Market In A Snap! September 19th – September 23rd

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,693.23-4.65%-22.51%
Nasdaq Composite10,867.93-5.07%-30.53%
Russell 2,0001,679.59-6.60%-25.20%
Crude Oil$79.43-6.99%5.28%
US Treasury 10yr Yield3.69%  

Source: Wall St. Journal

Market Recap – The First Week of Fall”ing”:

Major US equity indices sold off hard this week, with the Dow Jones Industrial Average putting in a new low for the year. It hasn’t been just the US. Global growth fears that have roiled markets across the globe. Unfortunately, the only two things not falling are mortgage rates and inflation (well, not falling fast enough). Mortgage rates are nearing 7%. That ain’t a misprint. Blame it on inflation. Blame it on Powell. Blame it on Rio. Whatever the reason, stuff’s getting expensive.

Fed Governor Powell has a simple message for the consumer. Stop buying stuff! The sooner we bring down inflation the sooner we can get out of this mess. Every time the market rallies, I can just picture Mr. Powell in front of his Bloomberg terminal thinking, “Oh yeah?!  You think I’m bluffin’?!.”   He’s told us we’re going to feel pain. He’s told us inflation is enemy number one. He’s told us he’ll accept a recession. He’s told us he’d accept higher unemployment! And yet, we are bewildered! About what? How much clearer can he be? INFLATION HAS TO COME DOWN. AND, UNTIL THEN HE’S GOING TO ADMINSTER THE MEDICINE WE ALL KNOW WE NEED BUT DON’T LIKE UNTIL WE’VE RID OURSELVES OF THE INFLATION DISEASE. Like any Doctor, he doesn’t know when it’ll take effect, but he knows it will eventually cure the disease.

Given current mortgage rates, homes are expensive. Prices don’t yet reflect 6.5% to 7% rates. Yet, stocks and bonds, relative to where they were priced a year ago, are cheaper. However, we all see the two differently. If homes were priced daily on an index like stocks and bonds, they would seem riskier. Conversely, if stocks and bonds were priced like homes, they’d look less risky. Do you see the ambiguity here? Buying a home may be an emotional experience, but it isn’t much different than buying stocks and bonds. The only real difference is that there is a daily TV channel dedicated to reporting the ebbs and flows of stocks and bonds and experts opining on the next calamity around the corner. We all know that renting a home and putting all your savings under your mattress is not a financial plan. Owning a home that you can afford, spending less than you earn, and investing in stocks and bonds over a long-time horizon, and not buying high and selling low will get you to financial independence, yet we seem to face some existential crisis that challenges this fundamental understanding at precisely the worst time.

Source:  The New Yorker:  Artist: David Sipress

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! September 12th – September 16th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,873.33-4.77%-18.73%
Nasdaq Composite11,448.4-5.48%-26.82%
Russell 2,0001,846.98-4.50%-19.91%
Crude Oil$85.34-0.91%13.08%
US Treasury 10yr Yield3.456%  

Source: Wall St. Journal

Market Recap:

It was a rough week for investors, as the major indices gave back all their gains from the prior week. Why? Traders (not investors) front ran this week’s inflation data, hoping for a much softer number that would take the Fed’s foot off the rate hike pedal. The August inflation print came in around 8.3%, all but ensuring that the Fed would raise rates by another 75 basis points next week. What’s interesting is that more than one Fed official had commented that they would need to see more than a month or two of declining inflation before considering changing course. The inflation number wasn’t a surprise really. We are, however, getting more comfortable with the fact that inflation has likely peaked, but the path back to the Fed’s 2% target will likely take longer. If/when the Fed raises next week, the Fed Funds rate with be 2.75% to 3% and likely on a path to 4% next year. Traders had priced in moderate rate hikes after this coming September meeting and even factored in a cut in rates by mid-2023. So, as we sit here today, we know rates are not coming down anytime soon. We know the economy is slowing. We know the Fed is hell-bent on bringing down inflation, and we know that it doesn’t feel good. However, it is far better that the economy feels the pain now vs letting inflation get away from us and repeating the late ‘70s and early ‘80s. It is the medicine we don’t want to take but know we need it.

