June 2023 Monthly Commentary

Greetings Team!

Despite Clown-Land raging on- we here at The Schmitt Group are managing serious talks with the ringleaders! Not much in the world is making sense! Financial markets/Climates/Politics/Diversity. The world is upside down!

We, here @ The Schmitt Group of Raymond James have managed our clients through the various Climates very well thus far in 2023, with a notable uptick in performance across our models, especially to close out the second quarter.

Overall, there has been a massive dichotomy across markets performance wise, with the Dow Jones posting a first half return of +3.80%, Nasdaq leaping +31.7% with very few companies leading the way, S&P 500 +15.9% again with a narrowing list of participation, Russell 2000 up a modest +7.21%, Aggregate Bond index floundering +0.9% given hawkish Fed policy continuing, Gold managing to remain in the green thus far in 2023 +5.09%, Oil under continued pressure given Russia exporting at suppressed pricing along with continued fears of global recession –9.36%.

The excitement surrounding automation, artificial intelligence, and its potential applications across market sectors, along with the fear mongering, continued during the month of June. Companies took turns announcing how the advancements in this technology could ramp up revenues and adjust the landscape. Indeed, these technologies have the capacity to transform industries and create new opportunities for growth and innovation.

We, along with SBOT, continue to view this evolving space with much excitement, identifying viable long-term opportunities while cutting out the short-term noise & volatility being created. The erosion of confidence in Federal Reserve monetary policy continues. Despite inflation still quite elevated above the 2% target, set by the Federal Reserve, interest rate increases were paused for the month of June. Consensus is for the hikes to continue however in July and potentially beyond.

One might ask- why didn’t the Fed bite the bullet and get the hikes over with if inflation remains sorely elevated. One conclusion or perspective I have is it would have caused too much stress on parts of our fragile banking system. Fast forward a week or so from the June Federal Reserve meeting and we hear the results for the banking capital reserve requirements stress tests. Interesting enough, they all pass with flying colors and the green light is given for dividend increases, share buybacks, etc…. all components of our capital structure that benefit shareholders, not necessarily the public.

With the Federal Funds rate approaching the 5% range, all cash deposits held with financial institutions should be receiving nearly this percentage in yield. On the flip side, when the Federal Funds interest rate was 0% from 2008 – 2021, students should not have been paying 3-8% on their student loans interest wise. The interest saved would have equated to, in many cases, a much larger amount than the potential forgiveness on the table, while also fostering a responsible societal environment. If this was the case, consumers wouldn’t be struggling keeping up with inflation pressures across the board, while some of our big banks report record net interest margin revenue. Reminds me of the “Have Fun Staying Poor” comment posted on our May monthly commentary which was delivered straight from the Bank of England’s chief economist.

Perhaps the icing on the cake to me was when Janet Yellen stated to bank CEO’s – “more mergers may be necessary”. I’m not sure how to interpret that as this comment was delivered post the June Federal Reserve pause in rising interest rates and the stress test results noted above, a head scratcher onto itself indeed. The promise of artificial intelligence, an end to the Federal Reserve’s rate campaign, record amounts of cash or “cash equivalents” on the sidelines combined with an unraveling of hedge positions and shorts covering (given most predicted 2023 thus far incorrectly) all support higher highs as opined here across some markets by year-end. 

As each day progresses, my idea of the rolling “sector recession” environment we’ve been in will continue, while the probability of an overall macro-economic, definition of recession decreases. We had our recession last year, and the price action across markets displayed as such, despite the government’s denial of it.

Stay the course with us, as we have proven over time, to successfully guide our clients through difficult environments. We will continue to accelerate, positioning us very strong as the year presses on.

Have a Great July & Happy 4th! Onward & upward always!

Steven W. Schmitt, MBA, CFP^®, CPM^®, CRPS^®, ADPA^®
Managing Director
The Schmitt Group of Raymond James