Tag: Market Update

by Franklin J. Parker, CFA

We finally got labor data for January last week and it was considerably better than expected. It appears the US economy added 172,000 jobs, which was about 100,000 more than economists expected, and the unemployment rate dropped to 4.3%. Earnings season also continues, with companies growing earnings by about 13% over this time last year. Price increases continue to slow down, with inflation coming in at 2.5%. Not far from the Fed’s 2% target.

From an investment perspective, these are all very good signs. It may be that the US economy accomplished the first “soft landing” in history (a slowdown of inflation without a recession).

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The confusion comes from other data that paints a very different picture. We are also seeing the most amount of announced layoffs since the Great Financial Crisis (2009). Retail sales stalled in December, and companies have begun to announce price increases for 2026. Markets are also quite volatile, with the S&P 500 seemingly unable to cross above the 7000 mark.

What does this all mean for investors? We have two takeaways. First, the era of a buy-the-index strategy outperforming may be at an end. We are finding that picking quality names out of the index is working better than a simple “buy everything” approach.

Second, investors with goals to achieve should be cognizant of the losses that could derail their goals. Understanding that number, and developing a strategy to mitigate the risks of it happening, makes a lot of sense in an ambiguous market like this.

Chart of the Week

This week, I want to share the one chart that gives me some confidence in this volatile market. Ultimately, stock prices follow earnings growth. In fact, stock prices anticipate changes in earnings by about 3 to 6 months, as this week’s chart shows. The blue line is the 1-year change in stock price, and the brown bars are the 1-year change in expected earnings. As you can clearly see, the blue line tends to move in advance of the brown bars by about three to six months.

The comfort this chart gives is that, at least for now, the earnings growth is expected to be quite strong. Therefore, I expect there to be a floor to these selloffs. At least for now.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Everyone is asking what happened last week.

Stocks dropped last week around 4%, with gold, silver, and bitcoin all falling dramatically. Bitcoin is now down almost 50% from its October high. While it was a wild week, we’ve all struggled to point to a cause. A new feature launch from Anthropic, the makers of Claude AI, was pointed to as the culprit in stocks, but that still doesn’t explain the sudden risk-off mood across all asset classes.

For stocks, earnings are coming in better than expected, and it appears companies will increase earnings by about 13% over this time last year. Again, this is very good earnings growth. So long as companies continue growing earnings, I expect there is a floor to any selloff.

For precious metals, however, I am growing cautious. As I mentioned in last week’s note, they have significantly outgrown any reasonable valuations, and I think this is a good point for investors to take profits, where they can.

I have, for over a year now, been cautioning investors against the weakness brewing in the underlying economy. We got a fresh round of news on that front, unfortunately. Announced layoffs have grown to the highest number since 2009, standing at 108,000 announced in January. Job openings also fell much more than expected last month. While this may be AI-related, there are numerous forces at work on the labor market making it difficult to tease apart.

Overall, I am still cautious. I am tired of saying this, but it would appear that, so long as companies continue to make money, markets will go up. However, layoffs and unemployment are tell-tale signs of a recession, and it does appear that risk in markets has only built over the last year.

Chart of the Week

This week’s chart comes courtesy of Reuters and it illustrates the growing concern with AI investment, generally. Nvidia makes chips for Open AI and Oracle. However, OpenAI also received a $100 billion investment from Nvidia — effectively, Nvidia is buying their own chips. Similarly, Oracle is receiving a $300 billion of orders for infrastructure from OpenAI, but to fill that order requires chips from Nvidia.

It is a very circular loop and the question keeps coming up: are there enough paying customers to keep this cycle going?

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Earnings are top-of-mind for investors, and AI is the talk of the town. Companies that have relied on AI narratives to push their stock price over the past year are now seeing investors asking “when do we get paid”? For companies that have delivered good results from their AI spend, we are seeing rewards in stock price. For companies still failing to deliver, however, the punishments have been heavy.

Overall, analysts expect earnings to grow about 11% over this time last year, which are strong.

A concerning development over the past weeks has been the increasing number of announced layoffs. Amazon plans to lay off 16,000 workers, UPS plans to lay off some 30,000 workers(!), and Dow plans to lay off around 4500 workers, to name just a few. It is important to put these figures into perspective, however. The post-Covid years have regularly seen announcements as high as 100,000 per month. And, yet, no recession behind those announcements. A development to watch, but not one to worry about just yet.

