• Some may think that Memorial Day kicks off the summer but on Wall Street the Fourth of July holiday usually marks the beginning of lighter volume and quite often increased volatility as the Wall Street muckety mucks traipse (perhaps even jet or helicopter) off to “the Hamptons” to beat the heat.  The financial markets served up a healthy dose of the former but not the latter this past week as the leaders of the first half, namely Technology and Communication Services kicked off the second half by maintaining that role.  On the flip side, Health Care, Industrials and Materials continued to be the laggards.
    Taking a look at how companies fared by market capitalization this past week, large cap stocks outperformed while mid- and small-caps continued to underperform.
    Time will tell, but for now it is not wise to step in front of this bullish freight train.  It is our belief that stocks and bonds seem reasonably valued.  As such, we continue to recommend scaling into secular growers on weakness; nibbling at value stocks, especially those that will benefit from utilizing technology to reduce operational costs and laddering fixed income.  We expect the summer to be choppy as volume contracts, the election approaches and the accompanying rhetoric heats up.
    Nonetheless the underpinnings of the stock market remain healthy and at this time there is no indication of any meaningful downturn.  That said, keep in mind that ten percent pullbacks are common and indeed healthy.  According to data from Dow Jones, since 1958 there have been 58 pullbacks of ten percent or more.
  • The stock market rally continues to be led by a narrow group of companies, namely large caps with a tie to Artificial Intelligence (AI).  In fact, this past week, despite the fact that the S&P 500, U.S. Total Market Index and NASDAQ Composite all closed at record highs, declining stocks outpaced advancers on both the New York Stock Exchange (NYSE) and NASDAQ.
  • If the Institute for Supply Management’s (ISM) monthly look at the manufacturing and services sector is any indication, the U.S. economy is most likely slowing as both have come in below a level of fifty, the dividing line between expansion and contraction.  That level is nothing new for the manufacturing sector which has been in contraction for most of the past two years.  However, it is for the services sector which represents nearly 70% of GDP, as that sector has been in expansion mode for nearly all of the last two years.
  • The Fed has two more regularly scheduled meetings prior to the election, July 30-31 and September 17-18 and one the day after the election, November 6-7.  At this point we believe there won’t be enough data to cut interest rates at the July meeting so the next opportunity, barring a between-meeting-cut will be following the September one.  The FOMC has repeatedly stated that they are data dependent and that is not truer than now as they don’t want to retain real (inflation adjusted) interest rates at a level where it chokes off economic growth but also don’t want to let the inflation genie out of the bottle a la the 1970s by cutting too soon.  In our opinion and given their post-pandemic policy missteps, they will most likely leave interest rates higher for longer.  At this time, we believe the financial market will do just fine in a “higher for longer” environment.
  • According to the Federal Home Loan Mortgage Corporation (FreddieMac), “mortgage rates increased this week, coming in just under seven percent.  Both new home and pending home sales are down, causing active listings to rise.  We are still expecting rates to moderately decrease in the second half of the year and given additional inventory, price growth should temper, boding well for interested homebuyers.”
    Should inflation data continue favorable and interest rates continue to decline, expect to hear talk about the benefits of an Adjustable Rate Mortgage as compared to a Fixed Rate Mortgage.  We’ll say it now, “it’s not a bad idea to .”consider"
  • Corporate news – Shares of pharmaceutical giant Eli Lilly (LLY) rose after the Food and Drug Administration (FDA) approved its drug kisunla for adults with early symptomatic Alzheimer’s.  According to a press release from Eli Lilly, “Kisunla slowed cognitive and functional decline by up to 35% compared to placebo at 18 months in its pivotal Phase 3 study and reduced participants’ risk of progressing to the next clinical stage of disease by up to 39%.”  Shares of Boeing (BA) held steady after the aerospace giant agreed to purchase Spirit AeroSystems (SPR), their major components supplier for $4.7 billion plus debt.
  • Upcoming Economic Reports scheduled to be released this week include the following, on Monday, May Consumer Credit; on Wednesday, May Wholesale Inventories; on Thursday, the June Report on Retail Inflation as measured by the Consumer Price Index (CPI) and the Weekly Report of Initial Claims for Unemployment Insurance and on Friday, the June Report on Wholesale Inflation as measured by the Producer Price Index (PPI) along with a Preliminary Look at July Consumer Sentiment as measured by the University of Michigan.
  • The Q1 Earnings will begin to ramp up beginning with the banks later this week.  Including those, companies of note scheduled to report this week, include – Greenbrier (GBX), Helen of Troy (HELE), PriceSmart (PSMT), Delta Air Lines (DAL), Conagra Brands (CAG), PepsiCo (PEP), Progressive (PGR), Citigroup (C), Wells Fargo (WFC), JP Morgan Chase (JPM), Bank of NY Mellon (BNY).and Fastenal (FAST)

General Disclosure:“This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.

Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”

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