Groundhog Day

Note: The commentary in bold italics was written in July 2023, the rest is a responsive commentary.

Last October, investors were selling at the lows and piling into US Treasury bills. While they were earning 5% safely on their money, the stock market quietly surprised everyone by rising more than +25% over that same period.

Again, interest rates rose to new highs in early October of 2023 causing investors to move out of stocks and into bonds in a meaningful way. Since then the Stock Market (S&P 500) has gained +25% again.

Why did the stock market keep rising? The economy has outperformed. We have had fourteen consecutive months of stronger than projected jobs numbers, inflation has continued to moderate, corporate earnings beat expectations and home values have remained stubbornly high.

Almost all of above is still true. Jobs being created continue to be strong, earnings are strong, and home values are holding steady. Inflation’s trending lower has stagnated around 3% and will probably have a tough time moving lower because markets are strong, people are earning 5% on bank balances, job growth remains robust, and the government continues to provide stimulus (IRA, CHIPS ACT, and forgiveness of college loans).

We would be very surprised if the Fed did anything with rates over the coming months. It seems to me that FOMC now stands for The Federal Open Mouth Committee. Chairman Powell and other members have done a good job of constantly talking about raising rates. This talk has caused rates to drift higher. If rates stay high, the Fed doesn’t have to do anything.

Still true! Fed officials are still talking an awful lot, but we see no reason they will be moving rates in the next few months.

Enjoy your summer! We are here to help answer any of your financial questions, please call us.

Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.