During the May 11 Blooming Tree Wealth Management Virtual Lunch Webinar, we went through the J.P. Morgan Guide to the Markets and discussed how and why the market has been “violently flat.” That discussion revolved around the three key issues that are keeping the market “range-bound.” Those issues include:
- Inflation
- Regional Banking Turmoil
- Debt Ceiling Debate
Inflation, while still a problem, is cooling down a bit. The housing market has a surplus, and the Fed is unlikely to continue to raise rates based on available data. By the end of the year, we can expect the Fed to begin discussing cutting rates. If and when discussions on cutting rates occur, a rally, possibly in Q4, could happen.
If you’ve tuned into the news over the past three months, then you’ve heard about regional banking turmoil. Silicon Valley Bank, with a 90% unsecured deposit rate, ran into a storm of trouble and neglected to offset their risk. Their failure has resulted in a decline in banks’ willingness to loan money to businesses, and optimism among small businesses owners is at its lowest in a decade. These are both signals that a recession could be around the corner.
If the debt ceiling debate turns into the US defaulting on loans, which could happen as soon as 6/1, the market would panic. Most expect an agreement to be made before June, but we need lawmakers to work together in order to avoid this potential financial disaster.
The three issues detailed above appear to be short-term issues. Their impact put Q3 in question, but do not prohibit a strong Q4 if earnings continue to beat estimates. Until these issues are resolved, a more defensive investment strategy is recommended. Invest in companies with strong financials and avoid being overexposed in financials, real estate, utilities, and energy.
Need help preparing your retirement portfolio for the second half of the year? BTWM is here for you. Contact us today at 309-300-2760.