We have witnessed rapidly rising short term interest rates during the first half of 2023, as the Federal Reserve continued to fight inflationary pressures in the economy. While inflation did subside, it remained well above the Fed’s target of 2%. Many forecasters were surprised by the strength of the economy, job market and the stock market in the face of higher interest rates. The Fed has expressed determination to continue raising interest rates, in the attempt to bring inflation under control. The big unanswerable question is, whether or not these efforts will cause a recession and, if so, how deep. There is no shortage of opinion on this subject, but no definitive answer.
The S & P 500 Stock Index rose 16.9% during the first half of the year. Most of the gain was confined to a handful of stocks in the technology sector, fueled by recent developments in artificial intelligence. These are fine companies with high growth prospects, but they are currently expensive relative to their earnings. Meanwhile, many stocks remain fairly valued.
The Fed’s actions have given rise to interest rates, providing attractive opportunities for cash and fixed income investments. We are now being paid while patiently seeking new equity opportunities! We maintain our disciplined investment approach.