Will they, or won’t they? The pressure is now on the Federal Reserve to raise rates by a full 1% at their July meeting in 2 weeks. My, how things can change so quickly! This is all coming on the heels of another red-hot inflation report for June. Inflation rose by 9.1%, above the 8.8% that was expected. Excluding food and energy, core CPI (consumer price index) rose 5.9% compared with the 5.7% estimate, but lower than the May number. The big question being asked is, “Will this be the new high-water mark for inflation?”. We know that energy prices have come back down some in recent weeks, but oil will remain a wild card as demand and supply constraints play a continued game of tug-of-war. There have been other signs of costs beginning to ease but more data points will be needed to confirm this. Amid the economic numbers released throughout the week, the early read on the June retail numbers was better than expected. This data is indicating that consumers are still willing to spend even as inflation hits record highs. Again, there is not enough information available at this point to tell if this trend will remain intact. The markets, however, responded accordingly and rallied significantly on Friday after languishing for most of the week. This should give the Fed reason enough to stick to their knitting and only increase the interest rate by another 75 basis points in my opinion. It would be a massive feat to pull off if the Fed can indeed thread the needle and engineer a soft landing to the economy. Our fingers are crossed.
Friday’s action may play out to be a brief relief rally, similar to what we have seen a few times over the last several months. Brief or not, we will take a day like this over the alternative! One of our favorite indicators to watch, the VIX (the volatility/fear index), trended lower again closing out the week at 24 (normal range is 13-19). This may be especially important given the plethora of corporate earnings now coming over the next several weeks. Perhaps the second quarter earnings will not be quite as dire as we felt they might be only a short time ago. We will learn much more on this front as we get into the action next week.
It’s hard to believe we are already halfway through summer. Time sure does fly when you are having fun!! I know these are frustrating and confusing times on many levels. It’s not an easy feeling when you review your June statements and see how things look. Just remember that this is a moment in time. This won’t last. We have been here before and we will be here again in the future. We continue to monitor and adjust your investments as needed and appropriate. A client dropped me a line this week with a simple statement; “Stay safe and enjoy the gifts of the day.”. That really resonated with me on many levels. I say this often and will reiterate again, we are FORTUNATE to serve you as your trusted advisors.
Have a nice weekend!