- The momentum that is technology continued to the upside for the first half of the week, but stumbled a bit during the second half (the financial markets were closed Wednesday in commemoration of Juneteenth) as investors took profits in that hot sector and put the proceeds into some of the more cyclical areas. It is important to recognize that investors did not take money out of stocks, but rather repositioned it. This is the sign of a healthy market.
Time will tell, but for now it is not wise to step in front and broadly sell into this momentum, which remains to the upside. That said, it is our belief that stocks and bonds seem reasonably valued. As such, we continue to recommend scaling into secular growers on weakness; nibbling at value stocks, especially those that will benefit from utilizing technology to reduce operational costs and laddering fixed income. We expect the summer to be choppy as volume contracts, the election approaches and the accompanying rhetoric heats up.
- The Fed has two more regularly scheduled meetings prior to the election, July 30-31 and September 17-18 and one the day after the election, November 6-7. At this point we believe there won’t be enough data to cut interest rates at the July meeting so the next opportunity, barring a between-meeting-cut will be following the September one. The FOMC has repeatedly stated that they are data dependent and that is not truer than now as they don’t want to retain real (inflation adjusted) interest rates at a level where it chokes off economic growth but also don’t want to let the inflation genie out of the bottle a la the 1970s by cutting too soon. In our opinion and given their post-pandemic policy missteps, they will most likely leave interest rates higher for longer. At this time, we believe the financial market will do just fine in a “higher for longer” environment.
- Bubbles act like a vortex – slowly but surely they suck you in so that in the end you have an undiversified portfolio. Then the bubble bursts and it spits you out. Sometime diversification can be difficult as it inherently implies laggards.
- The price to purchase an existing home hit all-time highs in May. According to the National Association of Realtors, “the median existing-home price for all housing types in May was $419,300, the highest price ever recorded and an increase of 5.8% from one year ago ($396,500). All four U.S. regions registered price gains.” According to NAR Chief Economist Lawrence Yun, “home prices reaching new highs are creating a wider divided between those owning properties and those who wish to be first-time buyers. The mortgage payment for a typical home today is more than double that of homes purchased before 2020. Still, first-time buyers in the market understand the long-term benefits of owning,”
- “The average mortgage payment of principal & interest in April rose 5.7% (12.9% y/y) to $2,209 from $2,090 in March. The median price of an existing single-family home increased 3.9% (5.6% y/y) to $412,100 in April after rising 2.2% in March. The monthly mortgage outlay equaled 26.1% of median family income versus 24.7% in March, though that was down from a high of 27.4% in October. The monthly mortgage rate of 7.07% compared to 6.90% in March. It remained below a high of 7.70% in October. Median family income improved 0.1% (5.0% y/y) to $101,663 from $101,556 in March.” (Quoting from Haver Analytics and according to data from the National Association of Realtors)
- According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates fell for the third straight week following signs of cooling inflation and market expectations of a future Fed rate cut. These lower mortgage rates coupled with the gradually improving housing supply bodes well for the housing market. Aspiring homeowners should remember it’s important to shop around for the best mortgage rate as they can vary widely between lenders.”
Should inflation data continue favorable and interest rates continue to decline, expect to hear talk about the benefits of an Adjustable Rate Mortgage as compared to a Fixed Rate Mortgage. We’ll say it now, “it’s not a bad idea to consider.”
- “Household net worth rose to $160 trillion in the first quarter, an all-time high and up from $148 trillion a year ago. Of that $13 trillion increase, $7 trillion came from equity holdings appreciation and $3.3 trillion from real estate appreciation. Moreover, the sum of checking deposits, savings deposits and money market funds is 27% higher than in 2019 in nominal terms and 13% in real terms (after adjusting for inflation). Source, Bloomberg, Edward Jones
- Corporate news – Berkshire Hathaway (BRKB) increased its holdings in Occidental Petroleum (OXY) by a total of 7.3 million shares that were purchased on nine consecutive trading days starting June 5. The Warren Buffett led conglomerate now owns 255.3 million shares, valued at more than $15.5 billion. That represents a 28.8% in the oil and natural gas exploration and production company.
- Upcoming Economic Reports scheduled to be released this week include the following, on Wednesday, May New Home Sales; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance, May Orders for Durable Goods, the Third and Final Estimate of Q1 GDP and May Wholesale Inventories; and on Friday, May Personal Income and Spending along with June Consumer Sentiment from the University of Michigan.
- The Q1 Earnings has slowed to a trickle. However, companies of note scheduled to report this week, include – FedEx (FDX), Carnival (CCL), Levi Strauss (LEVI), AeroVironment (AVAV), National Beverage (FIZZ), Micron Technology (MU), Paychex (PAYX), General Mills (GIS), McCormick (MKC), Nike (NKE) and Walgreen Boots Alliance (WBA).
General Disclosure:“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.”
