Welcome to the unofficial start of summer…

“When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years.”

Sir John Templeton

Well, this week, all eyes were on the debt ceiling negotiations, and as they dragged on, the market reflected the impasse by continuing to trim previous gains. But, at the end of the week, the Biden administration signaled that a deal was close at hand and the market rallied on Friday going into the Memorial Day weekend. On Saturday, a deal was reached and will be sent to the House then the Senate. Judging by the reactions on both sides, it has a good chance of garnering enough votes to pass the house. As a wise judge once said, “if both sides are somewhat unhappy then I made the right decision.”

The S&P 500 finished the week up .03% eking out a positive finish for the week after 4 down days as the debt negotiations seemed to stall. Dow leaders were technology and consumer staples. The Nasdaq added 2.5% continuing to lead US Markets. The FTSE lost ground on inflation fears and the tightening of the European Credit markets.

The Inflation numbers of 4.7% were released by the government, conveniently excluding energy and food, which if you have filled your tank or bought eggs lately seem to be unabated, despite claims that inflation is easing. The Fed target of 2% is still a long way off so how the economy responds will determine future Fed action.

Last week we digested the earning season recently completed with 95% of the S&P 500 companies reporting. The good news is that 76% met or exceeded expectations. This, with the 200-day moving average bottoming and now moving in a positive direction, are good indicators that market strength may continue. This will be further bolstered if the debt ceiling negotiations reach an acceptable deal and passes both the House and Senate. The Market seems to shrug off the dooms day scenarios and looks to continue improving. As we enter the summer as yesterday was the official start of summer, the markets seem to be cautiously moving forward.

The inverted curve in the bond market continues as 1-year treasuries yielded 5.67% while the 10-year closed at 3.51%. Further, consumer debt has reached a record high of 17 trillion dollars. No surprise with the core inflation rate driving people to their credit cards.

This week will be a short week due to the holiday and we would expect good news on the debt ceiling deal the markets to react favorably, as run-away spending is a key factor in inflation which hits the middle class fixed retirees so hard.

As the Federal reserve slows or pauses on interest rate increases, (still to be determined) there will be opportunities in quality mid term corporate bonds as yields improve. As mentioned last week, we are still considering a small increase in commodities, notably natural gas and other energy Exchange Traded Funds (ETF’s). With OPEC announcing a voluntary cut in production in April, seems things are lining up for a nice move in energy with a target price of $80-85 for brent crude by year end.

Enjoy the start of Summer…

Mike Urbik