Immediately after the Federal Reserve lowered the fed funds rate by 50 basis points last week, the debate shifted from when will the Fed cut rates, to what does a 50 basis-points cut mean? The table on page 3 shows all the easing cycles in Federal Reserve history that began with a cut of 50 basis-points or more. Of the 12 prior instances, five of these cuts occurred with a recession already in place (although that may not have been known at the time) and two other cuts preceded a recession by a few months. One 50 basis-point cut, in 1967, was a one-off, and the Fed soon returned to a tightening policy. In short of the 11 easing cycles that began with a 50 basis-point cut, seven, or 64%, were associated with a recession.

However, the current cycle is unique since the economy and inflation have been driven by a combination of trade disruptions and fiscal and monetary stimulus. With these external factors returning to normal, it is possible, perhaps even likely, that the economy will have a soft landing. But in our view, it is also possible that the economy falters badly once fiscal stimulus fades. The key to the economy’s next move will be the unemployment rate. As seen in the chart on page 3, if the unemployment rate continues to rise, the odds of a recession will increase substantially.

Nevertheless, the current backdrop for the equity market is promising. The Fed has begun to lower rates and its balance sheet, despite quantitative tightening, is $7.23 trillion, up 70% from the $4.21 trillion seen at the end of 2019. Plus, liquidity in the banking system remains high. For example, other liquid deposits are $10.58 trillion, down from a peak of $14.0 trillion, but assets such as demand deposits, retail money market funds, and small-denomination time deposits, have been increasing. As a result, banks held $18.8 trillion in liquid deposits for customers as of August 5^th, down only 5.5% from their April 2022 peak. See page 4.

This is good news since liquidity is a key ingredient for a bull market. At present, liquid deposits at commercial banks equate to 34% of total US market capitalization. This percentage is down from the 48% recorded in January 2023, but it is much higher than the 12% to 14% seen at the end of 2019. It is also well above the average seen over the last 30 years, or 22%. Total assets of commercial banks were $23.46 trillion as of September 11, 2024, more than 35% greater than the $17.7 trillion recorded at the end of 2019. See page 5. Overall, the banking system is awash in cash which supports equities, particularly since the Fed is, and is expected to continue to lower short-term interest rates.

What does not support equities is valuation, but if the current rise in stock prices is the start of a melt-up, or a bubble, valuation will not matter, at least in the short run. The S&P 500 trailing 4-quarter operating multiple is now 25.2 times, and well above all long- and short-term averages. The 12-month forward PE multiple is 21.5 times. When this multiple is added to inflation of 2.5%, it sums to 24.0, which is above the top of the normal range of 14.8 to 23.8. By all measures, the equity market remains richly valued and is at levels seen only during the 1997-2000 bubble, the financial crisis of 2008, or the post-COVID-19 earnings slump. But it is worth noting that those prior markets peaked when the 12-month trailing PE multiple reached a range of 27 to 31. In other words, if this is a bubble market, it could move higher. See page 6.

But this may depend upon the results of the upcoming third-quarter earnings season. The S&P Dow Jones consensus estimate for calendar 2024 is currently $237.26, down $0.44 this week, and the 2025 estimate is $276.62, down $1.05. The LSEG IBES estimate for 2024 had a typo this week, but the estimate for 2025 is $278.71, down $0.94, and the guesstimate for 2026 EPS is $314.37, down $0.52. The current pattern of equity prices soaring, while earnings estimates are falling for 2024, 2025, and 2026, is unsustainable and worrisome. This means third quarter earnings results, and corporate guidance, will be critically important for equity investors. See page 7.

Recent data on housing permits and starts for August were favorable and erased all of July’s declines. Existing home sales fell slightly in August and were down 4.2% YOY. The median price of an existing home fell to $416,700, but was still up 3.1% YOY. Months of supply of homes rose from 4.1 to 4.2. However, Moody’s Delinquency Tracker showed commercial delinquency rates are on the rise and in particular, the office sector delinquency rate rose to 9.18%, up from 5.5% in January.

September’s Conference Board consumer confidence survey showed the headline index fall from an upwardly revised 105.6 in August to 98.7, near the bottom of the range held over the last three years. The present conditions survey tumbled from 134.6 to 124.3, the lowest level since March 2021. The expectations index fell from 86.3 to 81.7, but remained above the 80 level for the third consecutive month. Consumers have become more pessimistic about the outlook for business conditions, the labor market, and future incomes. We reported University of Michigan data last week. That sentiment survey showed a small bounce in September, but all three indices — overall, present, and expectations — remained near recessionary levels. See page 8.  

