June 1, 2022

Equities markets have had a volatile month with concerns over 40-year high inflation along with the concern that the Federal Reserve’s rate hikes will cause the economy to slip into a recession. The hope is that rate hikes will slow or even pause toward the end of summer.

Fuel prices continue to exacerbate inflation as they contribute to the movement of food, gas and all other goods and services. Although the idea of electric transport for people, fuel and goods is appealing, the cost of infrastructure and diesel power to support charging stations remains beyond today’s technological capabilities.

We are also extremely cautious about the current housing market. As mortgage rates increase and the cost of building continues at elevated levels, fewer consumers will be able to afford a 6 percent versus a 3 percent mortgage. These factors are expected to have a chilling effect on home prices. A 6 percent mortgage was an excellent rate in the past and for a time the country had 13 to 15 percent mortgages in the early 1980’s. In April of 1980 inflation was running at 14.76% and 30-year mortgage rates peaked at 18.44% in October 1981.

As earnings season winds down, the markets are expected to take their cue from key employment data, including the all-important May jobs report due out in early June.

The Conference Board's latest check on consumer confidence also topped expectations, hitting 106.4 for May against forecasts for a reading of 103.5. And though this May reading is down from April's level, the report showed, views of current business conditions—which tend to move ahead of trends in jobs—improved. Overall, the Present Situation Index remains at strong levels, suggesting growth did not contract further in Q2.

May’s stock returns helped make the year-to-date Dow, S&P 500, and NASDAQ a bit less negative at -9.21%, -13.30% and -22.78% respectively, while the 10-year Treasury yield is currently yielding 2.87%.

*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.