The Fed raised rates by 0.75 percent and the market celebrated…before it sold off. I believe we have seen this movie before. Just six weeks ago the Fed met, raised rates as expected, and the market went up; as the market really digested what was happening over the next few days, the market dropped.
Then the market began to climb The Wall of Worry. It rallied right up until the sudden selloff last week and Monday, which once again brought us right back to where we were before the last Fed meeting. We suspect that same pattern will play out: two down days as we head into a long weekend, then the real reaction will take hold.
As a reminder, we have already taken defensive measures in our clients’ portfolios, which are helping. We are watching closely and will take further action if we believe it is necessary.
We still believe that the market is overly pessimistic. The greatest risk factor for a possible recession right now, in our opinion, is that pessimism. Recessions can be caused simply by self-fulfilling prophecy. The truth is that Wall Street is dislocated from the real world, and they often get it wrong in both directions.
These times always seem to last forever as we go through them, but they don’t. This too shall pass, and one day we will look back and be grateful for having owned and continued to purchase stocks at these prices. In the meantime, we must not ignore the market; swimming against the current is not advisable.
As we go into this weekend, it is a good time to focus on what really matters. For all the fathers out there, I hope you have a Happy Father’s Day. Let us also recognize our newest national holiday, Juneteenth. Hopefully this holiday serves a purpose of bringing us together and stopping the constant division. It is a reminder of our nation’s past sins, but also a reminder of what makes us so unique. Every nation sins, yet few if any have fought so hard against their own brothers to right those sins. The United States of America isn’t perfect, but there is no place on earth I would rather call home. I hope you share that feeling as we celebrate Juneteenth.
Chuck Osborne, CFA