Happy Spring

I’m not much of a winter person, so I am always happiest with the sun hanging a little higher and warming up North America.

We have had one heckuva run in the stock market since October. We have had close to 20 all-time high closings in U.S. Stocks. The Japanese stock market finally had a new record close which was the first since 1989.

Here are some lingering questions:
What happened to the recession we have been hearing about since 2022? 2023 Real GDP was revised up to 2.5%.
When is the FED going to give us a break and lower borrowing costs? Last rate increase was June 2023.
Where is inflation headed? Core inflation was up in Jan and Feb!?

Economy:

The Job market has been amazingly strong. 3.5% - 3.8% Unemployment range while the FED raised rate from zero to 5.3%.

Big ticket items such as cars, appliances, and new homes were softer in 2023, but seem hopeful with lower costs of borrowing on the horizon.

The FED has a target of 2% core inflation. Core inflation in January 2023 was 5.6%. Currently we are at 3.8%. We have a long way to go.

Wall Street consensus in December 2023 was for the FED to make 6 quarter point cuts in 2024. Today the consensus is 3 cuts, which is also the FED’s target for 2024. The actual could be zero to 3 cuts.

GDP has been running around 3% the past 2 quarters, which is a solid number. It is also a long way from a recession.

Stocks:

AI and the Cloud continue to rule the news. Technology and Communication continue to lead, but performance has thankfully broadened to include Financials, Energy, Industrials, and Health.

Large Caps continue to outperform, followed by Mid-Cap and Small-Cap.

U.S. continues to outperform most of the developed world stock markets.

Earnings have gone up, along with stock prices. Valuations are broadly more expensive, but there are growth companies that are keeping pace and are no more expensive than a year ago!

Bonds:

The yield curve continues to be inverted. Long-term bonds pay less than short-term bonds.

Corporate Default rates are still near all-time lows.

Traditionally, when the FED raises rates quickly there is pain felt in bonds such as in 2022.

When the FED does lower rates in the next two years, it will create a tailwind for the bond market.

Real Estate:

Real Estate as a sector thrives when borrowing costs are low and the economy is strong.

Borrowing costs are near 20-year highs for Residential and Commercial.

Residential prices have been relatively flat for the past year.

Commercial Real Estate is a tale of winners and losers. Best performers: Data Centers and Industrials. Worst performers high-rise office.

Alternatives:

Gold and Bitcoin have both hit new all-time highs this year.

West Texas oil has bounced from $72 to $82, supply worries from the Red Sea to Russia.

Not everyone is fully into Spring, but I hope you all have a little sunshine in your lives.

Best,

MICHAEL A. RODENBAUGH, CFP®, CEPA®, CIMA®
First Vice President, Wealth Management