From the desks of Stanley Katz & Lauren Madera
CONGRATULATIONS, HIGH SCHOOL GRADUATES, ON THIS NATIONAL GRADUATION TASSEL DAY! CREDIT ALSO TO THE VILLAGE OF FAMILY, FRIENDS, AND MENTORS SHEPHARDING THEM ON THIS JOURNEY.
Markets were essentially flat for the week (DJIA: -0.17%, S&P 500: +0.13%, Nasdaq: -0.08%), unable to hold the momentum from the prior week’s earnings-driven rally. Per T. Rowe Price’s weekly commentary, inflation data were the week’s dominant story. The Consumer Price Index (CPI) rose 3.8% year-over-year in April, the sharpest pace since May 2023, and the Producer Price Index (PPI) jumped 6.0% year-over-year, driven largely by energy prices. Core CPI, which excludes food and energy, also came in above expectations. Chicago Fed President Austan Goolsbee acknowledged the U.S. has an “inflation problem,” further encouraging the 10-year U.S. Treasury yield to climb to around 4.59%, its highest level in over a year. The S&P 500 briefly touched a record high on Thursday before pulling back Friday as the weight of the inflation data set in. Retail sales rose 0.5% in April, a modest bright spot, but the week’s tone was ultimately set by prices, not demand. With November midterms now six months out, the political calendar is beginning to add another layer of uncertainty.
Capital Group’s Guide to Midterm Elections offers a timely look at what history says about markets in election years. Drawing on over 90 years of S&P 500 data, the firm identified five consistent patterns:
- The president’s party typically loses congressional seats, and markets tend to price that in early.
- Market returns tend to be muted in midterm years, averaging 4.7% versus 9.5% in all other years.
- Volatility tends to run higher in midterm years, particularly in the months just before Election Day.
- Markets have tended to rebound strongly after elections, posting an average one-year return of 15.4%, compared to 7.8% in all other years.
- Control of Congress has historically had little bearing on long-term investment returns. Markets averaged double-digit returns under unified government, split Congress, and every configuration in between.
Republicans currently hold both chambers by slim margins, and the legislative stakes are real. But Capital Group’s data suggest the political noise ahead may be louder than its eventual market impact.
Charles Schwab’s Liz Ann Sonders and Collin Martin addressed the inflation question directly in their latest “On Investing” podcast. Their message was straightforward: Inflation is still too hot, and the Fed is not cutting rates anytime soon. With CPI at 3.8% and headline PPI at 6%, inflation remains stubbornly elevated, and the Fed has little reason to consider cutting rates. On the incoming Fed chair front, Kevin Warsh’s confirmation brings potential changes worth watching — including a preference for trimmed inflation measures and possibly eliminating the Fed’s quarterly “dot plot” (the chart showing where each Fed member expects interest rates to go). Sonders and Martin also flag a quieter risk building beneath the headlines. AI-related capital spending is increasingly being financed through corporate bonds rather than free cash flow, as was common just two years ago. Credit spreads remain low for now, but the scale of the borrowing and uncertainty around returns on that investment are worth monitoring. The inflation picture, Sonders notes, is already denting consumer confidence. Since the Fed cannot directly bring energy prices down, its options remain constrained until conditions change.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Capital Group:
Schwab:
First Trust:
Argus:
Northern Trust:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
Investing involves risk, including the possible loss of principal. The information contained herein has been prepared solely for informational purposes. Nothing contained herein should be construed as a recommendation to either buy or sell any security or economic sector, or implement any strategy discussed. Please consult with your financial advisor, accountant, and/or attorney before acting on this information. ClientFirst Financial Strategies, Inc. is a DBA of OneSeven, LLC (OneSeven). OneSeven is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. Investment Products are Not FDIC Insured, Offer No Bank Guarantee, and May Lose Value.
OneSeven does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third parties.