This Week’s Noise
April PMI was softer than expected at 50.9 (below consensus estimates of 52.5), indicating a softening economy outlook compared to last year (Reuters). Likely similar to what was mentioned in our chart party. March home sales up 8.8% from revised February data beating consensus estimates (CNN). Tensions between Israel and Iran seem to have already faded in influence on the market. Key numbers that could move markets yet this week; Several companies with earning reporting this week; including from large Tech names; PCE inflation data also could roil markets.
Current Outlook (6 to 12 months)
Market
Stock market correction is in process as investor fear rates cuts from the Federal Reserve will be delayed; In our opinion, this consolidation is healthy for the markets. The U.S. economy appears to be defying the expectation of a rapid slowdown.
Economic
We believe the U.S. economy has been in a recovery mode since early 2023 after an undeclared recession/soft landing occurred in 2022; While the economy should grow slower in 2024 than 2023, it is growing; The next recession might be several years off. PMI resulted in a “bad news is good news” responsive action.
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 believe the US stock market should be 40% to 60% higher by the end of 2028. A S&P 500 index of 7,000 to 8,000 appears possible. This will not be a straight line up. A stock market correction of 25 to 30% will likely happen in the next five years. 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.
The best investment advice I can give is: Be patient. And when you've made an investment decision, really try to stick with it. Lastly, I would say everyone needs advice. The do-it yourselfers, I respect you, but this is a team sport. And so, get good advice and focus on the long term.
- Rob Lovelace, Capital Group/American Funds
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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Any opinions are those of John O’Hare II and not necessarily those of Steward Partners. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
Asset Allocation and diversification do not assure a profit or protect against loss in declining financial markets.
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
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