The market pulled back slightly so far this week and retail sales fell below expectations—declining by 0.9%. There was also a 3.5% decline in auto sales, indicating consumers’ hesitation to make big ticket purchases. Watch as Gary Quinzel, Vice President for Portfolio Consulting, discusses the Federal Reserve’s reaction and other macroeconomic headlines.

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TRANSCRIPT:

Hello, everyone. Welcome to the latest edition of seven Market Movers. My name is Gary Quinzel, Vice President of Portfolio Consulting at Wealth Enhancement. Let's go ahead and dive on in.

So far this week, the market has pulled back just a little bit due in part to the escalating situation in the Middle East between Iran and Israel. We're going to get to more of that in just a little bit. But first, I want to start by talking a little bit about some macroeconomic headlines. Earlier this week, we saw retail sales decline by around 0.9%, which may not feel like a lot, but it's actually the largest drop since January, and it was the second straight monthly, decline.

So probably more importantly is the fact that the, the results fell below expectations once again. And it's just another indicator that we're starting to see some signs or signals of economic weakness.

Elsewhere, or I should say within that report, you know, we saw a much more notable decline, 3.5% decline in auto sales. So consumers are just feeling a little more weary about making those major purchases, given the slightly weaker labor market. And, again, just these, concerns around rising prices and just the uncertainty looming around the tariff situation as well as the political instability.

Another key indicator that we just recently saw was housing starts, which fell by 9.8% in May. That was the sharpest drop monthly drop since the pandemic.

Certainly noteworthy. And then if you also look at building permits, they fell by around two percent in May. Both of those were again below expectations. So major initiatives like housing starts starting to fall off a little bit. These are some of the signals and signs that the Fed is looking at and determining what their next move will be. And as we saw this week at the, FOMC's, latest meeting, to no one's surprise, they held rates steady at their current level of four point two five to four and a half percent.

But more importantly was their summary of economic projections also known as the SEP or the dot plot. And that is the key signal. That's the median expectations for where the Fed thinks, the fed the rate rates will be at the end of this year and at the end of, future years. And so if you look at the dot plot, it's still calling for two rate cuts, by the end of this year, which is pretty much in line with expectations.

Some thought they might actually lower that to only one rate cut. But more importantly, I believe is that the SCP or dot plot is now only calling for fewer rate cuts in 2026 and 2027. So, it just feels like the Fed is not in a rush. And Powell even said, you know, we feel like we'll learn a great deal more confidence or a great deal more about this this summer around the tariff situation.

And as long as the economy remains resilient, which it has, and inflation is moving down, which it is, the right thing to do is to keep policy where it is. And so that's exactly what the Fed is doing, and they're not overreacting to the slightly softer labor market results, but they are they are, of course, paying attention to those other reports like I mentioned, retail sales and housing starts, etcetera. And that in aggregate does signal overall softer growth this year, which I think the market would be okay with. Right?

We can handle slower growth. It's that that greater higher level of uncertainty that, of course, the market doesn't like. And when you layer in things like, you know, potential escalation of a conflict, such as what we're seeing, that's really where things get more challenging to predict. And so in general, making any type of short-term prediction about what's going to happen based upon conflicts or any, esoteric risk is incredibly challenging, if possible.

And by the time you see this video, things could have changed materially. So we're not going to make any bold assumptions or calls about what's going to happen from a market perspective, but we can, highlight some observations such as the general fact that it does typically, cause a increase in volatility, which we've seen. The VIX index is over twenty, up from where it was. We've also seen a notable, increase in the price of oil.

WTI and Brent Crude were around $57 a barrel. In early May, they were around $75 today. That's around a thirty one percent increase. That's a pretty substantial, uptick or climb in a short amount of time. And, that, of course, will flow its way into inflation data in the coming weeks, and months.

From a yield perspective, we haven't seen a lot of change, on the yield front. One other interesting takeaway is the simple fact that some of the regulators, have talked about lowering the, SLRs or the supplementary leverage ratio requirements.

That's basically the amount that banks need to hold. And by freeing or lowering that ratio, that frees up more funds so that they could they can invest in treasuries, inject more liquidity into the treasury market, which should actually improve the stability of of the of the rate market. So that's actually a positive, from our perspective. But, you know, from a overall market takeaway, you know, it's important to keep that long term perspective.

We're still just a few points away from all time highs on the S&P 500, despite the slightly weaker data, on the, that I that I highlighted the overall economic situation does remain relatively stable. And so as long as the market re the I'm sorry. The Fed maintains that narrative that, you know, the next rate next move will be a rate cut and not a rate hike. I think the market will be okay with that.

And so, we're just going to have to closely monitor what's happening, overseas and elsewhere, because we know that the Fed is data dependent, but they can and will change their tune at any given time. So we'll be keeping a close eye on things as they develop. So that's all we have for today. I hope you have a a great day and a great week, and thanks for listening.

Take care.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

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