Man In The Mirror

The Fed may be forced to look in the mirror after this week's economic reports revealed that tariffs really haven't had much affect on inflation. Investors should take some time

for self-reflection, as well, as this market won't be this strong forever. This week's inspiration for the musings is the 1987 hit song "Man In The Mirror" by Michael Jackson. Here’s some trivia about the song:

• The song almost didn't appear on the "Bad" album, but thank goodness it did. The song reached Number 1 on the Billboard charts in 1988 and sold more than 4 million copies. This song was the fourth of five #1 hits on the album.

• Jackson and his producer, Quincy Jones, put out an invite to some songwriters at Jones' publishing company to come up with a song as an "anthem" for the album. Siedah Garrett and Glen Ballard put together the lyrics and music and submitted it to Jones with little expectation of acceptance. Jackson loved the song and brough in the Andrae Crouch Gospel Choir to sing in the background. The Choir also appears on Madonna's "Like A Prayer" and Rick Astley's "Cry For Help."

• Ballard was working as a producer for Jones' label, Quest, when he wrote this song. He has come close to landing a song on the "Thriller" album called "Nightline," but it was bumped in favor of "Beat It" and "Billy Jean" - clearly the producers of that album knew what they were doing. "Nightline" was recorded by the Pointer Sisters and was a moderate success on their album "Break Out."

• An instrumental version of this song was played at the end of Jackson's memorial service on July 7, 2009.

"I'm gonna make a change for once in my life

It's gonna feel real good

Gonna make a difference, gonna make it right

As I turned up the collar on my favorite winter coat

This wind is blowin' my mind

I see the kids in the street with not enough to eat

Who am I to be blind, pretending not to see their needs?

A summer's disregard, a broken bottle top

And a one man's soul

They follow each other on the wind, ya know

'Cause they got nowhere to go

That's why I want you to know

I'm starting with the man in the mirror

I'm asking him to change his ways

And no message could have been any clearer

If you wanna make the world a better place

Take a look at yourself and then make a change

Na-na-na, na-na-na, na-na, na-na"

Here's what we've seen so far this week..

Make A Change - For Once In Your Life. Like Michael Jackson, Jerome Powell can make a difference that would make it right for the consumer and the economy. We'll

see if he can change course at the next Fed meeting, as he should. The Consumer Price Index for July came in as expected month-over-month (+0.2%), but was lower than expected on a year-over-year basis (+2.7% vs +2.8%). Essentially, inflation was flat versus last month. The categories most affected by tariffs - Apparel & Autos - showed little movement. Motor Vehicle Repair did see a jump in July, but most of that is coming from the "services" component - as evidenced by the PPI report. Speaking of the Producer Price Index, much is being made of the rise in PPI in July (+0.9% vs +0.2% expected). While it should not be discounted entirely, more than half of the increase in July came from final demand trade services (warehousing, transportation, & retailers). Clearly, tariffs are having an effect on producers, but as we pointed out last week, both U.S. businesses and foreign exporters are bearing the brunt of tariff costs.

We saw a rise in PPI in the 4th quarter of 2024, only to settle down into 2025. This is a trend we will have to watch, but which could end up being just a blip on the radar. It's in Powell's hands at this point as future rate cuts could offset producer's tariff costs by alleviating other costs - such as, financing. The debate this week has been should it be a 25 basis point cut in September of a 50 basis point cut? We would argue in favor of methodical 25 basis point cuts at each of the 3 remaining FOMC meetings this year. This may take Powell looking in the mirror to make a change.

No Message Could Be Clearer. Valuations being elevated has the recession crowd screaming from the mountain top. However, analysis of the consumer paints a different

picture. Retail Sales for July came out this morning slightly lower than expected (+0.5% vs +0.6%), but were still up +3.9% on a year-over-year basis. The recessionistas were also in rare form one year ago, when retail sales were lower than they are today. The weekly data supports the monthly data. Redbook Sales on a year-over-year basis are up +5.7%.

The more recent data shows that spending is not slowing down. BofA card data shows robust spending of +3.5% on a year-over-year basis. The Atlanta Fed's GDPNow shows +2.5% estimated growth for Q3 GDP, even though the Net Exports component is still slightly negative. Consumer spending, the largest component of GDP, is coming in at +1.5%, according to the Atlanta Fed. Corporate earnings have been strong for Q2, supported by consumer spending. Both Initial and Continuing Jobless Claims were lower than expected this week. So long as the consumer has a job and money in the bank, spending shouldn't notice a major drop off, which means economic growth should be steady.

Time To Look In The Mirror?  The past couple of years have been pretty easy for equity investors. While there's no reason for immediate concern, now is a good time

for investors to look in the mirror and undertake some analysis or revisit their investment/financial plan. While a Fed rate cut would certainly be bullish, it doesn't hurt to review goals, risk tolerance, and progress so that when things get crazy, steady heads will prevail. Some suggest that a rate cut could be bearish. However, when the Fed cuts rates within 2% of S&P 500 all-time-highs, the index is higher 12 months later in every instance. That's the good news. However, in some instances, the 3-month and 6-month numbers were rocky (i.e., negative). That's why financial planning is key.

For those who remember the euphoric period leading up to the Dot.com bubble bursting, it was marked by a period of time when investors piled into risky investments

of which they had little-to-no-understanding prior to allocating dollars to said investments. That's where planning comes in handy. An investor with a moderate risk tolerance would typically have a mixture of equity and fixed income in their portfolio. This mixture would have under-performed a 100% equity portfolio leading up to the Dot.com bubble bursting in March of 2000. An investor who abandoned their plan and put 100% of their assets in equities would have been rewarded in the short-term. However, when the bubble did burst, the investor who was allocated correctly, according to a moderate risk tolerance would have been rewarded as equities plummeted during the bear market of 2000, while the moderate mix would not have lost as much. Planning properly now could provide dividends down the road when investing is not so easy.

The inspiring video for Man In The Mirror...

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The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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