This week China announced its largest stimulus package since the pandemic, which included, among other things, lower central bank rates, lower mortgage rates, minimum down payments on real estate transactions, and a 50 basis point decline in the RRR (reserve requirement ratio). Although analysts warned that the weakness in the economy would require more fiscal stimulus, China’s stimulus program was the catalyst for a global equity market rally. It also triggered a small increase in crude oil prices and a rise in US interest rates. With the 10-year Treasury yield currently at 3.74% and the 2-year Treasury yield at 3.49%, the yield curve inversion has been unwound. And inversions are unwinding in many parts of the world including the UK, Germany, and Canada. Some economists warn that the unwinding of a yield curve inversion represents the most vulnerable time for an economy. This may be true once more. If so, the unemployment rate will be key in the months ahead. See page 9.

The broadening participation in the equity market helped the Dow Jones Industrial Average reach a record high on September 24, 2024. Moreover, the DJIA gained 7.9% in the quarter to date versus the 5% gain seen in the S&P 500. See page 14. Stocks are responding favorably to the Fed’s rate cut and China’s stimulus program and this has resulted in much-improved readings in breadth data. For example, the 25-day up/down volume oscillator is 2.33 and was overbought for seven of the eight days ending September 19, and the last six were consecutive. With many of the indices at or near all-time highs, it is important for this indicator to confirm the advance with an overbought reading lasting at least 5 consecutive days. If the rally which began in October actually was a new bull market advance, it should also include several extreme overbought readings of 5.0 or better, which are typical of the first stage of a major advance. To date, the 4.07 reading is the best seen since December 2023 which is encouraging. This six-day overbought reading was not overly impressive, but it was the best demonstration of volume following prices seen since the end of last year. It is clearly positive for the near-term outlook. See page 11. In addition, the 10-day average of daily new highs is 600 and new lows are 44. This combination of new highs above 100 and new lows below 100 is positive. The NYSE advance/decline line made a new record high on September 24, 2024, confirming the rally. See page 12. In sum, for the first time in a long while, all the broad breadth indicators are uniformly optimistic.

Gail Dudack

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It is finally here. The September FOMC meeting and the long-awaited rate cut by the Federal Reserve. The last rate cut occurred during the pandemic in March 2020. In our view, we will get a 25 basis point cut, but in reality, there is little difference between 25 or 50 basis points, particularly since it is likely to be the first in a series. Moreover, in the last five months the 10-year Treasury bond yield declined 100 basis points, providing substantial easing to the economy, and thereby doing some of the Fed’s work for it. In fact, the 10-year Treasury yield is more important than the fed funds rate to many homeowners and home buyers since mortgage rates are linked to the Treasury yield.

What a Cut Helps or Does Not Help

Credit card, or revolving credit rates are loosely linked to short-term rates so this should have a positive impact. But a 25 or 50 basis point cut will hardly be noticed by consumers since the average interest rate on retail store credit cards recently hit a record high of 30.45%, according to a new Bankrate study. The annual percentage rate (APR) on a credit card is the cost of borrowing, and it refers to the yearly interest rate paid on any balances, plus any fees. For example, the APR on the popular Costco Wholesale Corp. (COST- $897.27) Anywhere Visa card is currently 20.49%. So, while market watchers are eagerly waiting to see if the Fed moves 25 or 50 basis points, we believe there is little difference to consumers or the economy. Nonetheless, it is worth noting that revolving consumer credit reached a record $1.36 trillion in July and credit card delinquencies hit 3.25% in the second quarter, the highest since June 2011. There clearly is financial stress in many households and this is why the Fed needs to begin to ease.

Moreover, lowering the fed funds rate will definitely help the federal government deficit since 21% of outstanding marketable Treasury debt is currently held in short-term bills. By lowering short-term rates, the Federal Reserve will lower the government’s net interest expense. And according to current White House data, in 2023, the government’s net interest expense was 9.5% of total spending, extremely high when compared to the 9.9% of total outlays spent for defense and international.

