July 2023 Market & Economic Insights
“Life without liberty is like a body without spirit.” – Kahlil Gibran
Happy 4th of July from Lion’s Eye Wealth! Let us revel in the celebration of freedom and take a moment to reflect on the profound significance of this fundamental right for every individual. To me, freedom is as essential and vital as the very air we breathe. In the realm of finance, freedom empowers us to invest according to our own choices, enabling us to compound earnings and fuel our aspirations.
I hope you had the opportunity to read the article I wrote for the Telluride Daily Planet. If not, you can find it here on page 3. This article inaugurates a monthly column titled "A Beautiful Life," where I will share insights derived from my experiences with luminaries like Martha Stewart, extending to the intricate world of finance.
Now, let's delve into some crucial financial updates. I would like to begin with an overview of last week's market performance, which, at first glance, appears impressive. The S&P 500 gained 2.3% (a year-to-date increase of 15.9%), while the Dow rose by 2.0% (up 3.8%). Utilities experienced a modest increase of 0.5% (down 8.1%), banks rallied with a notable 3.4% surge (down 20.5%), transports witnessed an impressive upswing of 5.7% (up 16.0%), S&P 400 midcaps jumped by 4.3% (up 7.9%), and the small-cap Russell 2000 exhibited a rise of 3.7% (up 7.2%). The three-month Treasury bill rates concluded the week at 5.14%. Although this may seem encouraging, we must exercise caution.
Last week, Federal Reserve Chair Powell remarked, "Although our policy is restrictive, it may not be restrictive enough, and its duration has not been sufficiently long." The futures market currently reflects a 72% probability of the Fed raising rates by another 25 basis points in July. This contradicts those who believed that the era of Fed rate hikes had already concluded. It is essential to bear in mind our target inflation rate of 2% as a goal we have yet to attain. The leading economic indicators (LEI) have declined for the 14th consecutive month, the yield curve remains inverted, valuations are soaring, but earnings are expected to fall short of projections, and commodities have experienced a downward trend in 4 out of the last 5 quarters.
We cannot expect a gentle landing for a super bubble. The pertinent question is whether the bubble continues to inflate or if the air has begun to escape. Are we truly entering a new bull market, as many have proclaimed? With the alarming state of the LEI and other dynamics mentioned, it seems some individuals may be disregarding reality while indulging in wishful thinking. Notable hedge fund manager John Hussman recently described the market as a "narrow, selective speculative blow-off, a bear market rally fueled by the fear of missing out on the resurgence of a bubble that is in the early stages of collapse.”
What matters most at present is preserving wealth through diversified asset classes and adopting an active and tactical approach to position oneself amidst the ever-changing dynamics in search of opportunities for reward. If you have any questions regarding your allocation and diversification, please do not hesitate to reach out to us.
May your 4th of July celebration be resplendent and filled with beauty!