Mortgage Rates Surpass 6% – Stocks and Bonds are on Sale but Homes are not:

Not since 2008 have homebuyers faced 6% mortgage rates. Heck, we were sitting below 3% last year. The move up in rates has been sudden and dramatic. Yet, keeping things in perspective, 6% is a far cry from the 18% rates homeowners had to pay in the 1980’s.  Regardless, such a dramatic increase has all but stunted the housing market. Sales are way down. Prices (yet) are not. Mortgage originations this year are expected to be half of what they were last year. We are in this phase of adjustment where sellers are clinging to last year’s home values and not being realistic about the current environment. They are emotionally anchored to a value that is not grounded in reality. Buyers, on the other hand, are very timid. Those that are looking are hoping for a “deal.”  The spread between the two is large. As we discussed during our recent podcast, one of three things needs to happen. One, we need a 40% pay raise to justify these prices. Two; mortgage rates need to go back to 3% or three; home prices need to decline 30%. I wouldn’t bet on the first one. And, frankly, I wouldn’t put much stock in the second option either. At least for now.

When inflation gets under control, rates will come back down, but that may be months from now. Fortunately, most potential sellers are sitting on a lot of equity and carrying a mortgage rate well below the current 6%. So, for those that were considering trading down (or up), they can sit tight. Those that must move may have a tough time wrapping their head around the new environment. Something must give.

https://www.wsj.com/articles/mortgage-rates-hit-6-02-highest-since-the-financial-crisis-11663250402?mod=Searchresults_pos4&page=1

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! August 29th – September 2nd, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,924.26-3.29%-17.66%
Nasdaq Composite11,630.86-4.21%-25.66%
Russell 2,0001,846.98-4.74%-19.4%
Crude Oil$87.25-6.15%15.64%
US Treasury 10yr Yield3.2%  

Source: Wall St. Journal

Market Recap:

Investors are engaged in a game of tug-of-war. What are they fighting about? Fear. Inflation fears and recession fears. Each piece of economic data seems like the bell starting the next round. Employment data for August was released Friday, showing 315,000 jobs being added, down from a revised 526,000 jobs in July. The labor participation rate ticked higher (meaning more people decided to get a job or committed to looking for one). So, slower job growth and more people looking for work means less wage pressures and possibly a slowing economy and therefore lower inflation expectations. Or inflation is eating away everyone’s wallet forcing them to go look for work because everything costs more, and they can’t keep going on like that. So, good economic data means the Fed will have to keep raising interest rates because good economic data means demand hasn’t’ softened and it makes the Fed’s job harder to combat inflation. Bad economic data means we could be heading into a recession which will cause inflation to fall, and the Fed will be able to stop hiking rates and even consider cutting rates at some point next year.

Are you confused yet? Bad economic data is good for interest rates (& potentially the markets) and good economic data is bad for interest rates and markets) It’s a bizarro world we are living in right now.

So, what are we supposed to make of all this? First. Take a breath. Second, consider the future. We have had recessions at the end of every economic cycle, and we are batting 1,000 when it comes to surviving them. The US economy has never fallen into a recession and stayed there. Recessions aren’t black holes. They are part of the economic cycle. Think of recessions like trips to the dentist. No one likes those appointments, but they are necessary.

https://www.wsj.com/articles/august-jobs-report-unemployment-rate-economy-growth-2022-11662062706?mod=hp_lead_pos2

It Might be Time to take that European Vacation:

The Euro is less expensive than the US Dollar for the first time since 2002. Well, it’s barely less. 0.999 to be exact. It was above 1.5 in 2008. Europe is suffering from sluggish economic growth, partly due to extremely high energy prices brought on by the Russian-Ukraine conflict. The continent is heavily dependent on Russian gas. Tight supplies have driven costs through the roof, dampening consumer demand and business’ ability to remain profitable. And for that, Europe can be enjoyed on the cheap.

