Don't Call It A Pause
All equity sectors but one were lower last week, as the market took a pause from its recent move higher.
Fed Chairman Powell was ambiguous at best last week in his appearance before the House Financial Services Committee. According to Powell, the Fed has a long way to go to combat inflation, despite the Consumer Price Index having declined to 4% after peaking at 9.1% over the past year. The price of Coffee, Corn, Cotton, Soybeans, Wheat, and Oil—all major commodities—are down at least 10% or more over the past 12 months. Powell also spent some time in his remarks stating that the June hold on interest rate hikes was not a “pause” and they (the Fed) never used the word “pause.” This is better known as “mincing words” as the hold on interest rates in June after 15 months of consecutive hikes is absolutely a pause, especially if there are two more rate hikes in the works if the June minutes are to be believed.
On the economic front, a preview into housing showed positive signs of recovery last week.
In terms of debt and leverage, the consumer and corporations do not show the signs of strain exhibited in 2000 and 2007 prior to those bear markets. In the months before those two bear markets, corporate leverage was steadily or rapidly rising - unlike today. Household Debt Service on consumer loans and mortgages was rising in 2000 and 2007, whereas today it's more manageable. The long-term indicators point to more upward progress for equities after an adjustment period.
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