recent addition of natural gas should validate our opinion in the next 6- 12 months.

With the Federal Reserves inclination to leave open further rate hikes after this pause, the movement to intermediate term bonds is tempered but we still believe the opportunity is upon us to take advantage as the rising interest rate environment is coming to an end, for now we will take the short term 5-6% and be happy.

Wishing all fathers their deserved admiration, though, (full disclosure as the father of 7) the job has been almost as tough as for mothers.

Mike