While you’re there, you may consider buying some real estate. Depressed prices coupled with a strong US dollar make for some great deals on apartments in Paris! “Laetitia Laurent, a South Florida interior designer, has long had her heart set on a Parisian pied-à-terre. This summer, with the dollar soaring and Parisian real-estate prices holding steady, she took the leap. The 42-year-old, who lives in Boca Raton, paid 758,000 euros, or $758,606, for a 460-square-foot, one-bedroom in the Golden Triangle—the prime residential and commercial area between the Seine and the Champs-Élysées, in the French capital’s pricey 8th arrondissement. Ms. Laurent said, “I had been looking for a place for a long time.” (1)

Market In A Snap! August 22th – August 26th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5004,057.66-4.04%-14.87%
Nasdaq Composite12,141.7-4.4%-22.39%
Russell 2,000 1,901.01-2.88%-15.33%
Crude Oil$92.863.24%23.09%
US Treasury 10yr Yield3.02%  

Source: Wall St. Journal

Market Recap:

The markets took an abrupt change Friday morning after Fed Governor Jay Powell delivered his speech at the Jackson Hole, Wyoming economic symposium. Consensus coming into the meeting was that the heavy lifting on rate hikes was behind us and the old dovish tone would return from Mr. Powell. It was not to be. “While the central bank’s steps to slow the rate of investment, spending and hiring ‘will bring down inflation, they will also bring some pain to households and businesses. Those are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain’” (emphasis added). One month of declining inflation isn’t enough for the Fed to slow down. He went on to say that bringing down inflation was likely to “require maintaining a restrictive policy stance for some time.”

So, what does this all mean? Simply put, the economy (& the consumer) should expect more pain now to avoid greater pain later if inflation were to become endemic. It’s important to keep in mind that we’ll get through this.

https://www.wsj.com/articles/feds-jerome-powell-set-to-speak-on-economic-outlook-at-jackson-hole-11661476059?mod=hp_lead_pos1&mod=hp_lead_pos1

The Drought in the West has Company:

Corn yields across the major farmlands in the west and mid-west are declining, sparking fears this year’s lower harvest will “exacerbate the food inflation that’s already been gripping the world” says Bloomberg.com. Europe is in a severe drought as is China. If you’ve been watching the national evening news lately you’ve likely seen images of dried-up rivers or bridges extending over what look like streams rather than rivers across Europe. It’s bad. China is also dealing with severe drought conditions. In fact, parts of China are facing the worst drought since the 1960’s along tow major river basins that are responsible for nearly half of the nation’s rice production. China also relies on water for electricity as well. Yet, in the northeastern region, heavy rains have flooded areas that could reduce corn output by a meaningful amount. So, no rains in some regions and too much in others. The global farmland can’t catch a break. To use the adage, “when it rains it pours,” we just can’t catch a break. When things are bad, they just seem to get worse. Inflation can’t be completely controlled by simply raising interest rates. Mother nature has a to cooperate as well. Oh, and to add insult to injury, we have a fertilizer shortage because of war in Ukraine. Don’t expect inflation to come down anytime soon.

https://www.bloomberg.com/news/articles/2022-08-25/-no-way-around-it-us-crop-tour-stokes-fears-of-corn-shortage

https://www.bloomberg.com/news/articles/2022-08-24/drought-threatens-china-s-harvest-when-world-can-least-afford-it

https://www.cnbc.com/2022/04/06/a-fertilizer-shortage-worsened-by-war-in-ukraine-is-driving-up-global-food-prices-and-scarcity.html

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! August 15th – August 19th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5004,228.48-1.21%-11.28%
Nasdaq Composite12,705.22-2.62%-18.79%
Russell 2,0001,957.35-2.94%-12.83%
Crude Oil$90.03-2.01%19.32%
US Treasury 10yr Yield2.975%  

Source: Wall St. Journal

Market Recap:

The Federal Reserve doesn’t hold its monthly meetings during the month of August. It’s vacation time. However, the Kansas City Fed hosts an economic symposium in beautiful Jackson Hole, Wyoming at the end of August (the 25th – 27th). That served up an opportunity for a few Fed officials to comment that rates are going to have to keep rising and investors shouldn’t get too comfortable with the idea that they’ll start cutting rates next year. Those comments were enough to put a damper on equities (and fixed income) Friday, sending the major indices down 1 to 2%. The recent recovery in equity markets has been on the belief that rate hikes wouldn’t be as aggressive as predicted in the earlier part of the year.

The Fed wants investors to know one thing.: Inflation must come down, and rate hikes will continue until that happens, even if it leads to a softening economy.

