Mixed messages abound
The bond market tells us a recession is not only coming – it is inevitable; the stock market seems to be saying “Slowdown maybe, but the economic growth opportunities remain, so no recession”
As we near the halfway point of this year, the prospect of a “Soft Landing” or “Rolling Recessions” remains not only plausible but probable. Consumers are doing their part – buying, – although their spending has substantially shifted from goods to services. Everyone I speak with seems to be traveling somewhere, restaurants are full, and it’s almost impossible to book any personal services or medical appointments. With nearly full employment, we expect the Consumer to remain a strong driver of positive GDP. This doesn’t sound like Recession.
So, what does the Federal Reserve do with this environment? Last month we thought they might pause on another rate hike in June. This month, with the economy on track for another positive growth quarter, and data showing persistently sticky inflation, we might revise that thought. The Yield Curve is suggesting the Fed will raise rates again to combat those stubbornly high Core PCE rates. We just don’t know.
Given this uncertainty, a strategy of Diversification of asset classes, along with diversification within Fixed Income and Equity styles seems the most prudent for long term investors. No matter what the Federal Reserve decides to do in June, having built a portfolio that should be resilient through periods of volatility allows investors to stay invested.
We need to remember that markets are forward-looking. For example, it’s our opinion we already saw the market effects of a tech recession last year. This year big tech seems to be poised for the growth which we anticipate over the next few quarters. The exploding use of Artificial Intelligence, according to Dan Ives on Bloomberg (5-26-23), is the next leg up in the tech revolution. We see this in the pleasantly unexpected growth in the NASDAQ Composite Index of +23.24% (Marketwatch.com 5-26-23). The S&P 500 Index is enjoying a positive year in large part due to the surge in the large tech stocks.
While we remain convinced that a Value, dividend focused presence in portfolios will give us a more stable performance base as we transition through continued volatility in both equities and bonds, we have been systematically investing back into Growth sectors. Some may call this “Hedging your bets;” I believe this is Diversification in action.
For a deep dive into the few investment themes we have noted in these comments, and a look at what the Fed decisions may have teed up for the third quarter, please join us for our quarterly Economic Outlook Zoom call on July 14th.
Wishing you and your families a great start to your Summer.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
