"Partly Cloudy with a chance of a Hurricane", is a headline I read
recently used to describe our economy's divergent outlook of possible
The last couple of weeks was busy for the markets. A Federal Reserve
(Fed) rate hike, a much-anticipated gross domestic product (GDP) report,
the release of the inflation rate at 8.5% and the busiest week of earnings
season got most of the headlines.
Stocks didn’t seem to be bothered by an 8.5% inflation number and a
negative GDP report for the 2nd quarter in a row. Some market watchers
call this a recession. The S&P 500 Index enjoyed its best month since
November 2020. I believe the markets have gotten a little ahead of
The inflation battle is far from over, but the market’s reaction last couple of
weeks looks a bit encouraging. There’s talk that the Fed may be poised to
surprise the market with a pause by year-end. I find that difficult to
believe when inflation is still at 40-year highs. If we do see a drop in
inflation and a continued slowing in the economy, then yes, I can see the
Fed maybe pausing.
Looking ahead, August has historically been a weaker month for stocks.
Which might be an opportunity to increase the Equity allocation in your
portfolios. Considering that midterm election year lows, which typically
come around this time on the calendar for the S&P 500, have historically
been followed by an average gain of over 30% over the subsequent 12
months. Moreover, some of the timeliest indicators of inflation, such as
commodity prices and various consumer and business surveys, indicate
some cooling ahead, even if it may be a slow process. Market-based
interest rates—those not controlled by the Fed—have come down quite a
bit, supporting stock valuations.
At the same time, geopolitical tensions are rising as House Speaker
Nancy Pelosi visited Taiwan and the war in Ukraine continues. But we
believe the combination of low valuations, prospects for lower inflation, and
the possibility that the Fed signals a pause over the upcoming months tip
the scales toward a more positive trend. The ride probably won’t be
smooth, but we believe adding equity exposure gradually, not all at once,
in the coming weeks will be prudent.
Our team at Texas Private Wealth is monitoring the markets daily and will
continue to keep you informed every month. Please call or email us
anytime if you have any questions.
|The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.|