The growth in the market in the first 5 months was largely due to a small group of stocks, demonstrating the difficulty in selecting the “winners” (see reverse side graph). Although economic indicators have been signaling a slowing U.S. economy, breadth expanded in June and the markets performed well.

It is worth noting that the failure of Silicon Valley Bank and Signature Bank were not systematic banking industry problems, but rather a result of 90% of the deposits at these banks exceeding FDIC insurance limits, and a high industry concentration to cash-demanding venture capital and crypto firms.

Historically, both the economy and the stock market experience natural, yet unpredictable, economic cycles, expanding for 8 out of 10 years and contracting for 2 out of 10. When wages and prices soar, the Fed raises interest rates to slow these down. As the Fed slows the pace of their rate hikes, we will look to lengthen the duration of our bond portfolios to lock in higher yields for longer periods of time.

The economy as a whole, with rising consumer spending, normalizing supply chains, and a tight labor market, is still strong. As interest rates rise, short-term bonds continue to hold up better than long-term bonds. Many short-term bonds are now paying over 4%.

On June 15th, the Federal Reserve increased the federal funds rate by 0.75% to fight inflation. This was the largest increase since 1994, and the third increase of the year. Fed Chairman Jerome Powell indicated that rates are anticipated to be increased an additional 1.75% prior to yearend.