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May 2016 Market Review

Consumer Price Index – April

The consumer price index for April (released May 17th) showed a .4% increase in all items.  Over the last 12 months, this index has increased 1.1%. This is important because it is falling below the Fed’s stated target of 2%.  However, when you strip out the volatile food and energy components, there was a 2.1% increase in prices.  So there is a mixed message for the Fed.  The question that has yet to be answered is: does a decrease in energy costs, specifically gasoline, more than offset other cost increases and allow consumers to spend on other non-energy items?  Or will they save the difference?  Or, pay down debt?

The Equity Market

The S&P 500 is up .41% year to date.  The “bunny market” continues.  A quick historical note: in 2015, the S&P 500 was the third best asset class out of 13 broad equity, international and fixed income asset classes.  It was up only 1.4% in 2015.   It is safe to say there is no news that would cause an investor to be excited about the market’s prospects for the rest of this year.  And, truthfully, there is no data to indicate the market will do poorly, either.  So that leaves us in a situation where execution of a company’s strategy is more important than market expectations.  We expect the market to react negatively if and when the Fed increases interest rates.  But we could see “false labor pains” before they actually raise interest rates followed by a relief rally after the increase.  More bunny hopping.  At the end of this year, we will look back fondly on our interest and dividend payments.  We hope to also celebrate price appreciation on top of that. Like icing on a great cake.

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