Hope you are all doing well. The major U.S. stock indexes recorded their second positive week in a row, rising around 1% to 2% for the week. The results pushed indexes to their highest levels in more than three months, although the S&P 500 remained more than 2% shy of its record high set nearly four months ago. Friday was the anniversary of D Day and the US Army turns 250 this coming Saturday, so I have broken down this week’s update using quotes from legendary Army General Omar Bradley.
Set your course by the stars, not by the lights of every passing ship.
You can’t determine the strength of the economy by looking at the jobs data, as there are other variables contributing to the positive numbers. The economy generated 139,000 new jobs in May, above consensus expectations of around 130,000. Wage growth continues to outpace the rate of inflation which is a good thing but for how long if the tariffs ultimately get put back on. Low unemployment and wage growth should continue to be the case for the foreseeable future not because of policy but because of demographics.
We are at the peak of Baby Boomers turning 65 with an average of 11,400 hitting 65 each day. Most of these individuals are leaving the workforce and good paying jobs. Companies are promoting from within and reducing their headcount which is why unemployment remains low despite a lackluster amount of hiring.
Yes, we are seeing wage growth, don’t read too deeply into that. It is likely because younger people get promoted and step into more senior roles as Boomers retire. The labor market will have this strong demographic tail wind until 2030 when the last Boomers turn 65. A strong labor market regardless of the rationale is a good thing for stocks.
Bravery is the capacity to perform properly even when scared half to death.
Keeping your head when markets get crazy is the most important skill an investor can have. On Friday afternoon, the Cboe Volatility Index (VIX) fell to a level of 16.8, down from 18.6 at the end of the previous week and far below a recent peak of 52.3 on April 8. Had you sold out of stocks on April 8th instead of remaining calm you would have missed a more than 20% bounce in the S&P which has put the index back above the 6000 mark. Summer isn’t typically associated with volatility or market turmoil, but this year may be an exception. We have had a nice run in stocks supported by strong corporate earnings. Trade developments and tariff headlines are continually evolving. Couple that with the fact that the world’s richest man (Elon Musk) is trying to kill the President’s signature bill and you have a recipe for turmoil. The months ahead may again test your resolve as I expect volatility to increase significantly in July if the bill fails and/or we don’t get trade deals. If that happens again, the right thing to do will be to stay invested and ride out the storm as the underlying fundamentals remain strong.
Please use my calendar link below and schedule a phone or zoom appointment. The calendar link allows you to schedule a call as early as the next day. If it has been a while since your last review, please schedule.
