Stocks and bonds both rallied last week in the absence of significant data releases and despite bearish statements from Fed Chairman Jerome Powell during his semi-annual testimony before Congress on June 22-23. The S&P 500 jumped 6.46%, leaving it down 17.31% for the year1. The NASDAQ was up 5.52%, leaving it down 27.93% for the year1. The Bloomberg Aggregate Bond Index was up 0.61% for the week and down 10.94% for the year1. Powell acknowledged during his visit to Capitol Hill that inflation is too high and that the risk of recession has grown. Perhaps investors wishfully interpreted that to mean the Fed will need to be less aggressive later this year and started buying stocks as a result. Or perhaps necessary quarter-end portfolio rebalancing after the poor performance of both equities and fixed income so far this year is driving the markets.   

 

Whatever the reasons for last week’s rebound, we believe the incipient 2Q earnings season - which starts this week and gains sector breadth and momentum through mid-July, with the behemoth financials reporting during the week of July 11 - is likely to help determine if it marks the beginning of a sustainable rally or is simply a bear market bounce. We will be interested to see how companies navigated a very challenging 2Q, and how executives adjust their guidance for the balance of the year. Analyst expectations are still quite high, so we will be closely monitoring how much forward earnings will need to be adjusted, and what investors will be willing to pay in terms of Price/Earnings ratio in light of any adjustments.

 

Before we get into the depths of earnings season, however, this coming week will provide several important data points related to inflation and economic growth expectations. We will be watching Durable Goods Orders, Consumer Confidence, Case-Shiller Home Prices, Pending Home Sales, Mortgage Applications, Chicago PMI, PCE Prices and the ISM Manufacturing PMI, to name but a few. We hope to see inflation data begin cooling in June while economic growth data remains somewhat healthy (in other words, “not to too hot, and not too cold - just right”). 

 

Finally, we again reiterate that this environment requires patience, balance, and discipline from investors. We recommend being prepared for continued volatility this summer.

 

 

Thank you for your confidence in our team during this period of volatility,

 

Asset Management Department

Sequoia Financial Group

 

Sources:  1. Morningstar Direct

The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

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Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

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