Where interest rates have had a major effect is in real estate. Mortgage originations have declined precipitously, and refinancings (which is where the bulk of activity has been) has ground to a halt. Sales have plummeted and a recent survey has found that people are favoring renting over buying. That is understandable given that the dramatic rise in mortgage rates is making home even less affordable.

To make matters worse, housing affordability has plummeted. The US composite is around 100, down from nearly 180 at the end of 2020. That’s the composite (see chart). When you break it out by region, the West is below 70. To put things in context, the median priced existing single-family home was $357,000 at the end of 2021. In 2020, it was $300,200. At the end of June this year, it was $423,000. Staggering gains that ran right into a rate rise tsunami that seems to have paralyzed buyers and sellers alike. In our beautiful neck of the woods, the median price is a whopping $642,200! (1)

Yet, there is still relatively low inventory of homes for sale, and household formation is still providing natural demand for housing. We haven’t really built enough homes since the housing crisis in 2008. These factors are vastly different from the 2008 housing crisis. Too many homes, and loose lending created havoc that spilled over to the global economy. Those issues don’t exist today, but house prices may have trouble increasing amidst the backdrop of current mortgage rates. Either prices must come down, or rates must come down.

(1) https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! August 8th – August 12th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5004,280.153.26%-10.2%
Nasdaq Composite13,047.193.08%-16.6%
Russell 2,0002,016.614.93%-10.19%
Crude Oil$91.963.87%21.90%
US Treasury 10yr Yield2.893%0.6%132.6%

Source: Wall St. Journal

Market Recap:

Imagine you hopped into a time machine and landed in 2015. Now, imagine someone telling you that the inflation rate in August of 2022 was 8.5%! And then, someone told you the market went “up” after the news. IF you could comprehend what you just heard you certainly wouldn’t believe it. How can that be? I’ve written ad nauseum about inflation. I’m sure you’re tired of hearing the word. Heck, I’m tired of writing about it. Regardless, the point is to hammer home the fact that equity markets are always forward looking. What was it last month? Is it getting worse or better? Oh, it’s getting better? Great! Now, how the market reacted is partly a function of the trend in inflation but also, just as important, a function of where the market was leading up to Wednesday’s inflation data. It wasn’t long ago……call it late 2021, when the drumbeat of inflation was a dull roar. All hell broke loose in early 2022 when the Federal Reserve realized that inflation wasn’t as transitory as it had once thought. Equity and Fixed Income markets don’t like negative surprises. Capital markets are always uncertain, but when shocks to the system occur, the level of uncertainty (and emotional stress) intensifies, leaving investors uneasy about the future because they are projecting today’s problems with some sort of future permanency. Pessimism was in full bloom, and to some extent, hasn’t completely abated. When markets reach 2009-type pessimistic levels, markets are almost sure to turn around. To be fair, there are things to worry about. But, if you can adjust your lens to focus on the long-term, you can see a scenario where this just becomes another page in the history books. One to reflect on, and hopefully learn from.

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! August 1st – August 5th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5004,145.190.36%-13.03%
Nasdaq Composite12,657.552.15%-19.10%
Russell 2,0001,922.111.95%-14.4%
Crude Oil$88.39-10.10%17.15%
US Treasury 10yr Yield2.844%19.3%%133%

Source: Wall St. Journal

No Signs of a Recession in The Labor Market:

All this back and forth about the state of the economy was flipped on its head (again) with Friday’s employment report. 528,000 jobs were added in July, more than 100% more than consensus estimates. There are a lot of shattered crystal balls on Wall Street! The unemployment rate is back to its pre-pandemic lows of 3.5% and we have finally clawed back all those lost jobs. It took 29 months to do so, but it happened.

                             Source: Wall Street Journal.

So, what should we make of all this conflicting data (two consecutive quarters of negative GDP growth vs a strong labor market, overall positive consumer spending and corporate earnings that are holding up relatively well)? Not a lot really. Equities and fixed income markets tend to have a manic behavior during periods like this. These periods are speedbumps along the road towards your financial goals. Even if you are retired, you have financial goals. They are different then when you were saving towards it, but they are goals, nonetheless. Where we can bridge the gap between economic news and investments is in how we react during these tumultuous times. Missing out on even a few days of good performance can have a detrimental effect on a portfolio.  Yes, markets can be unpredictable. But the long-term trend has been up. The S&P 500 Index has finished the year in positive territory roughly 75% of the time since it was created way back in 1926. The table below shows the impact of missing the best market days on your portfolio.

