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I usually start by stating something like, “the markets moved higher this week” or “we look to close flat this week.”  However, over the past four to six weeks we’ve seen the various indices diverge in ways that haven’t happened in some time.  For example, the Dow looks to finish the week unchanged.  If I left it there, you might think the market in general didn’t move much this week.  However, the Nasdaq had a particularly difficult time finishing down 3.4%, with the S&P 500 down a little over 1%.  The point I’m trying to make is beware of headline news and pundits.  There’s always a way to spin one area of the market while minimizing another.  Mutual fund companies are notorious for this practice.  The truth is, it’s a lot more complicated than the anyone wants you to know.

In economic news, the Federal Reserve released the minutes from its last meeting.  We learned the voting members broadly support at least one 0.50% rate hike (if not two) for May and June, as well as, a reduction to its balance sheet of $95B per month beginning in May (which is double the last time they wound things down).  Anticipating further interest rate hikes, investors have pushed the 10yr Treasury yield above 2.7% which is a staggering increase in such a short period of time.  In tandem, the 30yr fixed-rate mortgage crossed the 5% mark for the first time in nine years.  As would be expected, mortgage applications continue to trend lower for the fourth consecutive week, as did refinancing.

Inflation continues to hamper markets as materials, transportation, and labor eat into both profit margins and disposable income.  It isn’t an either-or proposition.  Inflation can hurt both consumers and corporations.  Perhaps the most telling sign is the jump in consumer credit by $41B in February versus a more normal increase of $8.9B in January.  Food, gas, and rent are all weighing heavily on consumers wallets.  President Biden, to help Millennials, further extended the student loan pause which likely extends the inflation issue too.  I’m not suggesting he might be trying to garner votes in this upcoming midterm election or boost his favorability numbers, but with an unemployment rate of only 3.6%, it seems now would be the time to end what amounts to backdoor stimulus.

In company news, Starbucks is bringing back something old.  No, it’s not a drink.  It is the founder and ex-CEO, Howard Schultz who ran the company from 1986 to 2000.  They brought him back in 2008 and over the next nine years he revitalized the company.  This time may be more challenging with geopolitical issues layered on top of labor and union issues.  However, if anyone is up the task it is Mr. Shultz.  Walmart announced it is boosting the pay of its long-haul truck drivers to $110,000 in their first year (up from an average $87.500 previously).  It also announced a new 12-week training program based in Sanger, Texas and Dover, Delaware.  With e-commerce sales continuing to grow at a brisk pace, it appears the company is working hard to maintain an edge.  And finally, Volkswagen announced this week it plans to scrap 60% of its product portfolio by the end of the decade.  The model cuts will mostly come from combustion-powered models with a goal of selling fewer cars overall to concentrate on producing more profitable premium vehicles.  This wouldn’t be the first time a company has gone upscale, but it is a risky proposition and one that requires perfect timing and execution.  We’ll have to wait and see if Volkswagen can pull it off.

To wrap things up this week, I turn to the gentleman who created the graphics interchange format, better known as a GIF.  I am sorry to say that Stephen Wilhite passed away a few weeks ago at the age of 74.  While working for CompuServe in 1987, he created this file format to compress images to quickly display them on the predecessor of today’s Internet.  These small image files are now ubiquitous and used daily by millions in text messages.  Debate about its proper pronunciation has continued to this day.  “The Oxford English Dictionary accepts both pronunciations,” Wilhite told the New York Times in 2013.  “They are wrong.  It is a soft ‘G,’ pronounced ‘jif.’  End of story.”  Well not quite the end.  What you may not know is Mr. Wilhite lived in Loveland, Ohio.  Now you know.

Bruce J. Mason, MBA