An overnight (technical) default by Argentina on some (very select) bond obligations, a stronger than forecast GDP report, and improving labor markets were too much for market participants, who sold stocks in droves fearing that an abrupt change in policy by the Fed was increasingly likely. Separately, and in somewhat of a contradiction to the line of thinking that inflation and the economy are heating up too fast, worries that looming sanctions against Russia would cause a spike in oil prices – hindering the economic recovery and having an adverse effect on global growth. Corporate earnings continued to roll in, with Exxon Mobil reporting earnings significantly above expectations, while Yum Brands warned that issues relating to its suppliers in China negatively impacted its sales. The Dow Jones lost more than 200 points, as all sectors of the S&P were lower for the day. Commodities were generally higher, as Treasury Yields rose on the economic news.
Investors in Focus:
As the chatter of more rapidly rising inflation pressures and a potential shift in monetary policy heat up, we’d like to remind investors that they should take a longer-term view and that none of the events over the past few days are likely going to cause any material shifts in the Fed’s action any time soon. While market action may appear dramatic on this last day of July, the S&P is in essence flat for the month – and up about 5% so far this year. Interest rates are still significantly below their January 1 2014 levels and are not expected to spike. Overall inflation expectations, in the U.S. and globally, continue to be benign. Improvements in the labor market, i.e. lower unemployment and higher wages, is a good thing…. Most significantly, investors should ask themselves the following: “Have recent events impacted the fundamentals of the U.S. economy and the corporate earnings outlook sufficiently to expect a prolonged market correction?” Or, in other words, “has anything happened that change your outlook over the next year or two?” In the view of the members of our investment committee, nothing has changed. Improvements continue to occur at an uneven pace and will likely face new headwinds and tailwinds as various events occur. Most significantly, the overall picture continues to improve and we look forward to the day that Central Banks around the world are able to reduce their support mechanisms and raise interest rates to a more normalized level.
Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our complete market and economic analysis, as well as a great interview with Nobel Laureate and MIT Finance Professor Dr. Robert Merton. Visit our website www.ggfs.com for details.