Statistics on how the stock market reacts to an initial fed funds rate cut are quite mixed, although the market tends to decline on the day of the rate cut. Historically, the first rate cut occurs when the economy is already in a recession, although it may not have been known at the time since recessions are identified with a six-month lag. The one easing cycle that occurred prior to a recession was in June 1989, however, this cut was followed by a recession as well, but not until July 1990. Moreover, inflation of 6% or greater has also been followed by a recession, although it may take years to materialize. See page 3. In short, this cycle is unusual in many ways. And while the stock market believes we are headed for a soft landing and no recession, this means investors believe it will be different this time. We hope so but are not convinced that the economic cycle has been eliminated.

A Mix of Data

August data showed the CPI rose 2.5% YOY, down from 2.9% YOY in July. The PPI rose a mere 0.2% YOY versus 1.8% in July. The PCE deflator for August will be reported later next week, but it rose 2.5% YOY in July, unchanged from June. Core indices were less impressive. Core CPI rose 3.2% YOY, unchanged from July. Core PPI showed prices rising 2.3% YOY, up from 2.1% a month earlier. Core PCE for July was 2.6% YOY, virtually unchanged from June and May. In sum, the data remains mixed. See page 4.

Gasoline, and most fuels, were down at least 10% YOY in August, and this helped lower headline inflation in the CPI. Nevertheless, there were trouble spots in the report. Service sector inflation was 4.8% YOY, down from 4.9%. Services less rent rose 4.3% versus 4.6% in July. Transportation services pricing rose 7.9%, down from 8.8%. Auto insurance increased 16.5%, down from 18.6%, but still incredibly high. Health insurance rose 3.3% YOY, up from minus 0.6%. Hospital services rose 5.8%, down from 6.2%. Last but far from least, electricity rose 3.9% YOY, down from 4.9% YOY in July. Most of these indices were down from July levels, but still well above 3% YOY, and most importantly, these all represent necessities of most households. See page 5.

The National Federation of Independent Business indicated that its small business optimism index fell in August from 93.7 to 91.2, erasing all of July’s gains. Uncertainty rose from 90 to 92, reaching its highest level since 98 recorded in October 2020 during the pandemic. Eight of the 12 components we monitor fell during the month, two were unchanged and two rose. Job openings rose 2 points to 40 and plans to raise prices rose one to 24. See page 6.

As unemployment rises, small business owners tend to see weaker sales and that trend may be starting. With the unemployment rate moving above 4% we find that more businesses are reporting that weak sales are a major problem. However, inflation still ranks as the number one problem for a majority of businesses. While small business capital expenditure plans inched up to 24 in August, hiring plans fell two points to 13. Sales expectations plummeted from minus 9 to minus 18. Actual sales changes were unchanged in August at minus 16 but actual earnings fell from minus 30 to minus 37 in August. See page 7.

Conversely, initial statistics for September’s University of Michigan consumer sentiment index showed an increase from 67.9 to 69. This was a result of gains in both present conditions, up 1.6 points to 62.9 and expectations, up 0.9 points, to 73. Yet despite these gains the University of Michigan readings remain near recessionary levels. Conference Board consumer confidence indices for September will be released next week. See page 8.

The National Association of Realtors housing affordability index for July rose two points to 95.0 but it still remains below May’s level. The small increase was in line with a small decrease in the Federal Housing Finance Agency (FHFA) mortgage rate from 7% to 6.93%. The National Association of Home Builders confidence index rose for the first time in five months from 39 to 41. Single-family home sales rose from 44 to 45, expectations for the next 6 month rose from 49 to 53, and traffic of potential buyers from 25 to 27. Overall, these reports suggest the residential housing market remains sluggish but could be showing some green shoots. See page 9.

Retail sales for August surprised to the upside and rose 0.1% month-over-month while analysts were looking for a decline. On a year-over-year basis total retail sales rose 2.1% YOY, below the 2.9% seen in July and the 12-month average of 2.9% YOY. However, real retail sales fell 0.4% YOY, marking the 20^th time in the last 30 months that real YOY sales were negative. Unit vehicle sales fell 4.4% in August and were down 1.3% YOY. In general, vehicle sales have been trending lower since the April 2021 pandemic spike. See page 10. There were important changes in market breadth this week. The 25-day up/down volume oscillator is 4.07 and has been overbought for five of the last six days. With many of the indices at or near all-time highs, it is important for this indicator to confirm the advance with an overbought reading lasting at least 5 consecutive days. If the rally which began in October actually was a new bull market advance, it should also include several extreme overbought readings of 5.0 or better, which are typical of the first stage of a major advance. To date, the 4.07 reading is the best seen since December 2023 which is encouraging. This is the best demonstration of volume following prices seen since the end of last year.

