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Global equity markets were mixed in May with the U.S. showing positive returns while overseas stocks were slightly down. Bond yields continue to bounce around as stronger economic data keeps the Fed on course to continue raising rates. My stance remains to stay away from interest rate sensitive and long‐dated bonds and for keeping maturities and duration short.

Retail sales, industrial production, construction spending, and continued employment strength all suggest the economy is chugging along. GDP for the current quarter is tracking near 4%.

The Fed is likely to hike short term rates at their June meeting in keeping with their “normalization” policy. The Fed Funds target range currently sits at 1.50‐1.75% with additional increases coming. The Fed recently noted some pickup in inflation and expects conditions to warrant “further gradual rate increases” throughout 2018.

Job growth has averaged around 207,000 net new jobs per month in 2018. The latest unemployment rate ticked down to 3.8%, matching April 2000 as the lowest reading since 1969 (the year of Woodstock and the first moon landing for reference).

Market volatility likely will continue as the market seeks to strike a balance between the stronger economic growth we’re seeing and the unknown effects of potential higher interest rates and inflation. Inflation remains under control and right at the Fed’s target of 2.0%. Interest rates, which are rising from very low levels, should increase as the economy continues to gain traction.

Even as the markets face heightened volatility, fundamentals for U.S. companies remain strong. Equity valuations are very reasonable at just under 17x this year’s earnings. Balance sheets are strong, dividends are increasing, and earnings growth is at an all‐time high. As long as these fundamentals remain in place, equities should move higher with pullbacks being short‐lived.

Best Regards, Clay

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