Your Money This Week

Due to site issues, not everyone received this week’s Wednesday Reading List so here’s a quick recap of what was discussed. As always, click through to read the full articles if interested.

• The Dow has continued to underperform the S&P 500 because of the odd way it’s constructed and is not a good index to track your portfolio against
• Banks are pulling back on lending, slowing down deal activity and hurting the economy. This could give the Fed more impetus to cut rates.
• 18 charts showing amongst other things that profit margins are holding up, earnings outlook is improving, stocks don’t mind higher rates, and that you don’t need to worry about the election when it comes to your portfolio.
• Not only did Covid bring the Great Resignation but in a big shift, fewer people are expecting to work past their early to mid-60’s.
• Health Savings Accounts, the triple tax-free savings accounts just saw contribution limits increase for next year.
• Morgan Stanley says the dollar won’t be dethroned because the yuan isn’t liquid enough to challenge the dollar, US debt concerns won’t hurt the dollar, and crypto isn’t a viable alternative.
• Latest book recommendation
• Lots of things to do in Boston this weekend

Inflation

April’s inflation report showed that inflation eased a bit month over month and more than expected, but on a 12 month basis CPI increased by 3.4% in-line with expectations. The S&P 500 is at an all-time high, small caps are within 2% of their all-time highs, and Treasury yields are below 4.5%. it seems like the market didn’t mind this week’s report.

What about Chair Powell?

He said they’re unlikely to hike, but that a cut might not happen anytime soon.

Get used to higher for longer is his message, but is it?

During my career, the Fed has moved from the incomprehensible Alan Greenspan to plain English Powell who sometimes catches flak for saying too much about future Fed policy. In following this closely for a while my colleague, Bob Weisse, and I are starting to feel more and more that Powell uses these pronouncements as policy moves in and of themselves versus open book signaling. Telling people to expect higher rates for longer gets them to behave that way and lets some air out of this economy.

What’s an individual to do? The super low rates you anchored to are gone. I’d be making long-term borrowing and financial decisions assuming rates eventually settle out a bit lower from here, but not immediately.

The Value Premium

Be careful about getting drawn into narratives and story stocks. We’ve talked about this on the pod when getting into The Magnificent Seven (recapped here), but if you take a step back you’d probably be surprised to see that value is outperforming growth during this stretch when everyone is focused on U.S. large cap growth.