Favorable recent US economic data points to an economy returning to the “Goldilocks” zone of “not too hot, not too cold” economic growth.1 Slow (but positive) growth could allow the inflation rate to stabilize in the 1-3% range that has been the historic sweet spot for US equity returns.2 This optimism has ignited the most recent market rally and sent stock valuations to relatively expensive levels on most key metrics.3 In addition, equity market sentiment has turned positive, with the AAII Sentiment Survey…

Since March 2020, the global economy has undergone multiple dramatic changes driven primarily by adaptations of businesses, consumers, employees, and governments to the COVID-19 pandemic. Some examples: Severe lockdowns followed by staggered reopening policies Massive government stimulus followed by fiscal and monetary tightening Huge demand increases for consumer goods and supply chain gridlock followed by the current “freight recession” 1 Collapse in travel followed by significant recovery 2 Worries about deflation followed by the highest inflation rate since 1980 3 The shifting economic…

On Monday, Treasury Secretary Janet Yellen stated that the US government may be unable to pay its bills in June if Congress does not act to raise the federal debt limit. While they may be able to stretch things to July, the point is that the limit will be hit soon and something needs to be done to prevent an unprecedented breach of confidence in the US government. What are the consequences of not raising the debt ceiling? In recent…

Analysis of Recent Market Events The past week in financial markets has been action packed, to say the least. We hope this post can help you understand what just happened and what it may mean for your portfolio. Let’s start with the consensus view as of market close March 8, 2023, or roughly one week ago. Preliminary reports indicated that February US economic conditions were still very strong, with the implication that inflation was still much too high. Fed Chair…

There were few places to hide in 2022 as both bonds and stocks dropped significantly.1 Interestingly, S&P 500 full-year 2022 earnings are likely to come in almost exactly as analysts predicted back in December 2021, meaning most companies actually performed fairly well financially last year.2 The problem was the huge rise in interest rates, caused by shockingly higher than expected inflation. As interest rates rise, existing bond prices fall as investors equalize new bond issues with older, lower-rate bonds. As…

One month ago, we pointed to the September 13 Consumer Price Index (CPI) release as the key upcoming catalyst for the market. Would it be a market calming event showing a solid disinflationary trend or a repeat of the June 10 CPI release that sent the market to new lows? Unfortunately, we got the latter, with inflation still running way too hot across a broad array of categories. This will force global central banks to respond with even more interest…

The S&P 500 Total Return Index is currently down roughly 12% for the year, well above its low of down 23% on June 16, but still a long ways from a full recovery. For bonds, the U.S. 10-Year Treasury Yield remains volatile, swinging between 2.5%-3.5% since early April. Its current 3.1% level is roughly double the 1.5% from December 31, 2021. Will stocks and bonds go on to set new lows or record highs before year-end? While neither we at…

The S&P 500 Total Return Index is now down roughly 15% year-to-date, with the Bloomberg US Aggregate Bond Index not far behind, down roughly 10%. The main causes of the dual equity and bond downturns have been the same all year:   Inflation: The March Consumer Price Index (CPI) of +8.5% was the highest since 1981.1 Monetary policy tightening: The Federal Reserve is expected to raise the Fed Funds Rate from its current 0.8% to over 3.0% by March 2023.2…

Shortly after we sent out our market update yesterday, Russia invaded Ukraine with military strikes throughout the nation, clearly going well beyond the disputed Donbas region. While not yet a worst-case scenario as civilians/major cities do not appear to have been targeted, these events represent a dramatic escalation and go far beyond the fighting that occurred in Ukraine in 2014. Russia’s end goal remains unclear. At the very least, they appear to be looking to expand and strengthen control of…