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Tonight is the first presidential debate between Vice President Kamala Harris and former President Donald Trump, and with any luck there will be another debate before the election. But either way, this debate has the potential of being a significant and market-moving event. Hopefully, the discussion will focus on foreign and economic policies and give voters clarity on the vision each has for dealing with budget deficits, burgeoning sovereign debt, immigration, crime, social issues, and America’s role in the conflicts seen in Europe and the Middle East. But few presidential debates are remembered for policy. Most debates are remembered for those special “gotcha” moments and since both candidates have the potential to create such moments, we expect the presidential debate could be entertaining, but also challenging and decisive for both candidates.

The debate comes at an interesting and uneasy time. There is a potential hurricane threatening the Gulf Coast of the US, yet the WTI future (CLc1 – $66.25) is breaking below key support in the $68-70 level. This may be due to weakening demand from China and a growing bearish sentiment in commodity markets, but it is ominous. In line with this, the 46 basis point decline in the 10-year Treasury bond yield since the end of August is a big drop in a short period of time and it suggests a global flight to safety. In response to these declines in energy prices and long-term interest rates we are making a shift in our sector weightings and lowering the energy sector from neutral to underweight and raising utilities from underweight to neutral. See pages 14 and 20.

Technology leaders continue to be under pressure with Apple Inc. (AAPL – $220.11) ordered by the European Commission to pay 13 billion euros in back taxes to Ireland. This news follows a less-than-exciting iPhone 16 release earlier in the week. The European court also threw out Alphabet Inc. A Google unit’s (GOOGL.O – $148.66) appeal against a 2.42 billion euro fine as it cracks down on Google’s anti-competitive practices in Europe. And later this week the Bureau of Labor Statistics will report the CPI, PPI, and import/export price indices for August. These reports may not prove to be as important as the debate, but they do set the stage for the long-awaited September FOMC meeting at which we expect the Fed will cut rates by 25 basis points.

In our view, the Fed’s first rate cut may be a negative for equities based on the classic “sell on the news” mentality of Wall Street. Moreover, a US rate cut could result in more unwinding of the yen carry trade if it weakens the dollar relative to the yen. If so, it would be the mirror image of the yen strengthening after the Bank of Japan raised interest rates to 0.25% on July 31, 2024, the highest level since 2008. In short, be prepared for more volatility in September.

Meanwhile, the employment report for August reflected weakness. Total nonfarm payrolls increased by a seasonally adjusted 142,000 jobs, greater than the three-month average but below the 12-month average of 197,000. Revisions to employment in June and July showed job growth was 86,000 lower than previously reported. The job gains seen in August occurred primarily in construction, up 34,000, and healthcare, up 31,000. The participation rate was unchanged at 62.7 in August. See page 3. There has been a large disparity between the two employment surveys — establishment and household — over the last twelve months. And as we show on page 4, the household survey shows a decline of 64,000 jobs since August 2023, whereas the establishment survey indicates job growth of 2.4 million. See page 4. Some of this disparity will be resolved with the benchmark revision expected early next year; but in our view, the monthly jobs number has been overstated for much of 2024. See definitions of the two surveys on page 5.

The unemployment rate for August fell from 4.3% to 4.2%, but that is not the real story. Workers with less than a high school diploma saw their unemployment rate rise from 6.7% to 7.1%, nearly three times the 2.5% rate for those with a bachelor’s degree or higher. However, the number of unemployed workers this represents is 667,000 with less than a high school diploma versus 1.64 million with a bachelor’s degree. Nevertheless, it displays the story of the haves and have-nots in this economy and why consumer sentiment readings have been so weak. See page 6.

