(910) 319-7834
Some of my fondest memories as a child are playing cards with my family. It was a great way to spend time together, connect, and talk about life while enjoying competitive games. When I wasn’t playing card games with the family, I would use the playing cards to build houses. I would place each card with precision, building the house step by step, trying to create the biggest house I could. The foundation, however, was weak, and offered little support, if one card failed, the entire house would crash. The market is giving me the same worries as my house of cards. It continues to grow, step by step, but the foundation is weak, and may not be able to continuously support its growth.
When Japan raised interest rates last week, the market dropped significantly, as fear of a global slowdown and the unwinding of the Carry Trades had investors selling. Since the close on August 5th, the S&P 500 has rallied 7%. The rally was fueled by PPI, CPI, and retail reports that showed Inflation slowing and retail sales sustaining. These reports came on the tail end of the jobs report that showed a slowdown in initial jobless claims. As I mentioned last week, some reports don’t always paint the proper picture. I believe we will get a better understanding of the economy when the Institute for Supply Management(ISM) manufacturing index report for August is released on September 3rd. I believe it will confirm that the economy is slowing.
Unemployment hit 4.3% and I believe we will see 4.5% by year-end, and possibly 5% by next year. Consumer spending is still strong, but at what expense? Credit card debt is at an all-time high, with an average interest rate of 21.51%. During the Covid era when student loan payments were halted, and 50% of those on unemployment received benefits greater than their salary, many consumers benefited from having their credit scores artificially rise. It is estimated that credit scores rose as much as 50 points. This resulted in more credit cards being issued, and consumers taking on debt they cannot afford to pay. The delinquency rate on credit cards hit its highest level since 2012.
The consumer is not the only one with debt problems. The national debt is increasing at a rate of approximately $1 Billion an hour. The interest payment on the national debt has surpassed our defense budget. There needs to be some accountability in DC to eliminate unnecessary spending, a concept that doesn’t seem to resonate.
We continue to monitor opportunities for growth and protection. Our option overlays provide some downside protection, and we continue to be overweight in cash. Money market yields are still at 5%, providing an attractive return as we wait.
Have a wonderful weekend.
