Stocks were on a roller coaster most of the week (S&P 500 -3.1%, Dow Jones +0% and NASDAQ -5.5%). Dominating the discussion were the geopolitical volatility in the Middle East and hawkish Fed rate conversation. The best performers were utilities (+1.9%) and consumer staples (+1.4%); the worst performers were technology (-7.3%) and consumer discretionary (-4.5%).
1. Fed Chair Powell sounded more hawkish, stating that it is likely to take longer than previously thought to achieve confidence that inflation is sustainably headed toward the Fed’s 2% target.
2. Retail sales in the U.S. grew by 0.7% month-on-month in March, meaningfully outperforming expectations of 0.3%. This confirms that the U.S, consumer continues to be healthy.
3. The Philly Fed Manufacturing Survey reported improved new orders and shipments but a less rosy picture for profit margins and labor demand.
4. Oil prices have been rising-recent months because of a robust U.S. economy, a bottoming of the global manufacturing cycle, and production discipline from OPEC.
5. Oil prices have a modest Middle East war premium. Should the conflict become more intense, triple-digit oil prices will follow.
6. Excess savings are dwindling, lending standards to consumers, are tight, and forward-looking indicators of wage growth, such as job openings, hiring, and quit rates are all in a downtrend.
7. We continue to think a soft landing in which inflation returns to the Feds 2% target without a meaningful rise in unemployment is very unlikely.
8. The equity risk premium has dropped to the lowest level in over 20 years due to higher valuation and higher real interest rates. This portends low returns going forward.
9. The Federal budget deficit is tracking slightly below S2 trillion, which is about 6.5% of GDP. Fiscal policy may be the biggest threat to lower inflation and interest rates.
10. A political reality: For the U.S. consumer, the same grocery basket is 21% more expensive Under the Trump Administration, the cost of the same basket of groceries increased less than 7%.
Source: Bob Doll Crossmark Investments
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.
Sincerely,
Fortem Financial
(760) 206-8500
team@fortemfin.com
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