It was inevitable that after finishing the quarter in overdrive, the markets might pull back a little. Like I mentioned last week, we’re in a holding pattern waiting for earnings announcements and another Fed decision on interest rates later this month. It’s only reasonable that investors would take some chips off the table during this time of uncertainty. We’ve been actively rebalancing accounts for the last few weeks and have taken overweight positions down, particularly among the technology names. That’s not to say the market is becoming bearish, or that the economy is on its way toward a recession, but simply realizing some companies’ stocks have gotten way ahead of themselves.
As has been the case more recently, the economic data remains contradictory. As an example, U.S. Nonfarm payrolls rose 209K in June, falling short of the estimates and sliding from 306K in May. Job creation in June trailed the average monthly gains of 278K over the past six months. Furthermore, while strong, the monthly average fell from last year’s monthly pace of 399K. While one month does not make a trend, revisions downward of previous months also suggest that the picture is less rosy than initially believed. The biggest gains were found in government, health care, social assistance, construction, professional services, and leisure and hospitality, in that order.
If we are looking at the most recent data optimistically, the Fed may have gained some wiggle room in not raising interest rates later this month. Wages and wage growth are among the stickier parts of inflation given the unusually tight labor market. If the jobs number holds true in the months to come, this could be the out the Fed was looking for to keep rates where they are instead of pushing them higher and slowing the economy further. And while the consumer appears to be holding steady, there are early signs that retail spending may be starting to slow. Costco reported this week that its comparable store sales for June slipped 1.4%. Again, this is just one data point, but it is worth keeping an eye on the consumer. As consumption goes, so goes the economy.
In company news, Lockheed Martin bagged a $3B deal to supply Israel with twenty-five more F-35 stealth fighter jets. While I am dismayed by the need for these weapons, it seems in this climate the military-industrial complex remains a “safe” bet. As for electric vehicles, it appears the transition is picking up speed. Tesla continues to wow investors by topping expectations for deliveries in the second quarter. The company delivered 446,140 cars in Q2. For comparison, Ford delivered 531,662 which includes its popular F-150 pickup truck. If you still look at Tesla as an aspiring car company, you may want to reconsider. It has arrived. Having said that, its valuation remains difficult to justify. And lastly, if you love the Twitter platform, but perhaps aren’t in love with the controversy surrounding the company and its CEO, you may now have an alternative. Meta, previously Facebook, has rolled out a new app named Threads. It looks suspiciously like Twitter and at its core provides the same or similar features. Needless to say, Elon Musk is not happy and has put his attorneys on the case, suing Meta for trade secrets and for luring away its talent (which the company laid off earlier this year).
In closing, I want to touch on a difficult subject. A report released this week by Bankrate noted that nearly three-quarters of Americans don’t feel financially sound. Some 72% of Americans feel they are skating on thin ice, with high inflation being cited as the biggest reason, followed by an uncertain economic backdrop, and insufficient emergency savings. As such, U.S. adults reported that they would need to earn, on average, an annual income of $233K to feel financially secure and roughly $483K to be rich and achieve financial freedom. By comparison, the median earnings for a full-time, year-round worker is $56,473, according to data from the census bureau. A certain amount of trepidation is warranted. However, if you are among those losing sleep over money, we are here to help. Believe it or not, even those with seven-figure accounts occasionally feel like they don’t have enough. We can’t snap our fingers and make everything better, but we can give you guidance and advice to alleviate some of those fears and put you on a sustainable path. Whether it be financial planning, or simply someone to talk to, we’re here for you. Don’t hesitate to reach out to us if you fall in this camp. We’re here to help.Bruce J. Mason, MBA