top of page
Search

Market Brief - May 2023

As we move through the year’s second fiscal quarter, Parkview Capital is mindful of the following market and economic news:



Debt Ceiling


Once again, the limit set by Congress on how much the U.S. Treasury can borrow has been reached, and funds available to meet Federal obligations are dwindling fast and are expected to run out sometime in early June. It’s looking more likely that a resolution in the debt ceiling negotiation is close with recent meetings reported this weekend. Should they reach an agreement, we would expect some uncertainty would be lifted and markets would stabilize.


However, we see in the markets that some fears remain that an agreement won’t be reached. This most likely won’t happen because the impact of the U.S. default on any of its obligations would have serious economic repercussions. A default could result in delayed payments of federal benefits, job losses, higher borrowing costs as U.S. debt is downgraded, and a global recession.


The ramifications would be hard-hitting, which is why it hasn’t happened before, and most likely won’t this time.


Earnings


New economic data shows that consumers are reigning in spending and becoming more selective in their purchases. Retail sales rose at a slower pace than prices, and growth has shifted from durable goods to restaurants and other services.


Home Depot’s earnings miss may be an overall harbinger for the economy. The company indicated that “its customers seemed to put off big-ticketed items associated with home improvement projects during the quarter."


In general, corporate earnings have held up better than anticipated given the slowing economic environment. This is due in part to the aggressive hiking in prices by companies to maintain profit margins. Should companies’ abilities to pass along price increases fade, margins could begin to shrink, and subsequently earnings would decline.


Financial Markets


Major equity indices are positive for the year, with two sectors leading the broader market: Technology and Communication Services. The two have been the leading sectors investors moved into seeking high growth-oriented companies. Companies that pay high dividends like Cisco Systems, Verizon, and United Health have been lagging the total stock-market. These types of income-oriented investments look attractive as dividends paid to shareholders can provide a cushion to the portfolio in a volatile environment.

Though the Federal Reserve is saying interest rates will be kept above 5% to fight inflation, the market is pricing in interest rate cuts of 0.75%. These expectations for rate cuts may be what has been fueling large tech companies’ recent rallies. If that is the case, and the Fed sticks to its restrictive monetary policy, we could see a repricing down in rate sensitive stocks.


Conclusion


Getting the debt ceiling issues behind us will be one less thing for markets to worry about, though questions remain on the ability for companies to maintain and grow earnings in an environment of high inflation and slowing economic growth. These issues will take some time to be resolved and will most likely keep asset prices subdued over the next few quarters.


With this in mind, Parkview continues to invest in companies that are well established with strong balance sheets and resilient streams of income, as well as those with long-term growth potential


Finally, I am happy to introduce a new member to the Parkview Capital team.


Karen Nesmith has joined the firm as a client support specialist to assist with account follow-up items and general administrative items and questions. Karen has over twenty years of experience working in the financial securities industry working with financial advisors with a variety of administrative duties.


I am excited to have her on board! Karen can be reached at solutions@parkviewcapllc.com.


With sincere regards,






David W. Malmgren, CFA

Founder and Principal

Parkview Capital





The information contained herein should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any securities transactions, holdings or sectors discussed were or will be profitable, or that the investment recommendations or decisions that we make in the future will be profitable. The opinions stated and strategies discussed in this commentary are subject to change at any time.


Recent Posts

See All

Comments


bottom of page