Besides, the employment has been deteriorating for some time now, yet that has not been affecting consumer spending much, if at all. Until those unemployed workers stop spending, I expect corporate earnings will continue higher.

Overall, I maintain my view that the economic backdrop is very weak. That said, earnings continue to improve. Risks are to the downside, but if the S&P 500 breaks above 7000 there are probably higher prices after that. In short: investors should be cautious, but we cannot afford to sit on the sidelines forever.

Chart of the Week

Gold and silver have been in the news with a huge upward surge in price, followed by Friday’s swift downward crash. The big question — is this the end of the run, or just the beginning?

I am a collector of arcane financial theories, and there is an one that I somewhat subscribe to known as the log-periodic power law. I’ll spare you all the gory details, but it says, in short, that “normal” price growth should be approximately exponential. However, when growth becomes more than exponential, it is dangerous. This is the fancy version of “pigs get fed, hogs get slaughtered.”

We don’t even need a fancy model to see this. On a chart, exponential growth looks like a smooth upward curve. Or, if we look at the logarithm of prices, that curve becomes a tilted upward line. Hyper-exponential growth, however, still looks like a sharp curve even when we take the logarithm of the price. We can clearly see this behavior in silver over the past year.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Buckle up, its Fed week!

Investors are expecting a rate cut at this meeting, followed by a series of cuts into next year — with an expectation for rates to end up around 3.25% by end of summer 2026. Some data last week may make this a harder decision than investors would like, and markets will be watching Powell’s press conference very closely. If Powell expresses any doubt about the future path of cuts, that will likely push markets around.

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Other than the Federal Reserve meeting, there is not much data on tap. Investors are wrapping up their years and getting their portfolios in position for taxes and quarter-end window dressing. As I have repeatedly discussed, my view is that a recession is brewing out there, though markets seem not to care. I am urging investors to evaluate their portfolio holdings in light of that likelihood.

Chart of the Week

There has been lots of talk about the “white collar recession” brewing as companies introduce AI and have need of fewer human workers. October’s spike in job cut announcements was taken as a sign that this has finally come to pass. However, in context (with COVID layoffs, for example), October’s jump was negligible. It was however, part of a larger trend in 2025 — companies have increased layoffs, and this may be an indication of normal economic slowing ahead of a recession.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Ambiguity is still the main theme for markets today.

Earnings season is over, with companies growing earnings by about 13% over this time last year. Those are very solid earnings, yet we’ve seen markets trade mostly sideways. This is largely due to the underlying economic data, which has been getting progressively worse. Consumer confidence, business indexes, inflation, and unemployment have all sapped investor confidence.

This week we see important data on personal expenditures, consumer debt, and data on the health of the services sector. Early indications of black Friday retail sales were positive, but whether that momentum is maintained into the end of the year remains to be seen.

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The Federal Reserve meeting is approaching with the FOMC somewhat divided over whether to continue the path of interest rate cuts into the end of the year. Chair Powell has indicated that the data they see is murky with the risks of inflation still lingering, yet several committee members have indicated they want to continue cutting. Markets see a 90%+ chance that the Fed cuts at their December meeting — a change to that expectation could push markets around quite strongly.

Overall, I am still cautious. The underlying economic data has worsened despite strong corporate earnings. That said, a rally into the end of the year would be a normal seasonal occurance, so we do have that tailwind for markets. 2026, however, may get interesting very quickly.

Chart of the Week

One challenge over the past month and a half has been the delay in data releases (or their outright cancellation). Corporate earnings, therefore, have taken on a more important role than normal. Looking more closely at corporate earnings we see that, despite strong earnings growth, the US stock market is more expensive than about 90% of its history. That should give investors pause about future returns as high valuations tend to foretell lower future returns over 3-, 5-, and 10-year periods.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

With earnings season mostly done and the government shutdown putting a lid on new data releases, there isn’t too much to talk about.

Earnings have been mostly good for US companies, and more evenly distributed than in past quarters. That said, the AI bubble appears to be deflating a bit. The sky-high valuations given to AI companies have come down, with Nvidia and Amazon’s valuations coming back to earth and Tesla’s valuation replacing them in space (see Chart of the Week).

