Happy Father’s Day to all of the dads. A week after entering a bull market, the S&P 500 recorded its fifth positive weekly result in a row. That marks its longest such streak since November 2021. The three major U.S. indexes posted weekly gains of around 1% to 3%, and the S&P 500 and the NASDAQ rose to their highest levels in 13 months. In honor of Father’s day I broke down this week’s update using some classic fatherly advice.
It’s OK to make mistakes. That’s why they have erasers on pencils
I was wrong about the Fed as they didn’t raise interest rates at this meeting. I was correct about the messaging. The U.S. Federal Reserve officials signaled that they could lift interest rates again at their next meeting July 25–26 and possibly one more time this year if the economy and inflation don’t cool further. While the US central bank paused, the European Central Bank (ECB) did not. The ECB lifted its deposit rate by a quarter of a percentage point to the highest level in more than two decades. The market rally is gaining steam. I still expect some hiccups as we progress forward as the market might be overestimating the speed with which inflation will drop.
Just because you have it, doesn’t mean you have to spend it.
Prices at the pump and the grocery store are dropping which makes everyone feel like they have a bit more money. U.S. inflation fell to 4.0% in May to record the lowest annual rate in more than two years. However, it was not as good of a number as it seems. The drop was driven by a drop in food and energy prices. Core inflation which is what the Fed looks at excludes these two volatile inputs. Core Consumer Price Index (CPI) rose at 5.3%. During the last 30 years, core inflation averaged 2.4% when the Fed shifted to the sidelines and paused rate hiking cycles. The current level of core inflation suggests the Fed may need to restart the rate-hikes as early as next month and they told you as much this week. Historically, pauses have come when core inflation is well below the fed funds rate and it is still slightly above the Fed Funds rate. While it’s nice to see eggs back down to a normal price for the Fed to sustain a long pause or even a rate reduction then core inflation needs to fall at a faster pace
