This Week’s Noise
Unemployment hit 27 straight months under 4% a new all-time streak that was last broken in 1970 (FactSet). Senior Loan Officers opinion survey of (SLOOS) showed a weaker demand for Commercial & Industrial (C&I) loans which may be an indicator the higher rates imposed by the Fed are having the desired effect. It also reported higher or tighten lending standards for all types of Commercial Real Estate (CRE) loans.
Current Outlook (6 to 12 months)
Market
The stock market has started out the year very strong. The pull back we predicted at the end of Q1 is in full swing. The month of May has proved strong with a solid bounce. With earning season in full swing, we are seeing consolidation in S&P returns going forward with the 493 smaller companies converging with the Magnificent 7. The largest 7 players have had very divergent paths YTD as opposed to the almost lockstep rise last year. If the US economy holds up with slower than trend growth (we are seeing strong guidance) and inflation recedes, the stock market could experience a “melt up”. This means investors will pile in out of fear of missing out (FOMO).
Economic
“Stagflation” has been the talk of the week. Stagflation requires a few key elements: high stubborn unemployment, high stubborn inflation (typically from higher commodity prices), and low growth tied to low productivity gains. We have a new record for unemployment (under 4%), inflation is coming down (albeit not as fast as many hope), commodity prices seem to be responding to potentially slower growth in ’24 vs ’23, and productivity shows limited signs of slowing (Artificial Intelligence anyone?).
Note: As humans we are terrible at conceptualizing the rate of inflation. Typically, we remember the hard cost of XYZ good and not how much it has risen in a given time frame. This sort of direct comparison doesn’t bode well for intuitively evaluating a slowing rate of inflation, as the nominal increase typically doesn’t translate well to what the actual rate is.
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. A S&P 500 index of 7,000 to 8,000 appears possible.
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.
“How many millionaires do you know have become wealthy by investing in a savings accounts? I rest my case.’’ - Robert G. Allen, author and well-known Investment Advisor
See important disclosures below:
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.
Securities and investment advisory services offered through Steward Partners Investment Solutions, LLC, registered broker/dealer, member FINRA/SIPC, and SEC registered investment adviser.?? Investment Advisory Services may also be offered through Steward Partners Investment Advisory, LLC, an SEC registered investment adviser.?? Steward Partners Investment Solutions, LLC, Steward Partners Investment Advisory, LLC, and Steward Partners Global Advisory, LLC are affiliates and separately operated. O’Hare Wealth Management is a team at Steward Partners. O’Hare Wealth Management is independently owned and operated.?
Adtrax 6415879.12 Exp: 5/25