The big problem right now is that investors are mostly flying blind. We are seeing job cuts on the rise, with over 153,000 job cuts announced in October alone — bringing the year-to-date total to over 1 million (last year at this time we had 653,000 job cuts). Without figures for job creation, we are struggling to understand if these job-seekers are now joining the ranks of unemployed or if they are finding new jobs. Recall, job creation has been very slow this year, as well, so my estimate is that these folks are now unemployed. But, again, without official employment reports it is hard to know.

On that front, the US Senate has cleared a procedural hurdle to re-open and fund the government. There is still some wrangling to come, but investors are celebrating the milestone.

Overall, there are positives and negatives weighing on the economy. I see the balance of risks to the downside, but it is difficult to know which trigger might break investor confidence and push markets over a cliff. The deteriorating labor market is a serious concern and if it has gotten considerably worse while investors sat in the dark, I suspect markets will react negatively. I am still recommending caution to our investors, but your goals will determine which risks are appropriate for you.

Chart of the Week

Today’s chart shows the valuation of the “magnificent seven” stocks (NVDA, AAPL, META, GOOGL, MSFT, TSLA, and AMZN) as measured by each company’s price-to-earnings ratio. The more extreme valuations have come back to earth, but Nvidia and Amazon’s 2023 valuations have been replaced by Tesla’s of almost $300 for every $1 of profit!

The challenge with valuations, however, is that they are not a very good timing indicator. Sometimes extreme valuations can still lead to above-average returns. NVDA is a good example. Despite watching their valuation fall from 250x to 54x (an 80% contraction!), the price of their stock still moved higher, tripling over the same period! Valuations are a tricky business.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Trade tensions, earnings, and economic data (or lack thereof) are on investors minds this week.

The US-China trade spat broke out again on Friday with Chinese officials declaring a dramatic increase in controls around rare-earth mineral exports. The Trump administration threatened a 100% tariff on Chinese imports unless that was walked back. All eyes are on a potential Trump-Xi meeting in Korea later this month.

Earnings season begins this week with major banks reporting such as JPMorgan and Bank of America. Cash set aside to offset bad loans will be an important figure to watch, as that tends to be a bellwether for the economy. Overall, however, investors expect a good earnings season with earnings coming in about 13% higher than this time last year.

Finally, investors are waiting on important data, such as the unemployment rate, retail sales, and inflation — all of which have been delayed due to the government shutdown. Investors tend to get jittery when flying in the dark, so the longer important data is delayed, the more risk that tends to build up in markets.

Overall, I still see ample weakness in the underlying economic data: all of the classic recession signals are flashing red. However, earnings continue to be strong and, despite high valuations in US stocks, I expect a good earnings season could create a tailwind through the end of the year. There are lots of risks to that view, of course, including the sudden failure of some large companies in recent months, trade tensions, and a drawn-out US government shutdown. In the end, the risks you take in your portfolio are entirely dependent on your goals. If you are unsure what that should look like, let’s talk about it.

Chart of the Week

This week’s chart is courtesy of LSEG and Reuters, showing expected earnings growth by sector. Technology is yet again expected to outperform (largely driven by darlings like Nvidia, Oracle, and other AI names), with the market expecting to average about 8.8% higher earnings than this time last year. Factset suggests that this figure could be closer to 13%. In any case, earnings have been the one bright spot. As investors listen to earnings calls, they will be listening carefully for any sign of future weakness. Valuations are very high, and that can create quite a bit of fragility.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

Last week the Federal Reserve lowered interest rates by 0.25%, which was widely expected, and indicated that two more rate cuts are likely before year-end. In his press conference, chairman Powell pointed to the very bad jobs figures that came in through the summer as reasons for their cut. This week we see some data on durable goods orders, consumer sentiment, and personal consumption expenditures, but it is overall a light data week.

Cryptocurrencies sold off hard over the weekend — bitcoin fell 2.5% and ether fell 6.9% — in what looks like the unwinding of a significant number of positions (Bloomberg reports that over 400,000 traders liquidated in a 24-hour period). While crypto markets are subject to their own dynamics, this could well be simple profit-taking after a strong run upward. In related news, we have seen gold rally substantially, moving higher by 10% in the last month.

