Summer 2023

Summer is upon us, and for those of us in Florida the heat turns up and the daily thunderstorms affect our weekend plans; we take solace in the fact that the market is generally doing better this year than last.

Although the Dow Jones and the Russell 2000 remain slightly above even for the year, a rally in tech shares (Microsoft, Apple, Facebook, Amazon, etc.) is pulling indices like the S&P and NASDAQ upward.

The rest of the market (industrials, materials, financial services, energy and others) have been hit by slowing growth and lower margins, leading to a relatively bland performance.

The question of recession still remains; Will we? Won’t we? And if so, when!? Pundits have been predicting the impending recession since September 2022 (which was, incidentally, around the time inflation peaked). We, however, expect an economic slowdown that may lead to a mild recession later in 2023 or 2024; but not a real debacle like that of 2008 or early 2020.

Businesses are still digesting the 5% increase in interest rates over a very short period of time, and that is impacting the real economy and feeding through to all aspects of operations.

The resumption of student loan payments in September added to the debt ceiling package (that cancelled some of the unspent Covid relief dollars), could take some wind out of US economy’s sails, and be the impetus for future negative GDP prints.

The Fed is still on their quest to tamp down inflation, and to that end, the drumbeat remains a mantra of higher rates for longer. Though they paused in this recent June meeting, they are precariously still discussing how many more ¼ point increases they will levy on us.

Speaking of interest rates – the bond world has become much more compelling. 5%+ yields are now commonplace and being conservative in this environment is benefiting those who sit back and wait. We are fans of the short and intermediate term rates but are reluctant to buy any truly long term (20-30 year) bonds. In some cases, municipal bonds are net yielding better than corresponding corporate bonds. If you are in the higher tax brackets, we are hunting for the best solution for you.

The perennial hunt for opportunities in the private markets remain a challenge with longer investment cycles and fewer companies going public. We view sectors like real estate, private credit, and private equity secondaries as the likeliest candidates for potential investment and we will keep you apprised.

Artificial Intelligence (AI) is the topic du jour. Computer programs with the ability to learn, reason and problem solve are now a reality. Bard and Chat GPT are currently the most widespread, but more are coming online every day. While I must admit, we tried to get them both to write this letter, there is still nuance and human touch lost in translation.

The technology has infinite potential to do and be anything. It can cure writer’s block, plan my next workout, monitor your next Zoom and even create Cliff’s Notes of meetings. Revolutionary, yes, though still in its infancy. We are looking for ways to incorporate this technology in both our portfolios and business operations.

As we have become accustomed, the markets are likely to remain volatile over the months to come. We believe there are opportunities, and remain focused on well-positioned companies, capable of weathering the inevitable (economic) summer storms.

As always, we thank you for your trust,

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Any opinions are those of Peter Bermont & Michael Gold, not necessarily those of Raymond James.