Friday, May 10, 2019

Investment Perspectives: Positive growth, nature of inflation, and equity portfolios

Key Takeaways
  • Investors should position themselves for the advance in the stock market to continue.
  • A knowledge refresher on inflation - why it is important for the economy, the Fed, and the bond market.
  • May is here, but find out why selling and going away might not be the most appropriate strategy.

In this month's issue:
Yes We are still Bullish Mark Luschini

Earlier this year, Federal Reserve officials made clear that they abandoned the gradual pace of interest rate normalization maintained throughout 2017 and 2018. In doing so, policymakers postponed crossing the neutral-rate Rubicon (the theoretical point at which monetary policy turns restrictive).

Nature of Inflation Guy LeBas 
Inflation in the U.S. is low, not only in relation to recent history, but also in relation to the Federal Reserve’s (Fed) official 2% target for inflation. The core personal consumption expenditure (PCE) deflator printed just 1.55% year-over-year (YoY) in March, well below the Fed’s official 2% target. In fact, that number has hit the 2% mark in only five months out of the last 125—an abysmal performance—made all the worse by the fact that unemployment is at multi-decadal lows and economic growth is above trend. We’ll address (or at least attempt to) why the economy needs inflation at all, why inflation in this context is so low, and what this trend means for the Federal Reserve and bond markets as a whole.

Sell in May? Maybe Not Greg Drahuschak 
The stock market is not taking cues from the “Avengers” film series. In other words, the game is not over for equities. The $1.2 billion in box office receipts for the Walt Disney Company (DIS) movie “Avengers: Endgame” set an all-time record for an opening weekend just as the S&P 500 set new closing and intraday all-time highs. In the market’s saga, technology has performed a lead role this year thus far. The sector ended April with a year-to-date 26.96% gain.

You can read the full Investment Perspectives here.