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Overall, the underlying economic data is still weak. Employment is deteriorating, and the restatement of employment figures over the past year has indicated that employment is far worse than previously thought. That said, corporate earnings have been the little engine that could — powering forward no matter the underlying data. As this quarter comes to a close, investors are watching earnings reports very, very closely for any sign of weakness.

Chart of the Week

I came across another indicator that I am adding to my lineup — a thank you to LSEG’s Worskspace team for this one! This indicator is, essentially, an indicator of how fragile the current market is. Of course, fragility is a difficult indicator; just because something is fragile does not mean that it will break. That makes this indicator a poor market timing tool — but it does tell you to be cautious and keep your eyes open for something that may rattle markets too much. As the indicator shows, this market has entered a fragile state.

In other words, be careful out there.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

The Fed stole the show last week. Investors got what they hoped for from Powell’s speech at the central bank’s Jackson Hole retreat — a more dovish Powell paves the way for a September rate cut, which is now mostly expected. With Trump’s pressure on the Fed ramping up, some analysts suspect a “jumbo” cut may be on the offering (0.50%) by the end of the year.

The market’s run to yet another new high, however, is overshadowed by growing concern about the labor market which is sending mixed signals. Job creation has slowed to a crawl and layoffs have begun, yet the unemployment rate has held remarkably steady in the low 4% range.

Though it is very difficult to disentangle, this is likely due to the significant drop in immigration. For the first time in recent memory, the US may see a net negative immigration flow (that is, more people leaving than coming). There are arguments for whether this is good or bad, but in the short term it has shrunk the labor market. Though there are fewer jobs, but there are also fewer people looking for jobs. So, the labor market appears to be in an unusual equilibrium at the moment.

Overall, the fundamental data is still poor, but corporate earnings — especially among retailers, which are a good guage for US consumers — have continued higher. While I still see a recession, it appears my calls have made me early. I recognize that this is just as dangerous as being late, so I suggest, just as I always have, that you balance your upside risks and downside risks based on the goals you are trying to achieve. Investors within 5 years to a goal have less ability to weather downside, while investors with more than 10 years to a goal probably shouldn’t worry too much in the short term about a recession.

Chart of the Week

One benefit to consumers we have seen since 2024 has been a reversal of the damaging trend of price growth outpacing wage growth. The almost 1% faster growth of wages over the past year is helping workers get back ahead, though inflation has remained stubbornly high. We are, unfortunately, still a ways away from the “glory days” of 2018 – 2019 when wages grew about twice as fast as prices — though, it is very unlikely we will see the 2010 – 2020 era again in our lifetime.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

by Franklin J. Parker, CFA

This week we see the all-important inflation figure, expected around 2.8%. Investors have been whipsawed a bit by on-again off-again expectations about the Fed cutting rates. Because inflation is one of the core inputs into rate expectations, this week’s data could push markets around. This week we also see retail sales figures. Since consumers have largely kept the US economy afloat over the past year, these figures will be scrutinized closely.

Earnings season is coming to a close with 90% or so of US companies having reported earnings. Overall, earnings posted better than expected, with profit growth around 12% over this time last year. Additionally, tariffs have been less of a concern among both analysts and business executives now that policy is (mostly) ironed out.

As I have mentioned many times before, all of the traditional recessionary indicators are flashing red. The yield curve, the unemployment rate, PMIs, and several others have been indicating contraction for many months now. Yet, the market powers higher and companies continue to earn higher profits. While I have urged caution up to now, I admit to being at a crossroads. It is possible that the traditional signals are simply too distorted by any number of things to be reliable, in which case it may make sense to turn back up the risk in your portfolio.

Before doing that however, we should assess the costs of being wrong. If the signals are indeed accurate and the market enters a recessionary phase in the coming months, the costs of that is likely higher for individuals within about 5 years to a goal. For investors with 10 years or more until their goal, that cost may not be so high. In any case, your goals will determine the types of risks we can afford in your portfolio. Discussing this with an advisor just makes sense in this confusing environment.

Chart of the Week

Breaking down US GDP into its component pieces we see the volatility in trade that has characterized the last six months. However, looking past that (the pink and blue bars in the chart below) reveals an ongoing trend in personal consumption that has been concerning. Before 2025, personal consumption had been adding some 2.5 percentage points of growth. In the past two quarters it has added less than half of that. Trade volatility may be hiding the real problem: are US consumers reaching exhaustion?

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.