August’s gain of 142,000 jobs was a big improvement from a month earlier, but the 1.5% YOY gain in jobs that this represents is below the long-term average of 1.69% YOY and below average for the third consecutive month. The 3-month moving average of job growth also fell from 141,000 to 116,330. The employment-population ratio was 60.0 for the second month in a row, which is down from 60.4 a year earlier. We believe the retirement of the Baby Boomer generation has been and will continue to be the driver of a long-term decline in this ratio. See page 7. The number of multiple job holders was 8.2 million in August down from 8.4 million in July, but not much lower than the record 8.7 million seen in December 2023. All these monthly readings were well above the long-term average of 7.5 million people. Multiple job holders materialize for many reasons, but most often due to financial stress. This is likely due to the increase in inflation seen in the last three years and the financial hardship this poses to many households. See page 8.

Average hourly earnings for production and non-supervisory workers were $30.27 in August, up 4.1% YOY, and up 1.1% YOY after inflation. Hourly wages have been consistently growing above the rate of inflation since March 2023 which is a positive; however, average weekly earnings were $1020.10 in August, up 3.75% YOY, and up only 0.8% YOY after inflation. Wages have edged out inflation by a mere 0.7% per month since May 2023. This is because average weekly hours were 33.7 in August, down from an average 33.8 hours in 2023 and below the average of 34.0 hours in 2022. See page 9.

BLS data on foreign and native-born employment shows that foreign-born employment has risen from 16.2% of total employment in June 2020 to 19.6% in August. In the 12 months ended in August, foreign-born employment increased by 1.24 million while native-born employment fell by 1.3 million. Since the end of 2019, foreign-born employment grew by 4.4 million and native-born employment declined nearly 1.6 million. For definitions of native and foreign-born, see page 10.

The latest reading for the ISM nonmanufacturing index was 51.5, ratcheting up from 51.4 in July, and still above this survey’s neutral threshold of 49. However, five of the nine underlying indices fell in the month, the weakest being backlogs which dropped from 50.6 to 43.7. The previously reported ISM manufacturing index also rose in August, but to a still-low level of 47.2, and with seven of its ten components well below the 50 benchmark. More importantly, the longer-term trends in both indices are decelerating. See page 11. With a preliminary reading of Tuesday’s market activity, our 25-day up/down volume oscillator is at 3.0 and right at the border of an overbought reading. With many of the indices at or near all-time highs, it is important for this indicator to confirm the advance with an overbought reading lasting at least 5 consecutive days. If the rally which began in October actually was a new bull market advance, it should also include several extreme overbought readings of 5.0 or better, which are typical of the first stage of a major advance. To date, both have been absent, indicating a lack of persistent buying pressure. See page 16.

Gail Dudack

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This is an interesting point in time since we are only one week away from the potentially pivotal presidential debate between Vice President Kamala Harris and former President Donald J. Trump. It is only two weeks away from the Federal Reserve’s September FOMC meeting which is widely expected to produce at least a 25 basis point cut in the fed funds rate. And it is merely two months away from the presidential election which, despite the conclusions of several political polls, seems impossible to predict. Nevertheless, the outcome of the presidential and Congressional elections could produce quite different consequences in terms of America’s role in the global political and economic arenas and its domestic economic and fiscal health. Therefore, we are not surprised that equities sold off this week. Markets can handle good news or bad news, but it has never dealt well with uncertainty.

Seasonality also shows that September tends to be the worst-performing month of the year, and we think this may have something to do with the fact that analysts shift their focus from this year’s earnings to next year’s earnings during this time frame. Although this may not be an issue in 2024 since analysts have already shifted their sights from 2024, to 2025 and 2026 earnings! One study shows that equity performance in September and October has often been a forecaster of presidential elections. See page 10. Still, early September news items have not been helpful to the market’s seasonality funk.

Technology stocks have been under pressure due to legal problems that have been compounding all year. The Department of Justice recently sent a subpoena to NVIDIA Corp. (NVDA – $108.00), along with other companies, as it deepens its enquiry into antitrust practices in the chip industry. The DOJ began this investigation after receiving complaints from competitors that NVDA abused its market dominance. Moreover, last week the company indicated it received requests for information from regulators in the US, EU, UK, China, and South Korea, regarding its investments, partnerships, and agreements with other companies.

