by Franklin J. Parker, CFA
The Summary
Last week’s big news was the Federal Reserve — they kept rates the same, and gave guidance on rate cuts that was just about in line with what was expected. Investors see a 70% chance of a rate cut at the Fed’s June meeting, with another expected at the September meeting. Ironically, at this point, I see rate cuts as a recessionary signal, though markets tend to rally on the news of potential rate cuts. In my view, the chances of the Fed engineering a soft landing are very very slim, and they may have already engineered the next recession (there is a recent article from Enterprising Investor on this topic that I recommend).
This week is a light data week, though we do get consumer confidence data tomorrow. There has been a serious disconnect between consumer confidence (which has remained relatively low) and consumer spending, which has remained high. Though people don’t feel good about the economy, they have money to spend and are willing to spend it — signs of weakness in consumer spending, however, could spell trouble for the US economy (of which 75% is consumer spending, though there is more nuance to this: see this week’s Chart of the Week). In all, I am still cautious (and I am getting tired of saying it week after week — I’m sure you’re tired of hearing it). Though markets are hitting all-time highs, the underlying economic fundamentals are not supporting it, leaving me concerned.
Chart of the Week
Excellent chart this week from Fathom Consulting showing the relationship between consumer confidence and equity markets. While there is some link, it is not a strong one. Consumer confidence is more closely tied with things like employment, as the second chart shows. When recessions are on the horizon, employment tends to falter and so does consumer confidence. This makes consumer confidence a very lagged and weak indicator for the stock market.
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.
1 comment
Comments are closed.