By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Tame Inflation Reading Helps Keep Market on Track

Inflation pressures continued to moderate in May with the Consumer Price Index, or CPI, up just 0.1% for the month versus an expectation of a 0.2% rise, and up 2.4% over the past year versus expectations of 2.5%.

While it’s unlikely that this report alone will prompt the Fed to cut rates at its meeting next week, it does increase the odds that the Fed may look to cut interest rates at least one or two times between now and the end of the year based on the cooler inflation data.

What looks to be a goldilocks economic environment has stock investors optimistic that the S&P 500 will reach a new all-time high before long.

With the benchmark stock index down roughly 20% on the year just two months ago, it was seen as a long shot that stocks could reach new highs this year, but now we’re just about 1.5% away from accomplishing that feat.

It rarely makes sense to have all your money invested. 

Why is that?  Because you might need it.  Unexpected expenses pop up all the time.

And while most stocks and bonds can be quickly converted to cash – what happens if you’re forced to sell at an inopportune time?

And despite the expectation that your bonds will hold up when stocks fall, that isn’t necessarily always the case – in 2022, the stock market fell 20% and most bond market indexes were down more than 10%.

With money market rates still paying around 4% interest – it pays to keep some liquidity for a rainy day.

Looking Ahead: Busy Week for Investors

I already mentioned the Fed meeting that will be taking place next week – it’s highly unlikely they will change the current interest rate policy, but as always, what they say about the current economic environment and their outlook for future interest rate changes will be very important – and could move markets significantly.

There will also be a lot of new data coming out – retail sales figures will give us key insights into how well the consumer is holding up, which is considered a key pillar for the economy and markets given that consumer spending makes up 70% of GDP.

We’ll also get several pieces of data on the housing market including housing starts, building permits, and homebuilder confidence.

Keep your head on a swivel.