Lindsey Report – June

Domestic equities, as measured by the S&P 500, ended May with a modest gain. The S&P 500 is once again flirting with the 2100 level that once it hits, it can’t seem to maintain or move higher (AP).

However, it was mid-May when the markets seemed to get a bit rattled, as they had to digest some unexpected news. The source was the minutes of the Federal Reserve’s April meeting, which indicated that the rate-setting committee considered it “likely appropriate” to hike rates in June. Moreover, three of the Fed Presidents made comments, suggesting a rate hike could happen in June (WSJ) or at least it was very much on the table.

Accordingly, market perceptions of a potential rate hike shifted rapidly. According to the CME Group FedWatch, the probability of a June hike moved from a 15% chance to a 33% chance within one day (Investopedia).

In order to make this move, the Fed indicated that they would like to see the domestic economy show signs of improvement in the second quarter, as well as to see improvement in the labor markets and the some signs of inflation (Financial Times).

While we haven’t seen many indications that the economy has made much improvement, the Dpt. of Labor reported Friday the 3rd that the economy only added 38,000 jobs in May, which was the worst employment report in nearly six years (Bloomberg).

On the inflation front, the Dpt. of Labor released its April inflation reading May 17th. It showed that core CPI (consumer price index) was up a sharp 2.1% from a year earlier. As a reminder, the Fed has repeatedly used the 2% inflation level as their target level of inflation (AP).

It’s hard to figure how the above reports will influence the Fed; however, I’m guessing they will not make a move in June, but a July hike remains quite likely.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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