2023 Second Quarterly Letter
By David K. MacLeod, CFP®, CFA
Although fears of an economic slowdown still linger, the markets posted gains across the board. The S&P 500 index of large U.S. stocks had another good quarter with an 8.7% return, led by technology stocks. Bonds held steady during the quarter as interest rates went up slightly. Real assets and commodities struggled as the price of an ounce of gold dropped 3% and crude oil declined 6%.
The highly anticipated recession of 2023 hasn’t happened yet and there are signs that it won’t happen this year. Despite high inflation, a regional banking shock, Fed tightening, and a last-minute debt ceiling crisis averted, the markets are unconcerned with an economic slowdown. By all appearances, the U.S. economy is still growing and the labor market is strong. Employers have added 1.6 million net new jobs since January 1st. A record high number of Americans traveled over the Independence Day holiday surpassing the previous record over Thanksgiving 2019. According to JP Morgan, U.S. households still have $800 billion in extra savings that was amassed from Covid relief from March 2020 to August 2021. The past year has been yet another reminder that short-term economic forecasts by smart people on the news are often wrong and we shouldn’t place much confidence in them.
This doesn’t diminish the challenges that remain in the intermediate term outlook. If the Fed remains committed to a restrictive monetary policy to get inflation below 2%, we expect the economy to eventually slow down once Americans’ excess savings are spent. High interest rates negatively affect a lot in our economy; small businesses pull back capital spending when it’s more expensive to borrow, and people are less inclined to take out a 30-year mortgage at 7% interest or an auto loan at 9%. That said, the market does expect the Fed to cut interest rates next year.
In the financial plans we’ve written for clients since the 1980s, we’ve included a page on our investing philosophy. One point that’s stayed the same ever since is the importance of diversification in an uncertain economic environment. The economic outlook is still uncertain today. We continue to recommend a disciplined approach to investing. If we had gotten caught up in all the bad news around a recession 9 months ago when stocks hit their recent low point, we would have missed out on the 15-25% stock market gains that followed.
Please provide us with a copy of your 2022 tax returns after you file them. We are actively reviewing returns as they come in. Feel free to send a digital copy or drop off a hard copy to our office.
On a personal note, one of our associates, Daniel Nandor, recently got married to Loren Schneider. Say congratulations to Daniel if you see him the next time you visit our office.
Please don’t hesitate to give us a call if you have questions.