- This past Thursday, the Dow Jones Industrial Average fell after thirteen consecutive up days, tying the longest such streak since the 1890s. Yes, the 1890s, not the 1980s! Nonetheless, both the Dow as well as the S&P 500 both have posted three consecutive up weeks, continuing a trend that has persisted since the October 12, 2022 closing low. Better than expected earnings, improving consumer confidence and adequate economic data sparked investor appetite for risk. We will need more of the same this week if this trend is to continue. The earnings deluge continues as Apple, Amazon, and Advanced Micro Devices all report quarterly numbers. In addition, the release of the July Non-Farm Payroll Report is scheduled for this Friday.
- The bull rally that we are experiencing during 2023 is nearly a mirror image of 2022 as the laggards of last year have been the leaders of this. As opposed to 2022, 2023 is a pleasant reminder that the near-term direction of the financial markets is impossible to predict. With this in mind, let us quote Warren Buffett who once observed that “in the short run, the market is a voting machine” driven by investor speculation, sentiment and the media “but in the long run it is a weighing machine” driven by the overwhelming strength of the U.S. Economy and company fundamentals. This is important to remember that corrections/bear markets are also part of the ebb and flow of the market, part of the process, and not to be feared, but welcomed as they create long-term value.
- The Fed raised the Federal Funds rate by 0.25% to 5.50% this past Wednesday, at the conclusion of its regularly scheduled two-day meeting. Notable comments by Fed Chair Jerome Powell during the post-meeting conference include:
- “the worst outcome for everyone, of course, would be not to deal with inflation now, not get it done. Whatever the short-term social costs of getting inflation under control, the longer term social costs of failing to do so are greater and the historical record is very, very clear on that.”
- In regard to further hikes Powell stated that “we have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute.”
- At this time we believe the Fed will not raise rates at its next regularly scheduled meeting September 19-20. We also believe that rates will stay in and around these levels (historically normal) for longer than was originally expected. As noted last week, the Fed has already used its mulligan on inflation when Chair Jerome Powell called it ‘transitory’ back in 2021 and therefore does not want to run the risk of being wrong again. This may in turn keep them more hawkish than the market is currently anticipating. That said, given the ten rate hikes since the first on March 17, 2022, totaling 5.50%, we believe we are at the point in the economic cycle where the Fed will be moving more cautiously, perhaps not at every meeting of the Open Market Committee (FOMC) and in increments of 0.25% as opposed to aggressively. The market can handle this.”
- To the above we will add that Fed action from this point forward in the economic cycle is more about messaging and signaling their hawkish intentions as opposed to providing a headwind or tailwind to short-term economic activity.
- The markets are pricing in a soft landing, but most likely have not priced in a hard one or a reacceleration of economic activity. Look, in our opinion, there are always concerns. However, at this point in time, equities as well a fixed-income appear reasonably valued.
- Corporate news – UPS, Teamsters Reach Labor Deal. Meta Platforms (META) earnings shine. Microsoft (MSFT) mildly disappoints, Alphabet (GOOGL) posts earnings that show it is a force to be reckoned with in AI.
- Something amusing in in Barron’s, “Elon Musk replaced Twitter’s blue bird log with an X. Now he has to provide services beyond just tweets.”
- The dramatic decline Bud light sales may be indicative of the social divisiveness that currently prevails in the United States. However, its stock price which bottomed at $52.99 closed Friday at $58.86 on hopes that Anheuser-Busch InBev (BUD) will right its ship. We were surprised by the magnitude of the selloff as we thought that those of us that allegedly are known to consume a beer once in a while were more apt to change football teams as opposed to their favorite beer! As far as investing in BUD, we will place this in the too hard pile.
- Don’t get sucked in by investing solely in short-term fixed income securities such as money markets, short-term bonds or Certificates of Deposit (CDs) despite their yields being higher than longer dated securities as a result of the inverted yield curve. With the interest on the 10-year U.S. Treasury hovering around 4%, we recommend laddering bonds in order to add predictability to your stream of future income.
- Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, June Construction Spending, the Manufacturing Report on Business from the Institute for Supply Management (ISM) as well as the Job Openings and Labor Turnover Survey (JOLTS); on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance, June Factory Orders and the Services Report on Business from the ISM; finally, on Friday, the main event, July Non-Farm Payroll Report to include the July Unemployment Rate.
- Second quarter earnings season is in full swing. Companies reporting of note, include – Starbucks (SBUX), Sony (SONY), BP, (BP), Toyota Motor (TM), Merck (MRK), Pfizer (PFE), Vertex Pharmaceuticals (VRTX), Advanced Micro Devices (AMD), Caterpillar (CAT), Qualcomm (QCOM), CVS Health (CVS), Booking Holdings (BKNG), Stryker (SYK), Anheuser-Busch (BUD), Airbnb (ABNB), ConocoPhillips (COP), Amgen (AMGN), Gilead Sciences (GILD), Regeneron (REGN), Apple (AAPL) and Amazon (AMZN).
“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.
Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
