George Hosfield, CFA, discusses Ferguson Wellman's quarterly strategy titled, "Inflation's Flame Flickers," which addresses the narrow market leadership, the impact of higher interest rates on inflation and how assets are priced at this stage of the economic cycle.
George Hosfield, CFA, discusses the firm's quarterly strategy titled "Stalemate," which highlights the Fed's ongoing battle to tame inflation along with our views on the health of the banking industry and capital market expectations for the balance of the year.
Director and Chief Investment Officer George Hosfield, CFA, discusses the Fed raising interest rates, peaking inflation and our view on equities and volatility across all asset classes in our Investment Strategy titled, “Balancing Act.”
Gracing the cover of Time Magazine in 2017, famed political author and Eurasia Group founder, Ian Bremmer claimed “China Won.” This statement was not necessarily controversial, as economists and political pundits all but guaranteed a new age of geopolitical and economic dominance led by the fast-growing nation.
For almost two years now, investors have been waiting for one of the most anticipated recessions—and understandably so. After 11 rate hikes in the past 18 months, the most aggressive rate hike period in over six decades, the U.S. has defied the odds of a hard economic landing so far. When the Fed has raised rates this aggressively in the past, it’s typically been followed by a recession or “something breaking.”
As we celebrate Labor Day this weekend, we thought it appropriate to look at the current employment situation in the United States. The job market has been surprisingly robust since the elevated unemployment due to the COVID-19 pandemic and economic shutdown.
This week, yields on the benchmark 10-year U.S. Treasury rose to their highest level since 2007. Earlier this spring, market stress linked to the banking sector led safe-haven buyers to the safety of U.S. Treasuries, and the 10-year Treasury hit a year-to-date low of 3.30% in early April.
Having already digested 90% of the S&P 500’s second quarter results, investors this week parsed earnings for the major retailers still left to report. Despite the likes of Home Depot and Wal-Mart continuing the recent trend of companies delivering better-than-expected earnings, the recent rise in longer-term bond yields is dampening investors’ enthusiasm for stocks.
The economic data released month after month follows a rhythm we have become quite accustomed to, and the Consumer Price Index (CPI) release is an integral part of this familiar cadence. July’s CPI report showed U.S. inflation rose 3.2% in July from a year earlier.
For years, our clients have worried about the ballooning debt situation with the U.S. federal government. Fitch Ratings, which is one of the three main credit rating agencies, verified these worries earlier this week when they lowered the U.S. government’s credit rating from AAA to AA+. While many called this a surprise move, others have been expecting this for some time.
As expected, the Federal Reserve raised its target interest rate this week by 0.25% to 5.25 – 5.50%, marking the eleventh increase since March of 2022, bringing the interest rate to its highest level in 22 years.
The U.S. economy continues to defy one of the most anticipated recessions. Since January, investors and economists have been on edge as economic indicators started flashing red, particularly the purchasing managers index (PMI) and the leading economic indicators (LEI). Both metrics are closely watched as they have been reliable in foretelling downturns.
The lead story from the stock market this year may well be the outperformance of a narrow and select group of technology companies, however the leading economic story this year may be the surprising resilience of the U.S. economy in the face of the Federal Reserve’s concerted effort to rein in growth via higher interest rates.
The midpoint of 2023 coincides with the celebration of the 247th anniversary of our independence. Just like the Fourth of July fireworks we will see over the next week, the capital markets have begun the year with a bang.
“Have you used ChatGPT?” Wherever I go, whatever the context, I keep getting this same question. Clearly, the excitement around artificial intelligence (AI) is real… look at the stock market.
At Ferguson Wellman, we are nearing the end of our Mid-Year Update events season, where we present updates to our yearly Investment Outlook and deepen our connections with clients and the community.
In an otherwise quiet week on Wall Street, the benchmark S&P 500 turned the page on one of its longest-running bear markets. Rebounding by over 20% from its October lows, the blue-chip index has officially surpassed the threshold marking a new bull market. What is notable about the advance from last fall’s lows is how few stocks have participated in the upturn.
On Wednesday, days before the U.S. is projected to run out of money to pay its bills, the House passed the Fiscal Responsibility Act of 2023 in a bipartisan effort. The final vote of 314- 177 received support from 149 Republicans and 165 Democrats. With both sides making concessions, it’s not surprising to see members of each party voicing their displeasure with the deal.
Many people believe the world’s largest and most important economy is on the brink of default. Indeed, politicians generally do a disservice by pushing their agenda until the last minute and then lose the trust of their constituents and investors. However, negotiations on the debt ceiling have improved over the last few days and the risk of default has decreased.
According to headlines and news pundits, it is a near certainty that the U.S. is very close to entering a recession (reminder: economists have successfully predicted nine of the last five recessions). Despite this, to date, the S&P 500 has posted a positive return of about 9% this year.
Inflation has been the most watched economic data point for the past two years. On Wednesday, we received inflation data for the month of April. The headline Consumer Price Index (CPI) increased by 0.4% compared to the prior month and 4.9% compared to the year-ago period. 4.9% compares to economist expectations for an increase of 5.0%, equal to the 5.0% increase seen in March.
A bank failure, a rate hike and a surprisingly strong jobs number all led to volatile equity markets this week, with negative returns led by energy stocks and regional banks. We’ll first discuss the takeover of First Republic bank, then the effect of the Fed’s actions mid-week. Finally, we’ll hit on the employment numbers for April.
“How do you go bankrupt? Two ways. Gradually, then suddenly.” -Ernest Hemingway
As of this writing, there are expectations that First Republic Bank may not survive the weekend. However, we believe that First Republic’s issues are not systemic across the industry. Unlike 2008, these issues with First Republic, as they were with Silicon Valley Bank, are not credit related. Rather, it was the issues that were part of their business model, which played out as Hemingway stated in “The Sun Also Rises.”
