TheBRRR’s Thoughts

A week decorated by encouraging inflation data was not enough for the Fed to shift its outlook on interest rates from the current “higher for longer” path, evidenced by their projections revealed after Wednesday’s FOMC meeting.

Fed officials were split on whether they expected to cut interest rates once or twice this year - down from their 3 cut projection just 3 months ago.

Even after the Fed’s statement on Wednesday, bullish data continued to arrive on Thursday and Friday, but it failed to ignite any sustained momentum.

Producer prices (PPI) came in flat y/y and consumer sentiment came in below expectations as spending appears to be slowing.

Big tech continues to perform well and has ignored the noise, but medium and small cap tech and crypto has been far less fortunate this week.

Bitcoin particularly appeared primed to recapture all-time highs on Wednesday before dumping on the FOMC statement and Jay Powell’s Q&A. It sits about 10% under the ATH it set in March of this year.

Altcoins have been battered, and likely won’t regain momentum until bitcoin and ether show strength again.

The ride to full risk-on and a flood of liquidity is still on track for this year, but it might be bumpier than expected.

We’ll leave the portfolio unchanged for now.

Consumer Sentiment Dumps As Spending Slows

WHAT HAPPENED

• The University of Michigan's latest report reveals a significant drop in consumer sentiment, hitting a 7-month low.

• Sentiment dropped from 68.8 to 67.6, marking the largest 3-month decline since the COVID lockdowns.

• This was a 5-sigma miss from the median estimate, following last month's record 7-sigma miss.

• Current conditions plummeted from 69.6 to 62.5, the lowest since 2022, missing the 72.2 estimate.

• Expectations also fell from 68.8 to 67.6, below the 72.0 estimate.

WHY IT MATTERS

• Labor Market Weakness: The drop in sentiment correlates with a deteriorating labor market. The unemployment rate rose to 4%, the highest in over two years, with jobless claims surging due to mass layoffs in California.

• Inflation Concerns: Despite slowed inflation, prices remain high, squeezing budgets. 1-year inflation expectations stayed at 3.3%, while 5-10 year expectations increased to 3.1%.

• Reduced Consumer Spending: The sentiment decline suggests weaker consumer demand ahead. Buying conditions for durable goods hit their lowest since December 2022, indicating consumer financial strain.

IMPLICATIONS

• Economic Outlook: The data suggests Bidenomics is failing to bolster consumer confidence and spending, critical drivers of economic growth.

• Policy Pressure: Rising unemployment and persistent inflation expectations add pressure on the Federal Reserve's policies. Powell's recent comments dismissing stagflation now seem out of touch with on-the-ground realities.

• Market Impact: Weak consumer sentiment and spending can lead to broader economic slowdowns, affecting stock markets and business investments.

Yahoo Finance

Big Tech Strong, Rest of Market Fizzles: Friday Recap

June Fed Meeting: Fed Continues To Walk The Inflation Tightrope And Holds Rates Steady

WHAT HAPPENED:

• Fed Decision: The Federal Open Market Committee (FOMC) kept the federal funds rate steady at 5.25%-5.50%.

• Projections: Only one rate cut expected this year.

• Balance Sheet: Fed to taper monthly runoff of Treasuries and mortgage-backed securities.

WHY IT MATTERS:

• Inflation vs. Recession: The Fed is trying to lower inflation without triggering a recession.

• Economic Data: Recent CPI rose 3.3% year-over-year in May, while core PCE inflation was up 2.8% in April.

• Labor Market: U.S. economy added 272,000 jobs in May; unemployment rate at 4.0%.

Key Points:

• Inflation Fight: Fed Chair Jerome Powell emphasized the need for more data to confirm inflation is on track to the 2.0% target.

• Economic Projections: Fed's median fed funds rate projection for 2024 is 5.1%, with one rate cut anticipated by year-end.

• Market Reaction: S&P 500 is up 14.5% year-to-date, reflecting cautious optimism.

LOOKING AHEAD:

• Next Fed Meeting: Markets expect rates to stay steady at the July 31 meeting.

• Upcoming Data: May retail sales report (June 18) and May core PCE reading (June 28) will be critical for assessing inflation trends.

• Economic Outlook: Fed's challenge remains balancing inflation control with economic growth, avoiding a recession.

Forbes

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The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll