Happy Semiquincentennial U.S.A.!

The market has done surprisingly well recently, recovering from the downturn at the start of the war with Iran. It shows that the economy is doing well. American companies are booking stellar corporate earnings. Total annualized corporate profits reached a record $4.42 trillion, proving that companies are adjusting to elevated input costs. Driven by strong earnings, the Dow Jones Industrial Average recently closed above 52,000 for the first time in history. The labor market supports this economic strength. The U.S. unemployment rate recently decreased to 4.2%, reflecting a secure “low-hire, low-fire” jobs environment, but labor participation among young males has reached record lows.

Meanwhile, tensions in the Middle East continue to simmer. While more commercial shipping traffic has resumed through the crucial Strait of Hormuz, easing supply shocks, localized skirmishes occur regularly. We expect prolonged headline volatility before shipping patterns fully normalize. Because markets gyrate heavily around daily international news, we are maintaining a cautious and diversified asset allocation approach.

Despite an otherwise healthy economy, inflation remains the biggest headwind, staying stubbornly above the Federal Reserve’s 2.0% target. According to the latest data from the U.S. Bureau of Labor Statistics, consumer prices are rising at an annual rate of 4.2%. While that’s a significant improvement from the 9.0% peak reached in June 2022, it is still well above the 2.4% rate recorded in February of this year.

Looking ahead, there are reasons for cautious optimism. Oil prices have fallen back to pre-war levels, and as supply chains continue to recover, inflationary pressures are expected to ease. Even so, prices tend to rise over time, making inflation a persistent challenge for long-term financial planning. The recent surge in inflation serves as an important reminder: the sooner you begin saving for retirement, the more prepared you’ll be to preserve your purchasing power in the years ahead.

Very truly yours,

Michael F Cantlon
Thomas E Guyett
Robert T Gephart