Market Comments for Friday June 14th, 2019
First Advisors Capital, Inc. (FAC)
Markets were little changed in the past week. Investors are waiting for more clarity out of the Federal Reserve on its future policy moves and for further development on trade negotiations.
The technical picture moderated with the tepid movement in equities. Economic reports were largely in-line with economists’ estimates. Inflation continues to come in soft, highlighted by core consumer prices growing by just 0.1% in May. Likewise, the University of Michigan’s preliminary report for June showed consumer inflation expectations hitting an all-time low of just 2.2%. On a positive note, small business optimism improved and job openings remain near its record high.
American shoppers increased their spending in May, providing critical fuel for the U.S. economy’s continued expansion despite trade tensions and slowing global growth. The May spending pickup was broad-based, with increases seen at electronics stores, restaurants, sporting-goods shops, gasoline stations and online.
Because market cycles tend to last for years, major turning points are few and far apart. There is little comparability in the history of these inflection points. As Jason Zweig with the Wall Street Journal recently stated: "As Yogi Berra might have said if he played the market: All we can know for sure is that it’s later in this cycle than it used to be".
Strong consumer spending growth means the Fed is unlikely to lower interest rates soon. FAC continues to expect that only a sharper slowdown in economic growth over the coming months will convince the Fed to cut interest rates, however the Fed is likely to wait until the September meeting to consider a reduction is rates.
Futures contracts placed a 24.2% probability of a rate cut at the Fed’s June 18-19 meeting, according to CME Group. That was down from 28.3% a day earlier. Traders also saw an 85.3% probability of one or more rate cuts by the July meeting, down from 89.1% the day before.
More than three-quarters of economists surveyed by The Wall Street Journal this month expected the Feds next move will be to lower interest rates, an action most expected to happen by the fall.
Even though we may be late in this market cycle, FAC management continues to tilt towards quality companies that earn high and stable profits with low levels of debt, as well as toward lower volatility stocks whose prices tend to fluctuate less sharply than market averages. Such companies have outperformed slightly in economic slowdowns and recessions, but tend to under-perform as the economy recovers and expands. Risks are plentiful in equities at this late stage, driving our continued defensive allocations.
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It's generally assumed that most investors look at progress based on recent events, which psychologists call the "recency" effect that can dominate much of our decision making. When it comes to investing, it's a good practice to be aware of this and not allow it to influence your long term goals.
*Please do not use any above stated returns and cash/ bond weightings or index comparisons as a proxy for your individual account(s) performance, or allocations, as they may be more or less based on various aspects of your account including, but not limited to allocation and time horizon structure. Please contact your FAC Adviser to obtain your actual rates of return and cash / bond allocations, which will change daily.
Investing is a long-term undertaking and therefore short term movements may not be indicative of longer-term results. If you have any question, additional concerns, or if your situation has changed that may effect your present risk tolerance, liquidity needs, financial needs or goals, please contact your FAC Adviser or FAC directly at. 205-991-8484 Thank you!
First Advisors Capital, Inc. (FAC) is an Investment Adviser Registered with the State of Alabama. 4956 Valleydale Road Suite 203 / Birmingham, AL 35242 / 205-991-8484
The information contained herein has been obtained from sources believed reliable solely for informational purposes but, is not necessarily complete and cannot be guaranteed. This communication may contain inaccuracies or typographical errors. First Advisors Capital, Inc.(FAC) does not render legal, accounting, or tax advice. Where performance* data is shown, past performance is not an indicator of future results, and personal actual results may vary, and therefore should not be depended on or used as a substitute for any FAC client actual holdings or investment performance. This communication may contain non-public, proprietary, confidential or legally privileged information. Please contact FAC to obtain the additional disclosures necessary to make an informed decision including but not limited to FAC's: Adv. 2a, 2b, FAC Client Investment Agreements, Fee Schedules, Fact Sheets, and other important disclosures and disclaimers, before you invest. Investing involves risks including permanent loss of principal.