Hope you are all doing well. The S&P 500, unlike the NY Knicks, did not keep its historic winning streak intact. The index was trying to achieve a 10-week winning streak for the first time since 1985. The index fell 2.6% over the week, which was its biggest weekly drop in nearly eight months. The market was up most of the week, but a selloff on Friday wiped out the week’s gain. Peabo Bryson passed away this week; he had several famous duets. I broke down this week’s update using his famous Disney duets.
Beauty and the Beast – Bryson and Celine Dion
A tale as old as time: the market takes a piece of good news and reacts as if it were bad news. An excellent payroll report highlighted the improvement in the U.S. labor market this year. Hiring is accelerating and broadening across most sectors. That provides a foundation for more economic growth and continued corporate earnings growth. Friday’s report got investors a little scared, as the combination of an improving labor market and inflation risks could prompt the Fed to hike interest rates. I expect the Fed to hold rates unchanged. The Fed has a dual mandate: full employment and price stability. A strong labor market gives the Fed the ability to focus on price stability, which means rates will stay higher until inflation numbers improve. This is why I continue to advise staying away from bonds with your conservative investments. Bonds are repricing for a “higher-for-longer” interest-rate environment. Other than shorter-maturity treasuries, the whole bond space should be avoided.
A Whole New World – Bryson and Regina Belle
We have been told this conflict will bring about a whole new world. One in which Iran’s ability to project strength beyond its borders is eliminated. That still has not happened, as the US forces intercepted missiles and drones launched by Iran toward the Strait of Hormuz and the Gulf region, specifically Kuwait and Bahrain. The US military also struck coastal sites in Iran as it tries to get the Strait of Hormuz reopened. The longer that Iran holds the world’s oil hostage, the more unlikely a peaceful solution will be found. Hopes for peace in Lebanon are also fading. The ceasefire there is starting to fray. More than 20 people were killed on Friday in Israeli strikes inside Lebanon. Israeli clashes with Hezbollah intensify. I wish I had a new fantastic point of view, but unfortunately that is not the case, as these conflicts don’t appear to be ending any time soon. Dividend-paying value stocks are generally more oil sensitive than growth stocks. If you are looking for dividend payers, be more targeted with your investments; pick sectors with less exposure to oil like utilities.
NOTE: I WILL BE OUT OF THE OFFICE UNTIL JUNE 18th. You can use my calendar link below to schedule a phone or Zoom. The calendar link allows you to schedule after I return on June 18th. If you have a time-sensitive issue, use email; I will check and respond to emails throughout the day while I am out of the office. If you need to place a trade, call Charles Schwab directly at 800-435-4000; for all other requests, email me.
