Did you all know I used to manage a hedge fund? I have chosen to focus on Fixed Index Annuities because my clients cannot lose money in them. This is a lot less stress on me. However, I still do understand macroeconomics.

I take pride in finding the best Annuities in the market for my clients.

In short: The Market is about to turn up in earnest.

Now is the time to make sure you are well positioned in your Retirement Account to capture the gains.

If you are the fence on changing your annuity you must do it now before the market changes and they change the rates and incentives to do so.

Save as much as you can because your accounts are going to do very well for the rest of this year.

Summary:
In April, the Producer Price Index (PPI) rose more than anticipated, yet stock and bond markets remained stable. Although the PPI figures were disappointing, a downward revision of the previous month’s data and a decline in certain inflation components indicate potential improvement in future reports.

The Federal Reserve might begin lowering its policy rate in July, which could result in stock market gains.

Additionally, the 2-year Treasury yield is expected to decrease in response to this anticipation.

Rationale:
Yesterday’s Producer Price Index (PPI) report for April showed higher-than-expected inflation, but the stock and bond markets remained unfazed. Short- and long-term bond yields dropped, and major market indices closed near their highs for the day, with the S&P 500 just shy of a new all-time high. Why? While the headline PPI numbers seemed discouraging, a significant downward revision to the previous month’s data aligned the average more closely with consensus expectations. Additionally, components of the PPI that influence the Fed’s preferred inflation gauge showed a softening, indicating positive signs for the upcoming Personal Consumption Expenditures (PCE) price index report.

The overall PPI increased by 0.5% month-over-month in April, exceeding the expected 0.3%. However, the March increase of 0.2% was revised down to a 0.1% decline, (thats 50% downward revision) resulting in the annualized number meeting the 2.2% expectation. The core rate also surpassed expectations for the month at 0.5%, leading to a year-over-year rate of 2.4%, just above the expected 2.3%.

Some may emphasize the monthly variations in different components of the index, but such fluctuations are typical once the 2% target is met, which occurred at the beginning of this year. Once the rate of price increase hits 2%, it doesn’t stagnate. It didn’t before the pandemic, and it won’t moving forward. The goal is to average 2% over time. Last year, PPI price increases nearly hit zero, which is almost worse than today’s levels because it borders on deflation. The current rates of 2.2% and 2.4% are close to the desired level. While the annualized rates over the past three months are above 2.2% and 2.4%, they are likely to drop below these levels in the coming months.

The Fed focuses on underlying trends rather than month-to-month movements, aiming for a steady 2% over time. Examining the monthly numbers that impact the Fed’s preferred inflation gauge for consumers, core services saw positive signs: airline fares fell by 3.8%, hospital outpatient care dropped by 0.1%, and physician service costs rose only modestly. This suggests continued improvement in the annualized rate of the core PCE when reported later this month.

I anticipate enough improvement to allow the Fed to start easing its restrictive policy rate by July, potentially implementing three quarter-point rate cuts by year-end. This expectation is reflected in the 2-year Treasury yield, which should fall to around 4.5%, supporting further stock market gains as the year progresses. As I predicted in April, the 2-year yield peaked at approximately 5%, coinciding with the end of the recent pullback in the S&P 500.

As long as Oil prices continue to abate we will have a great year in reduced inflation and thusly a great year in the markets.