This Week's "Noise"
Hotter January Consumer Price Index print is the obvious driver for pullback in stocks. However, “S&P 500 came into the week up for 14 of the last 15 weeks (up over 20% during that time), something that Goldman Sachs said has happened only five other times since 1928 and last happened 52 years ago.” (Goldman Sachs).
Current Outlook (6 to 12 months)
Market
Wall Street strategists continue to raise their year-end target for the stock market (FactSet). We expect a modest return of 5 to 10%, but we might have an upside surprise.
Economic
Bank of America's February Global Fund Manager Survey said global growth expectations highest in two years. Investors cut cash levels by 0.6 percentage points to 4.2%, which BofA said historically is followed by equity rally of around 4% over subsequent three months. Investors also predicting no recession for first time since Apr-22 (Bank of America).
Long-Term View (4 to 7 years)
Long term we believe the US economy will continue to outperform other world economies. This is supported by combination of re-shoring manufacturing, new investments resulting from the Inflation Reduction Act, US energy independence, and higher productivity due to the implementation of Artificial Intelligence (AI) software/systems.
We started 2023 predicting the broad stock market would return to the old highs in one to two years. It took only one year. We believe the US stock market should be 40% to 60% higher by the end of 2028.
Bonds have re-emerged as an important part of asset allocation as yields have risen. We expect a diversified bond portfolio to produce returns 3% to 5% above inflation for the next 5 to 7 years.
“I put two children through Harvard by trading options. Unfortunately, they were my broker’s children.” - Jason Zweig, The Devil’s Financial Dictionary
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