This year’s 1st quarter saw a continuation of the October rally in stocks and the market averages were up approximately 10%. Subsequently, we are experiencing a market correction due to somewhat higher than expected CPI inflation numbers with debate as to whether and when the Federal Reserve will lower interest rates.
We were not in the camp of those who believed that the Fed would lower rates four to five times this year. We still expect rates to be lowered in the second half of this year at least one time.
Market corrections of 3% to 10% are normal almost every year. Our view is that inflation is coming down, but certain components of the government data: [auto insurance, medical care, the cost of shelter, and commodity prices] are not declining, while other indicators are slowing. Clearly, the economy is stronger than most expected and this will lead to better than anticipated corporate earnings, which in turn will be positive for stocks.
