Proud Investors In American Markets

There is a lot to be thankful for when it comes to the July 4th holiday - freedom, opportunity, and prosperity. No nation is perfect, but as Americans we can generally

say we have much to celebrate this July 4th. The inspiration for this week’s musings is the song “God Bless The U.S.A.” by Lee Greenwood. Here’s some trivia about the song:

• Greenwood wrote this song in 1983, but it wasn't a big hit at the time. It only reached #7 on the Hot Country Billboard rankings. However, the popularity of the song surged at the start of the Gulf War in 1990 and again after the September 11th attacks in 2001.

• Greenwood later recounted that when he added the song to his shows in the fall of 1983, it was near the middle of the show, just kind of inserted as a new song. However, audiences cheered and applauded so much after he sang the song, that it quickly was moved to the end of the show as an encore.

• Several artists have covered this song, but none really eclipsing the original. Dolly Parton recorded a version in 2003. Beyonce recorded a version in 2008 and re-released that version following the death of Osama bin Laden, with the proceeds going to charity. The country a cappella group Home Free released a version in 2000.

• This song is often played on July 4th during parades and firework shows. Greenwood admitted that he wrote the song to unite all Americans. He added the four points of the nation - NY, LA, Detroit, & Houston - to signify the different geography and different parts of the American economy.

"And I'm proud to be an American

Where at least I know I'm free

And I won't forget the men who died

Who gave that right to me

And I'd gladly stand up

Next to you and defend her still today

'Cause there ain't no doubt I love this land

God bless the USA

From the lakes of Minnesota

To the hills of Tennessee

Across the plains of Texas

From sea to shining sea

From Detroit down to Houston

And New York to L.A

Well, there's pride in every American heart

And it's time we stand and say"

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

Proud American Markets. While markets go up and go down, over the long-term, investing in the market in the United States has proven to be a worthwhile exercise.

As we enter the month of July, seasonality suggests another month of positive returns in the market. The S&P 500 Index has not seen a negative July since 2014. Another measure of support saw the S&P 500 achieve a "golden cross" on July 1st. A "golden cross" occurs when the 50-day moving average exceeds the 200-day moving average after trailing for some time. This has historically meant the stock/index is trending higher. As a reminder, the index made a "death cross" (50-day drops below 200-day) in April and market prognosticators were calling for recession.

There are always data points of concern in the U.S. economy (more on that later), but the overall picture still looks good. Both the Chicago Fed's National Financial Conditions Index and the St. Louis Fed's Financial Stress Index are below zero, meaning financial conditions are "loose" or positive. Credit Spreads are at their lowest point since March 5th, meaning that there is little risk of defaults or concerns in credit bond markets. Any economist or market strategist can point out a weak data point, but until the vast majority of data forces these economic indices higher, there's no reason for panic at this time.

Proud Fed Chairman? While it's great to be an American, no nation with without faults. We have different ideologies, politics, and religions in the U.S. However, at the

end of the day, facts and logic ought to help us reach similar conclusions despite our differences. Alas, our Federal Reserve Chairman is struggling to come to a reasonable conclusion on interest rates. This week, Chairman Powell continued to make questionable statements with regard to current Fed Rate policy. Earlier this week he stated, "We expect to see higher inflation readings over the summer." The Cleveland Fed's Nowcast expectation of inflation does show a rise in June for CPI, but almost no increase in July. In the same vein, Powell stated, "We see a gradual cooling in the labor market." This comment was echoed in the ADP Private Payroll data this week which showed minus 33,000 jobs for June. And yet, Powell further stated, "I can't say if July is too soon to cut rates. I wouldn't take any meeting off the table, it depends on the data." There's not any significant movement in inflation, as was "expected" by the Fed and the labor market could be cooling. So, when is the appropriate time to cut rates?

The reality is that the Fed is now officially behind the curve on rates. There have been 64 rate cuts by global central banks this year and not one from the Fed. In fact, the current level of Fed Funds Rate is higher than the U.K., Eurozone, Japan, & Canada. If inflation is at 2.4% today and the Fed is forecasting inflation to be 2.6% two months from now, where is the danger in cutting rates now? Even at 2.6%, CPI would be well below its historical average of 3.5%. Right now, the biggest risk to markets is a policy mistake by the Fed.

American Labor Market.  A soft data point reared its ugly head this week when the private payroll data was released on Wednesday. It showed negative jobs created

during the month of June, which hasn't happened since 2021. There are a couple of explanations for June's results. One possible reason could be the current immigration policy causing foreign-born workers to exit the U.S. labor force. Another reason could be softness in the labor market that is beginning to rear its ugly head. The jury is still out as we would need to see consecutive months of negative jobs before reaching a definitive conclusion.

However, the government's release of payrolls this morning surprised to the upside. The June report was expected to show 111,000 new jobs, but the report showed 147,000 new jobs for the month. In addition, the Unemployment Rate dipped from 4.2% in May to 4.1% in June. Finally, the Initial Jobless Claims report had risen in late May through early June, but over the past three weeks the number has come back down and is well below the historical average. The difference in the ADP numbers and the government's numbers caused futures on a September Fed rate cut to move around. On Wednesday, the odds of a September rate cut improved, but after today's Jobs Report, the probability is back down to a 3-week low of 66%. So, for the time being, Chairman Powell can breath easy until the CPI (inflation) report two weeks from now. Happy 4th!

The moving performance of "God Bless the U.S.A" after 9/11 in Yankee Stadium...

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Disclosures

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.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.