Last week's lackluster retail sales report and falling import prices have kept uncertainty regarding the strength of the expected recovery in the second quarter. On the positive side, first time unemployment claims fell last week. It does appear that hiring and employment are strong, but the U.S. consumer is still focused on increasing savings and reducing debt rather than increasing spending. The University of Michigan Consumer Sentiment report was a very disappointing 88.6, versus 95.9 in April. The decrease was the largest in the last two years.
The S&P 500 Index made a new closing high last week, as uncertainty in the economy, a weakening U.S. dollar and a stabilizing global bond yield created the ideal environment for stocks to perform well.
I still expect the Fed to increase interest rates in September. I remain modestly bearish on U.S. equities and Treasury bonds and look to sell on any rallies.
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