Happy Labor Day! Hope you are all doing well. The major U.S. stock indexes finished fractionally lower for the week after the market’s midweek gains were offset by a Friday pullback entering the holiday weekend. The S&P 500 on Thursday closed above the 6,500-point level for the first time, but it slipped back below that threshold the next day. Saturday Night Live was in the news this week after a major cast shakeup. I have broken down this week’s update using quotes from my all time favorite skit, Chris Farley’s motivational speaker Matt Foley.
“You’ll have plenty of time to live in a van down by the river when you’re livin’ in a van down by the river!” – Matt Foley (Chris Farley)
Our future economic prospects have been shrouded in pessimism by financial pundits. While the numbers may not continue to be as strong as they are right now. I expect the economy to remain pretty strong. The U.S. economy expanded in the spring at a slightly faster rate than initially estimated. Thursday’s update increased GDP growth. The economy grew at 3.3%, up from a 3.0% estimate released a month earlier. That growth marks a turnaround after the first quarter’s slight GDP contraction. As mentioned when the initial number came out. Elevated tariffs probably fueled a shift in the flow of imports relative to domestic goods, which helps the GDP number. Unlike some of the pundits I expect the economy to stay growing despite the tariffs albeit at perhaps a slower pace in the coming quarters.
“Well, la-dee-freakin’-dah!” – Matt Foley (Chris Farley)
Inflation is trending higher, but not enough to scare the Federal Reserve out of cutting rates in September. The U.S. Federal Reserve’s preferred gauge for tracking inflation edged upward to the highest level in five months. Friday’s report on the Personal Consumption Expenditures Index found that core inflation rose at a 2.9% annual rate in July. Core inflation excludes typically volatile energy and food costs. Factoring in those categories, the annual rate was a more modest 2.6%.
You’re not going to amount to jack squat! – Matt Foley (Chris Farley)
Don’t be fooled by the recent rally in bonds, it’s not going to amount to anything. Bonds have traded higher because of the growing expectations that the U.S. Federal Reserve is likely to cut its benchmark rate in September. As of Friday afternoon, prices in rate futures markets implied an 88.9% probability of a rate cut. I still don’t think bonds are a good investment. For bonds to rally significantly the Fed would need to completely change course and cut rates multiple times. I don’t see that happening so I think the recent optimism in bonds will fade.
That’s a riot, you kids are having a ball! Well, get over it! – Matt Foley (Chris Farley)
If you stayed invested throughout the market drop in March and April then you have been having a ball the past three months as stocks have skyrocketed. For those of you on the sidelines waiting to join the party, good news, September is coming. September has historically been the weakest month for the stock market, a phenomenon known as the “September Effect,” with the S&P 500 averaging a negative return over the long term. The exact reason is not known. Whatever the reason, don’t be shocked if we get a pull back. If this occurs it should be viewed as a buying opportunity as corporate earnings and the economy remain strong.
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