And NVDA is not the only AI company under a microscope. An early August court ruling concluded that Google violated antitrust law by creating an illegal monopoly and spending billions of dollars to become the world’s default search engine. This federal ruling now paves the way for a possible breakup of Google’s parent Alphabet Inc. C (GOOG.O – $158.61) which could change the landscape for online advertising, an area Google has dominated for many years. The Department of Justice also sued Apple Inc. (AAPL – $222.77) back in March, accusing the company of using a monopoly in the smartphone market to block competition, inflate prices for consumers and stifle competition. Last year the Federal Trade Commission (FTC) and 17 states sued Amazon.com, Inc. (AMZN – $176.25), accusing it of protecting a monopoly by squeezing sellers on its marketplace and favoring its own services. The FTC. argued that these practices also harmed consumers and resulted in “artificially higher prices.” A judge in the US District Court for the Western District of Washington has set the trial for October 2026. In short, a rally based upon the belief that artificial intelligence will produce a boom in earnings for a variety of companies, is now finding itself mired in legal red tape.

It should also be noted that two of the biggest benefactors of the AI movement, Nvidia and Salesforce Inc. (CRM – $248.06), reported excellent earnings for the second quarter, but in both cases, it also became clear that the pace of earnings growth is slowing. For all these reasons, it is no surprise that a shift in leadership materialized in recent days — away from technology and toward defensive stocks. This shift is what drove the Dow Jones Industrial Average and the NYSE advance/decline line to new highs at the end of August. See pages 11 and 13.

The main event this week will be the Friday jobs report, and it will be the last read on employment before the Fed meeting. But recent economic releases have been mixed, at best. The National Association of Realtors’ pending home sales index for July was 70.2, the lowest reading since the pandemic low of 70.0 in April 2020. And since this indicator only began in 2018, it was the second lowest reading in history. The housing sector typically represents 15-17% of total US GDP and is an important segment of the US economy. A recent string of housing data suggests this segment of the economy is slowing significantly. The big question is whether or not lower interest rates will revive the housing market. See page 3.

The ISM manufacturing index rose to 47.2 in August from 46.8 in July but has been stuck in “contraction” territory below 50 for 21 of the last 22 months. Note that readings below 50 are typically associated with recessionary periods. The details of the report were mixed with 8 of 11 components below 50 and 4 of 11 components falling in August. New orders and production indexes fell while the employment index improved to 46.0, albeit from a very low 43.4. The ISM service index will be reported later this week, and it dropped below the pivotal 50 benchmark in two of the last four months. See page 4.

The PCE deflator was the focal point of last week’s economic releases. In July, the headline and core PCE price indices were in line with consensus expectations and remained unchanged at 2.5% YOY and 2.6% YOY, respectively. However, both indices were fractionally higher in July on a year-over-year basis but after rounding to one decimal, remained equal to June’s readings. The PCE price index that excludes food, energy, and housing rose to 2.1% YOY versus 2.0% YOY in June. The housing index was 5.3% YOY versus 5.4% in June. The services index was 3.7% YOY versus 3.8% YOY in June. The healthcare index fell from 2.8% YOY to 2.4% YOY. The PCE price indices for durable goods were negative on a year-over-year basis for the 14^th consecutive month. See page 5.

Second quarter GDP was upwardly revised from 2.8% (SAAR) to 3.0%, which was more than double the 1.4% recorded in the first quarter. The second quarter’s pace was not far from the long-term average of 3.2%. Some of this strength was due to inventories, which had been a drag on growth in the first quarter but were additive to the second quarter. Consumption was the main source of strength in the second quarter, but government spending also increased. Fixed residential investment was slightly negative in the second quarter. This makes the low reading in pending home sales more worrisome, since it suggests that the third quarter began on an even weaker note. See page 6. The second revision of GDP also includes corporate profits. GDP corporate profits, before taxes and adjustments, rose a healthy 11.7% YOY after being up 10.2% in the first quarter. After taxes and with inventory valuation and capital consumption adjustments, profits rose 6.6% YOY, which followed a 5.3% gain in the first quarter. However, second quarter profits were negative in 2023 making this year’s comparisons relatively easy. Nonetheless, these results are in line with S&P 500 operating earnings which rose 5.4% YOY in the same quarter. It is reassuring that GDP and S&P corporate profits are moving in unison since disparities between the two series are often a warning sign for the S&P 500. See page 7. Nevertheless, despite the market’s selloff, the S&P trailing 4-quarter operating multiple is 24.2 times, and well above all long- and short-term averages. The 12-month forward PE multiple is 20.7 times and when added to inflation of 2.9%, sums to 23.6, which is at the top of the normal range of 23.8, this week. By all measures, the equity market remains richly valued. See page 8.

Gail Dudack

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