Market and Portfolio Commentary (08/23/204)

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INFLATION & FED ACTION:

Jerome Powell spoke at the Kansas City Fed’s annual Jackson Hole Symposium on Friday.

Below the main takeaways and considerations:

1.      Fed does not seek or welcome further labor weakness. Powell clearly highlighted his concerns about employment.

2.      Inflation has declined significantly towards their goal of 2%: CPI inflation in July was 2.9%. The latest PCE inflation data was 2.5% - and we know the Fed prefers the PCE.

3.      The time has come for policy to adjust: Powell has clearly telegraphed a 25-basis-point cut in September. A sizable number of traders think the Fed will cut 50 basis points. A soft unemployment number for August could push them to a 50-basis-point cut. Five out of the last six rate cutting cycles began with a 50-point cut, generally during a recession or crisis. We could see 150 bps or more over the next six meetings. The data will be critical to choosing between 25 and 50 bps rates cut in September.

BOTTOM LINE:

We certainly live in interesting but confusing times:

·         Earnings revisions this past quarter have been generally positive, and this has been reflected in the markets that rallied: the S&P 500 has returned 18.13% YTD.

·         Unemployment is clearly softening but GDP is still well above 2%, which is better than the average of the first 20 years of this century.

·         Inflation is also softening, but gold is at an all-time high.

With all these conflicting signals it is very hard to make a prediction about the economy and the only thing we can do is to continue to stay invested in the best names - as big money will try to get ahead of the Fed.

Success in the markets doesn’t come from anything you do occasionally.  It comes from what you do consistently. 

 Best wishes for Health and Wealth, Rosanna

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