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Weekly Commentary

Deal The Cards Already!

Stocks ended the week mixed, as investors struggled with the debt ceiling squabbling and slightly higher than expected inflation numbers.

For the week, the DJIA was down 1.0%, while the S&P 500 gained 0.4%. The tech-heavy Nasdaq continued its run for the fifth consecutive week of relative out-performance to the DJIA and S&P 500, up 2.5% and 24.4% year-to-date. Tech continues to drive the markets with artificial intelligence plays lifting the spirits of aggressive growth investors. Foreign equities lost ground with developed markets (MSCI-EAFE) down 2.3% and emerging markets (MSCI-EM) fell 0.4%. The U.S. stock market has been amazingly resilient, with optimism that the debt ceiling will be raised before entering into the default zone.

The Federal Reserve’s preferred inflation metric, the core personal consumption index (PCE) rose to an annual rate of 4.7% in April, slightly higher than expected and still well above its target of 2%. In April, consumer spending increased 0.8% from March, well above expectations of 0.4%. Consumers continue spending despite higher inflation and interest rates, and are dipping into savings. The personal savings rate of 4.1% for April was 0.4% lower than March. Overall, the U.S. economy grew faster in the 1st Q than previous estimates with GDP growing 1.3% annualized compared to the estimated 1.1%. The hope is that the Fed will pause its run of 10 consecutive monthly rate increases at its June 14th meeting. The yield on the 10-year U.S. Treasury rose 10 basis points (bps) to 3.80%, its highest level in two and a half months.

Important economic data released this holiday-shortened week will include consumer confidence, employment reports, and the Institute for Supply Management’s manufacturing index.

We suggest that investors maintain their longer-term focus with a well-diversified portfolio, and extend fixed income duration. The weak breath of the market and huge rally in AI tech stocks require prudent restraint.

“Those who have long enjoyed such privileges as we enjoy forget in time that men have died to win them.” – Franklin D. Roosevelt

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