Source: Russell Investments

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! July 25th – July 29th, 2022

 CloseWeekly returnYTD return
    
S&P 5004,130.294.26%-13.43%
Nasdaq Composite1,2390.694.70%-20.80%
Russell 2,0001,885.234.34%-16.04%
Crude Oil$98.423.53%30.48%
US Treasury 10yr Yield2.654%-10.0%75.59%

Source: Wall St. Journal

Market Wrap:

This week was action-packed, with more than 170 companies reporting earnings, in addition to a slew of economic data. We can safely assume at this point those corporate earnings, while still relatively strong overall, are slowing. Amazon posted a loss for a second straight quarter. Microsoft reported its slowest earnings growth in two years. So why was the market so strong this week? Simply put, investors feared worse. And there you have it. Earnings are what they are. It’s what investors feel about those earnings that drives stock prices in the short term. The market had become quite pessimistic coming into earnings. It appears they were too pessimistic. Nonetheless, the headwinds facing the US economy are still here. Second quarter GDP contracted. That is two quarters in a row of negative GDP growth (economists blame it on business inventories – businesses bought too much inventory previously so there wasn’t the typical inventory “build” in the second quarter – see chart of GDP components). That has been the definition of a recession used by many for decades. Yet, the other factors that really define a recession aren’t there. Rising unemployment. Nope. A broad-based decline in spending. Nada (see chart on purchases for big ticket goods). The global economic shutdown in 2020 is still reverberating around the world. Getting back to “normal” hasn’t happened…yet. It will. It will just take time.

Despite the Federal Reserve hiking rates another 75 basis points on Wednesday, monetary policy is still accommodative. Inflation is far higher than the Fed funds rate. Real yields are still negative. That is not restrictive. Traders are now more comfortable that the Fed will stop raising rates by early next year and could start cutting rates again. Why do they think this? Slowing earnings! These interest rate hikes are having the effect the Fed wants. A slowing economy should lower inflation. Why? Lower demand and or supply of goods means fewer dollars chasing fewer goods, vs what we’ve been seeing – too many dollars chasing too few goods. That’s what all the fuss is about rising interest rates. The $64,000 question is, “are they right?”. With a tight labor market and decent wage gains, it will be difficult to rein in inflation quickly. We could be looking at elevated inflation for a while because almost everything is pushing prices up. Rents are rising just as gasoline prices are declining. Rents are a much larger % of the inflation basket, so the effects of falling gasoline prices may not be enough to bring inflation back to the 2 to 2.5% range. Everyone seems to be surprised by almost every economic reading lately, so ruling out a material decline in inflation rates may not be as farfetched as it seems. It would be welcomed but the odds of it happening quickly are low.

https://www.wsj.com/articles/us-q2-gdp-growth-economy-11658981184?mod=hp_lead_pos2

https://www.wsj.com/articles/from-apple-to-microsoft-big-tech-results-spotlight-breadth-of-economic-upheaval-11659094604?mod=hp_lead_pos3

https://www.wsj.com/livecoverage/federal-reserve-meeting-interest-rates-july-2022/card/orders-for-big-ticket-u-s-goods-rose-in-june-fwBTwKp8DuGbNzflSb4J

https://www.wsj.com/articles/inventory-swing-is-a-key-culprit-behind-u-s-recession-talk-11658941356

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! July 11th – July 15th, 2022

By: Jeff Anderson

  Close Weekly return YTD return
       
S&P 500 3,863.16 -0.93% -18.95%
Nasdaq Composite 1,1983.62 -1.17% -26.57%
Russell 2,000 1,769.36 2.41% -21.20%
Crude Oil $97.54 -6.95% 29.25%
US Treasury 10yr Yield 2.923% -16.1% 140.9%

Source: Wall St. Journal

Market Wrap:

The S&P 500 closed up nearly 2% today, clawing back a decent chunk of this week’s losses. Considering the surprise inflation data for June which crossed 9% (9.06% to be exact), this is rather good.

