Image: Looks like it is a scary bear market for bonds and stocks.

• Markets have changed dramatically in the past few days, so I wanted to send a quick update.
• Last week's inflation report scared everyone, but it is the bond market's reaction that creates all the problems.
• Essentially, the bond market is falling and interest rates are rising, regardless of what the Fed says or does.

Table 1: Performance update

Performance discussion

All markets fell significantly so far in June, mostly in the last 3 days. The S&P 500 is officially in a bear market.

The hope in May

The markets bounced in May when the Core PCE inflation data indicated a potential peak in inflation rates. A close reading of last week's headline consumer price inflation data (CPI) concluded that consumer price inflation was much worse than expected and that inflation has not peaked.

Figure 1: Core PCE inflation, a key Fed metric, recently indicated a peak

The reality of June

In the world of finance, the reaction to the data can sometimes be more important than the data report itself. At 8.6%, the last week's headline CPI was only a bit higher than the 8.3% from the month before. However, the reaction was significantly negative as rates rose, bonds fell and stocks fell.

Figure 2: Key interest rates: US 10-year yield and US 2-year yield

Figure 3: Bond market reaction to last week's inflation reading

Figure 4: Stock market reaction to last week's inflation reading

Final thoughts

This is a great time to reflect on your current portfolio strategy. During 2021, I recommended people rebalance their portfolios when the market was giving them a "graceful" opportunity to manage their risk. As we progress through this Fed tightening cycle, rebalancing will get more difficult. There is still time to re-evaluate your positions.

We are happy to talk to you about your situation.

If you have any questions, please call me at  281-402-8284.

Sincerely,

Rob and Chris

Robert J Lloyd, CFA^®

President and Chief Investment Officer

Lloyds Intrepid Wealth Management

1330 Lake Robbins Dr., Suite 560

The Woodlands, TX  77380

281-402-8284

Robert.Lloyd@lloydsintrepid.com

www.lloydsintrepid.com

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