The good news is that 2023 has shown signs of improvement. Interest rate volatility has subsided, and bonds are finally offering reasonable coupons after a decade of lower returns. Stocks have rebounded from their October lows and are regaining popularity among investors.
On the macro front, concerns about the debt ceiling have been resolved, as many of us anticipated. The regional banking crisis has been averted, and there are indications that inflation is gradually easing.
While the past year has been unsettling for many investors, the S&P 500 has posted a nearly 15% increase during this period, with bonds experiencing only a minor decline. These market fluctuations are a natural part of the investing journey, causing emotions to oscillate between fear and greed. It's all part of the game.
Looking ahead, it's likely that a recession will occur in the future. For the past ten years, pundits have been predicting a doomsday recession, which has yet to materialize. However, with corporations downsizing, profit margins getting squeezed, and the cost of capital rising, it's difficult to imagine that we won't experience some form of technical recession in the next 1-2 years.
What's next?
Historically, after a recession, interest rates tend to decrease, and there is often a recovery in most asset classes. When/if the Federal Reserve effectively manages inflation during this phase, it is common to see more economically sensitive parts of the market like small and mid-sized companies outperform, as expectations of future growth become optimistic. However, accurately predicting the timing of this transition remains a challenging task.
This year’s returns have largely come from a select few stocks in the technology sector. If we consider the economically sensitive asset classes mentioned above (Small Cap Stocks, Mid Cap Stocks, Bonds), you’ll notice that they are still trading well below their all-time highs. This is a normal occurrence in a late cycle market and could offer opportunity for diversification to work going forward.
Lastly, from an investment standpoint, we have remained with an overweight position in domestic equity and longer-term municipal bonds since last October. Additionally, we continue to hold short-term bonds and treasuries, offering yields in the 5% range.
As always, please feel free to reach out if you have any questions, and we look forward to meeting with all of you in July.
Thanks,
Frank
Retirement Capital Advisors
800 Battery Ave SE
The Battery, Suite 100
Atlanta, GA 30339
Office- 412-722-3795
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network