RFG Advisory’s Post

Transcript

Hi folks, Rockwell here. I'm the Chief Investment Officer at RFG. Thought I'd come to you today with a brief market update, kind of let you know what's going on out there. S&P 500 right now at about 5050 for a level that is up about 6 1/2% year to date, so still doing. Really well for four months into the year, but it's off about 3.8% from the highs back in March. So right around March 28th we had a high for the S&P and we've come off consolidated a little bit underneath that. A lot of that has to do with the changing narrative in the marketplace around inflation and interest rates which will be the subject of most of this market update in terms of you know informing you guys what's going on and also. Now bonds are reacting to that as well as you know what to look for going forward. So without further ado, I think within the month of April, you've sort of seen a shift in how the market is thinking about the stickiness or pervasiveness of inflation. When to set the stage a little bit, you know for the September, October, November, December, we sort of had that core month over month CPI reading that core inflation reading that the Fed is really focused on. Sort of wavering between 0.2 to 0.3%, so sort of bumping along the bottom. Keep in mind for all of these numbers you kind of want to multiply them by twelve, 0.2 * 12 is 2.4, very, very close to the Fed target and so much of the sort of market jubilation. Keep in mind we get all this data a month later, so much of the, you know, jubilation in October through January within the marketplace. And sort of looking at this inflation number that seems to be bouncing along right at the Fed target level and the Fed sort of coming out and saying, Yep, looks like the battle against inflation is mostly done here. And so you know we can start to go ahead and think about lowering interest rates and then we get the data for January through March which once again comes out with a one month lag, so comes out in February through April and all of those readings. Every single one of them has been 0.4% month over month in the core, which once again multiplied by 12 is 4.8%. By the way, math nerd note that's not how you do multiplicative edition, but it's close enough, 4.8% far enough away from two that the Fed is kind of looking at those numbers in the market, is looking at those numbers and saying it felt like we were bouncing along the bottom. Now it feels like. We're kind of far away from that bottom. You know, .4% is pretty far away from .2, particularly once we've had three months in a row of that reading. And that has really shifted the sort of mindset and dialogue in the marketplace to say maybe cuts aren't coming soon. You know, in fact, I've even seen some people say maybe no cuts at all this year, maybe actually interest rates might have to move in the other direction to try and get all of this contained. Would note that that interest rate hike picture is only on the fringe of the media right now, but it is starting to emerge a little bit in terms of where the interest rate path is headed. And all of this is a way of saying as we talked about in the last market update, as those inflation rates get higher and interest rates get higher as a result because you know the Fed seems less likely to cut that lowers the sort of future price of equities as well as bonds and. And really creates that little bit of a sell off that we've seen. So we would be remiss to note since that March 28th market peak, the 10 year treasury has moved from 4.2% all the way up to 4.65%. So fully 45 basis points are almost 1/2 of 1% increase in long term interest rates during the same time that the market has sold off by about 3.8%. Those two are directly correlated with one another. And makes sense why Mathematically, as we talked about on the last update, so all of this is in response to those CPI numbers. And as we think about those, I just want everybody to keep two thoughts in mind. OK. The 1st is it's not necessarily a bad thing that our economy is so strong right now that inflation seems like it's getting hard to control, OK. So the fact that unemployment remains very low, the fact that wage growth remains robust, the fact that consumer demand remains high. You know it's it's it's better than the alternative of Oh my goodness, we seem to be careening off a Cliff. It does mean that the Fed has its work cut out for it to keep those inflation rates down. The second thing that I would just want everybody to note on this is keep your eye on the 2nd derivative, OK. We've talked about this on prior market updates. I think it's frequently lost on the market up, you know on the market participants, you know the 10 year treasury moving from 4.2% to 4.65. Percent is in fact constrictive on the economy, right? It raises mortgage rate, it's raises car loan borrowing rates, it raises a whole lot of interest rates, which actually helps to constrict economic activity. So in a weird way, you know, as you see the equity markets start to sell off, which impacts consumer confidence as you see those long term interest rates rise. As everybody plays this guessing game around the Fed, the Fed actually kind of gets what it wants, which is more constrictive and restrictive. Financial conditions which may actually do their job for them. So be interesting to see how the rest of the year plays out in terms of inflation. With that, as always, if you have any questions, please feel free to reach out to myself or to your advisor. I hope you're having a great day and look forward to talking to you again soon.