- Stocks continued to push upward with all four major indexes (Dow Jones Industrial Average, S&P 500, NASDAQ Composite and the U.S. Total Market Index) closing at record highs at some point during the week. All have rallied back from declines of five percent or so over the past month as interest rates have come down a bit over that same time frame. It has long been said that over the short-term stocks move randomly, the direction of which is impossible to predict no matter how many try. That is no more evident than over the past month as they have risen despite the headlines. It is also a reminder to all that the best way to prepare for your financial future is to ignore the short-term and invest in accordance with your long-term objectives, a period which has historically been much more predictable.
- The Dow Jones Industrial Average closed at a record high Friday, finishing at 40,003.59 its first ever close above 40,000. Now we know that despite being closely followed this index is not a broad representation of how the stock market is performing as it is price-weighted rather than weighted by market capitalization. In addition, the Dow is comprised mostly of companies that are cyclical in nature. However, even casual followers of the financial markets are familiar with the Dow which is why this event is of note. What is also of note is what we have said for decades, “time termpers volatility.” In our opinion and if history is any guide, there is no reason to believe that this steady march higher, surely one that will be periodically interrupted by corrections and bear markets, resulting in some being derailed in reaching their financial goals, will continue. It is also the reason that as August marks our thirty-fifth year in business as Fagan Associates, God willing, we will also be there to help you not fall victim to short term investing, ultimately becoming one of the “derailed.”
- Bespoke Investments broke down the S&P 500 into ten equal sized groups, based on multiple metrics. They found that over the past month “the single best decile was made up of stocks with the highest international revenue exposure. That cohort averaged a 10% gain over the past month.” (Source, Bespoke Investments). We must admit that we are U.S. Centric investors. However, we obtain our broad international exposure in what we see a prudent manner – by investing in large-cap companies domiciled in the United States with a high percentage of internationally derived revenues. It has worked in the past and we believe will continue to benefit our clients in the future.
- According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates decreased for the second consecutive week. Given the news that inflation eased slightly, the 10-Year Treasury yield dipped, leading to lower mortgage rates. The decrease in rates, albeit small, may provide a bit more wiggle room in the budgets of prospective homebuyers.”
- April inflation at both the wholesale and retail levels as measured by the Producer and Consumer Prices Indexes (see below) remain stubbornly high posting m/m increases of 0.5% and 0.3%. This, in turn kept both above the Fed’s 2% target at 2.2% and 3.4% on a year-over-year basis. It also may have prompted cautionary comments regarding inflation from several Fed Presidents.
- Speaking before an Economic Development Council in Wooster, Ohio this past Wednesday, Loretta Mester, President of the Federal Reserve Bank of Cleveland noted that although current interest rates will help get inflation back to its 2% target, progress has been “disappointing” and that she believes it will “take longer to reach our 2% goal than I previously thought.”
- During an interview with Reuters also on Wednesday, May 16, John Williams, President of the Federal Reserve Bank of New York stated that “I don’t see any indicators now telling me… there’s a reason to change the stance of monetary policy now, and I don’t expect that, I don’t expect to get that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term.”
- Finally, during an interview on CNBC, Thomas Barkin, President of the Federal Reserve Bank of Richmond stated that although the inflation data did show some cooling of the consumer during April, that “there’s just a lot of movement on the services side and it’s just going to take a little bit of time.”
- As we have stated repeatedly over the past several months, getting inflation to its target of 2% from where it stands today, around 3%, will most likely take longer than the Fed anticipated and bring along with it higher risks to the economy. Too long of a period and wage inflation becomes embedded. Too short and risk of a recession increase. (On an entirely other matter, the Fed has to be careful about messing too much with the natural ebbs and flows of the economy.)
- Gotta love the title of the article in this past weekend’s Barron’s, written by Jack Hough, “McDonald’s Prices Make Me Grimace. Are Consumers Fed Up? For those of us who are all too familiar (unfortunately) at the rise in the price of meals at the hamburger chain, something which Hough dubs “cheeseburglary,” it has started to eat away at store traffic as well as their stock price, “’wich” has fallen over seven percent thus far this year.
- We believe that we are in the early innings of an industrial super cycle, as a result of on-shoring and near-shoring. Investors can benefit by investing in technology, companies that utilize technologies to increase efficiencies, industrials, materials and infrastructure plays.
- There’s a big difference between a top and a consolidation. If it stalls here, we think that the overall market, including technology, will do so as part of a consolidation and not a long-term top. From the performance of the SPDR Select Sector ETFs that looks like exactly what we are getting. We are very content with this.
- Corporate news – Beware the meme stocks such as Gamestop (GME) and AMC Entertainment (AMC), both which rocketed on rumors and innuendo before crashing down. There is nothing more akin to gambling when investing than riding the rumor mill.
- Upcoming Economic Reports scheduled to be released this week include the following, on Wednesday, April Sales of Existing Homes; on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and April New Home Sales; and on Friday, April Orders for Durable Goods; and Consumer Sentiment from the University of Michigan.
- The Q1 Earnings has begun to slow. However, companies of note scheduled to report this week, include – Palo Alto Networks (PANW), Lowe’s (LOW), Nvidia (NVDA), TJX (TJX), Snowflake (SNOW), Synopsis (SNPS), Target (TGT), Workday (WDAY), Autodesk (ADSK), Ross Stores (ROST), Intuit (INU) and Medtronic (MDT).
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.”
