So far this year, markets rose on the narrative that we’re on course for a soft landing. Inflation continued to moderate, with the consumer price index (CPI) down to +2.5% year-over-year—closing in on the Fed’s 2.0% target. Unemployment rose to 4.2% from 3.4%. While still a low absolute level, there’s some concern that the upward trend may indicate a weakening employment picture.
The Fed cut the overnight rate by 0.50% in September, as they feel inflation has made further progress toward their target. The market expects the Fed to continue cutting rates in the coming months.
Both stocks and bonds are up
Stocks are up, with most of the major indexes in the upper teens to low twenties percentage gains. The technology sector (+30.3%) continues to do well, but not as well as the often boring (but defensive) utilities sector (+30.6%), which is surging on rising energy demand from artificial intelligence (AI).
Bonds are up as interest rates fell (there’s an inverse relationship between bond prices and interest rates). After being at or near 5% earlier this year, much of the Treasury curve is now in the mid 3s, with the two-year at 3.62% and the 10-year at 3.77%. For investors who took advantage of higher cash and T-Bill yields, things are starting to change. You may want to review your positioning.
We prepare for good times and bad
Will the Fed engineer a soft landing for the economy? Or is the weakness in employment the beginning of an economic downturn? We’ve worked to position portfolios for either scenario—quality value stocks with price recovery potential in a strong economy but with the defensiveness and low volatility to do well in a market pullback.
Of course, the election looms in the coming weeks. We’re comfortable no matter the outcome thanks to the quality and positioning of our portfolios.
Contact us with questions
We’re always happy to discuss your goals and answer your questions. Just call us at 800-998-9773.
Data Sources: Koyfin, FRED, S&P Global, Black Diamond, Allied Calculations