As if right on time, today is the first day of summer and with it temperatures climbing into the 90’s. Perhaps highlighting this point, Alaska received its first ever heat advisory from the National Weather Service. Fortunately, the markets aren’t too hot or too cold. We are in a Goldilocks moment as markets are testing the economic temperature and are finding it to be just right. While we’re on the subject of temperature, the tensions between Israel and Iran do not appear to be cooling off, which could elevate volatility in the near term. We are hopeful that things don’t escalate, but the history of the region is fraught with long-standing issues that are not easily resolved. Between tariff deadlines, inflation possibly looming, big and beautiful budget bill negotiations, and escalating geopolitical conflicts, it will likely be a hot and possibly volatile summer.
Let’s start with the most awaited interest rate cut that, like an apparition, continues to evaporate before our eyes. The Federal Reserve’s Open Market Committee (FOMC) met this week and again decided the time is still not right for a rate cut. Despite the president’s insistence that interest rates should be significantly lower, the committee unanimously decided there are too many unknowns which could reignite inflation. The consensus is that until the unemployment rate rises to 4.5% from its current 4.2%, the Fed will wait patiently. In my decades of watching the Fed’s policy, I cannot remember a time when it acted proactively. If history is an indication, the Fed will most likely wait until the economic data is irrefutable at which point it will once again be late in shifting policy. As for things you can be sure of, you can add that one to death and taxes.
In other news, it appears despite rising consumer sentiment, consumer spending may be deteriorating. In May, retail sales fell 0.90%, even more than the 0.60% expected. However, as with everything involving economic data, if we exclude certain items, we can make it positive. In this matter, if we exclude auto sales, building materials, and gas stations, then we find sales increased 0.40% in the month. Regardless, sales appear to have peaked in March as consumers sought to get ahead of tariffs. There may be something to this line of thought, as purchases could have been pulled forward. However, a decline in sales in May is still a decline no matter how you cut it.
On the artificial intelligence (AI) front, we continue to hear stories about AI revolutionizing industries and stealing jobs. Here is one area that appears to be moving in another direction. For the first time ever, according to WPP Media, ad revenue from user-generated content and platforms will exceed the amount earned from professionally produced content. What has changed is that as the economy becomes more turbulent, brands begin to pull back not just how much they spend on marketing but the channels they use. Influencers are a growing part of the ad industry having taken the skincare and makeup industries by storm. It seems a “social-first” strategy is becoming more popular as companies like Unilever look to hire 20 times more influencers which come across as less suspicious as company branding campaigns. Worth noting, the global influencer market is expected to grow by 36% year-over-year to $33 billion. That’s real money.
And in closing, I turn to Pan Am. You know, the airline that ceased business in 1991. I’m here to inform you that after three decades, the airline has returned to the skies. Technically, investors bought the trademark last year and there are no plans to bring the airline back as before. What these investors are doing is more ingenious. They are bringing back the experience with an eye to the past. They aim to replicate a trip down memory lane with fully reclining seats, an open bar, and flight attendants with little hats. They are offering a 12-day luxury vacation that starts at $59,950 per passenger, including lodging. If this first foray works, they hope to offer additional Pan Am branded tours with stops in the Pacific. Now you know.
Bruce J. Mason, MBA