The second quarter earnings season is underway, and JP Morgan Chase put a damper on sentiment with its CEO and Chairman, Jamie Dimon warning of potential problems on the horizon. The bank increased its reserves for potential loan losses. Mr. Dimon is one of the Wall St executives that garners a lot of media attention, so anything he says tends to reverberate through the markets and sparks numerous debates amongst the “crystal-ball” economists and strategists. Nothing that has been said this week is new. We all know what the issues are. But the narrative seems to be shifting away from inflation fears towards recession fears, even though the two are linked. High prices for food and gasoline alone are taking even more of a cut from people’s wallets.  This we know. However, as you can see from the chart that shows median checking account balances, the US consumer is in decent shape. Retail sales for June came in higher than estimates.

The Wall Street Journal

If we take stock of things today, we can be reasonably confident that:

  1. The average US consumer hates spending more but they continue to do so (is that negative or positive?)
  2. Regardless of the reasons, inflation is too high, and the Fed is committed to bring it down.
  3. Great companies are considerably cheaper than they have been in years, and their business models will survive, regardless of how long it takes to bring inflation down.
  4. The stock and bond markets, over the short term, are more driven by human behavior than the underlying fundamentals of the companies that make up those markets.
  5. Inflation for June surprised many but apparently the market had already baked it in. The indexes are actually higher after that announcement. The market is a better truth teller than anyone who slaps on a mic and goes on TV to pontificate about the future.

A couple of charts to finish the weekly update. One is the # of Google searches for the word “recession” and the other is what consumers think about buying cars, homes, and other goods. They really do provide a nice visual to our collective state of mind.

Source: Allianz Global
Source: Allianz Global

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.

Market In A Snap! July 4th – July 8th, 2022

By: Jeff Anderson

 CloseWeekly returnYTD return
    
S&P 5003,899.381.94%-18.19%
Nasdaq Composite1,1635.314.56%-25.63%
Russell 2,0001,769.362.41%-21.20%
Crude Oil$104.8-3.37%38.39%
US Treasury 10yr Yield3.078%18.4%156.4%

Source: Wall St. Journal

Market Wrap:

The S&P 500 finished up nearly 2% for the week while the yield on the 10-Year US Treasury Note crossed back over 3%.  Inflation and recession fears continued to dominate the headlines.

Employment remains strong despite a cooling economy. The US is within a whisker of the payroll level just before the global pandemic struck. Consumers are starting to pullback on spending, even if just slightly, as high fuel and food prices continue to take a bigger cut of the wallet. The consumer had a lot of savings (or disposable income) coming out of the pandemic. Stimulus checks, along with savings accumulated because there was nothing to spend it on created a massive amount of money that eventually made its way into the economy. First it was “stuff” that was purchased. Then, as the economy opened, the consumer started spending money on trips, restaurants and other experiences.  As inflation picked up and savings were drawn down, spending started to slow. Couple that with the fear of recession and you have a consumer that is either “less flush” or battening down the hatches as they forego discretionary spending. The Fed will likely raise rates by another 75 basis points at the end of July and possibly another 50 basis points in September as they continue their barrage on inflation.  There is a lag between rate hikes and its effects on demand. The Fed will hopefully strike a balance where inflation is brought down, and the economy doesn’t swirl down the drain with it. Only time will tell if they can navigate this high-wire act.

Source: Wall St. Journal

Tune out the Noise:

.

Focus on the long-term and block out all the short-term “noise.”  Inflation, or recession. Take your pick. The narrative seems to be shifting weekly between the two. Strong jobs data means a strong economy which means persistent inflation and further interest rate hikes. This bad for bonds and bad for growth stocks. Weak economic data like decelerating manufacturing activity means recession risks are higher which means inflation will come down and bonds will do better and growth stocks will outperform. This back and forth has been going on for months. What we can feel confident about is that the economy is decelerating. Inflation will eventually come down. Borrowing costs will be higher, but still historically low. House prices may decline due to higher mortgage rates. The frothy equity markets of late 2020 and 2021 are in the rearview mirror. Some normalcy is returning to capital markets even though it doesn’t feel great.  With any economic slowdown, equities will signal it beforehand, and they will foreshadow better times ahead.

Advisory services are offered through Presidio Capital Management LLC, Registered Investment Advisers.  Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Presidio Capital Management, LLC unless a client service agreement is in place.