Market Commentary and Portfolio Changes

It seems like each year the days go by faster and faster! It’s hard to believe we’re already more than halfway through the year. For those of you who are in Minnesota like us, we know you are likely out cherishing the scarce summer days rather than closely monitoring the stock market. Fortunately, we have been keeping an eye on things for you and would like to share a few thoughts about what we’re watching.

Fears of an economic recession have been top of mind over the past twelve months, and while we aren’t ready to say that the risk is off the table, we see signs that a stubbornly resilient economy may reject the consensus expectations that a recession is imminent and inevitable.[1] Consumer spending remains high, the labor market remains strong[2], and GDP growth has been stronger than anticipated[3]. All of these factors signal economic strength and are positive indicators as we look towards the future. With this backdrop in mind, we are going to reposition a portion of the short-term bond allocation in the portfolios into large cap funds.

One consequence of a strong economy, and particularly of a strong consumer, is that inflation may prove to be more persistent than the Federal Reserve hopes. Inflation is down to 3% this month, and while that is good news it is still above the Fed’s 2% target. This means that the Federal Reserve is almost certainly going to raise interest rates again later this month, with additional rate hikes in 2023 still on the table[4], but we do believe the end is near. In that light, we will be rebalancing some of the bond holdings to favor quality and longer duration.

We hope that you and your family enjoy the rest of the summer!

As always, please reach out to your advisor or call our office with any questions at 952-852-1293.

[1] https://financialpost.com/news/economy/strong-u-s-economic-data-recession-call

[2] https://www.politico.com/news/2023/07/07/jobs-report-slowed-hiring-economy-resilience-00105148

[3] https://www.nytimes.com/2023/06/29/business/economy/economy-q1-gdp.html

[4] https://www.reuters.com/markets/rates-bonds/fed-seen-raising-rates-this-month-traders-less-sure-further-hike-2023-07-07/