Well we are certainly in a pull back stage in equity prices with the S&P500 moving lower last week by just over 3% from the close the previous Friday. Inflation news and geopolitical events are destined to move markets in the days and weeks ahead. This week we will have more inflation news coming up this week.
The 10 year Treasury closed last week near 4.32%–near the high of the week which was 4.34% which was very substantially higher than the low of 4.11%. Obviously this is not helpful to us income investors as we saw in prices–which fell.
This week we have no real scheduled economic news on Monday. Then we have the job openings and labor turnover (JOLTs) report that MAY (not always) have market moving potential. Job openings have been trending lower and we likely will see this trend continue–this could spook markets if investors strongly read recession into the numbers. On Wednesday we have the consumer price index (CPI) and then Thursday we have producer prices (PPI). We know these can be market movers–big time!! On Friday we will see how consumers are feeling–optimistic or are they losing hope in their future–consumer sentiment will give us a hint.
The Federal reserve balance sheet moved lower by $10 billion–the runoff continues for now. While the Fed hasn’t moved interest rates lower we could see an interim step of reducing the pace of runoff if they (the Fed) start getting nervous about a slowing economy and/or if rates tic higher.
With interest rates moving substantially higher last week we saw the average $25/share preferred and baby bond move lower by 19 cents. Investment grade issues were 26 cents lower, banking issues off by 27 cents while mREIT preferreds were lower by just 11 cents and shippers moved up by 5 cents.
The equity market was long overdue for a 5-10% garden variety pullback. Indecisive actions by the current administration have consequence’s and consumer confidence is still deteriorating.
Inter-day the 200 day moving average was broken. It may be support but if it is broken I expect another leg down to the 535-540. Just my 2 cents.
Too much liquidity sloshing around for far too long made for easy times and a whole crop of weak managers (which is why I don’t own equities).
My home insurance up another 100% this year. How much inflation is really under the hood? I say bring it down, if that takes a mild recession so be it.
But wake me up when credit spreads start to widen.
Dan, I fear the younger day traders and retiree’s enticed by bloggers over on SA chasing high yield. If these people panic look out.
Food for thought. When I was younger in college with a 20yr old car I bought in Pa. for 800.00 I couldn’t afford car insurance so I dropped it. When I finally got a good job and bought my first new truck my insurance was a very high rate because of that.
If there are a few people contemplating going without home insurance you may find yourself paying higher costs later.
We are now getting word from the top that some recession is possible, but necessary- like inflation.
Words of the day. Keep Calm- Carry on.
44% cash equivalents helps
I envy your cash horde!
I believe the FED already announced ending QT completely by June or so.
This selloff feels more like a rotation from tech/mag 7 to value to me. Lot’s of value/ income stocks are actually UP during this selloff. For now anyway. The lack of a bounce last week caught many participants wrong footed. Ultimately liquidity (and its proxy gauge the S&P and QQQ) going down is a positive for IG fixed income.
Dan
I believe you are correct
My portfolio is split between
Bonds/short duration prefs & BBs
Perpetual prefs
Hiv Div, Low P/E commons
Hedge (gold/SPY short)
and a few “play”
1pm 3/10:
Bond down .001%
Prefs down .003%
Commons up .08% (8/10ths of 1%)
Hedge(gold/SPY short) and a few “play” up .02%
Same true last week
Investors are fleeing high PE tech and buying “safe” high div value stocks.
I also have a FIDO account for my 17 year old grandson.
He trounced me 2023-2024 with his high tech investments
He is now getting killed. Down 3.25% today
Tim, What is your read from your job of what do home sales look like there in Minnesota? I know this is just a small snapshot of the country but it’s an important gauge of how people feel about their jobs and the economy.
People are feeling good and spending money. Just read a story about restaurants across the country being filled with diners, much to the surprise of restaurateurs, some of whom found themselves understaffed.
IMHO the country is split in two, the Haves and the Have-Nots, with the Haves doing fine, thank you. A few big drops in the stock market and pile-on of expenses for utilities and insurance, and some of the Haves will find they are downwardly mobile. There may be 401K reverse wealth effect out there.
Bloomberg runs cheerily positive interviews during big sell-offs. A real estate broker was gushy about having 100+ 10-million plus sales ready to close. Her inflation complaint was that a 400,000 renovation for a flip a year or two ago was costing 800,000 now. This is a planet I don’t live on. JMO. DYODD.
Bear, I’m spending more time with my better half. Lately when we have had to go into the big town on errands we have gone to breakfast or lunch at a local cafe. Almost all have been an average $50.00 bill with tip. I complain less now about the higher costs at Micky D’s and Carl’s Jr. but not quite the same atmosphere or supporting the local businessman.