Dear Clients:
Greetings and Happy Spring! I hope this newsletter finds you doing well. My first order of business coming out of tax season was to reflect on economic headlines, financial markets, and provide some insights as we head deeper into 2024.
Financial markets have begun 2024 in similar fashion to their close of 2023, a measured path forward although the last few weeks has brought us some weakness. I do not see this weakness as a concern but simply reaction to economic highlights and markets taking a breather. A major catalyst to the market’s upward trajectory dating back to October 2023 was The Federal Reserve suspending their aggressive series of interest rate hikes that began in early 2022, and the hope of soon seeing interest rate cuts. Which brings us to today and the recent string of economic data. The Federal Reserve remains steadfast in taming inflation and has signaled its intent to be sure it has before it will cut interest rates. Keep in my The Federal Reserve was wrong in its assessment of inflation coming out of the pandemic, late to start hiking rates to combat it, and now blinded by these missteps ultimately impacting their decisions in current times.
So far the markets have been able to absorb these rate hikes, and indications that interest rates will not be moving lower nearly as soon as most economists have anticipated, due to our labor markets. Jobless claims remain low, the unemployment rate has remained near all time lows, and wage growth has been strong (also adding to the inflation prints).
My assessment of April’s market weakness is the market getting used to the fact that interest rates will remain at current levels further into 2024 than expected, and the idea that we pulled forward some gains on the idea cuts would be coming sooner. There is also the belief that higher for longer will have more severe ramifications longer term, something we can’t even see at this point. This belief has more credibility as it is historically the case The Federal Reserve overshoots on their interest rates hikes and has to aggressively cut rates to undo such hikes. I have a touch more faith in the current state of affairs, than in previous times, the U.S. economy can avoid a deep recession here. That being said, and I am going to sound like a broken record here, I continue to remain cautiously optimistic going forward. This stance has been a cornerstone to our investment philosophy and will continue to be for the time being.
As I write this piece, we are just beginning to enter the quarterly earnings season and we all know it is a company’s ability to generate earnings that drive its stock price. And it is also these earnings that determine the stock’s valuation. Valuations in recent years, due to strong corporate performance across the board, have risen to the high end of historical averages. To maintain current stock price levels, companies are going to be asked to deliver quality earnings reports. Investors will be looking to keep or add quality in their portfolios, as will we.
Geopolitical factors continue to dominate headlines, along with our own political landscape. Global conflicts have considerable spillover into our economy and financial markets, mainly in energy markets. However, these conflicts also create tension among countries and governments that impact trade, currency, and alliances. Markets have been able to withstand thus far but these conflicts do play a role in portfolio management.
While not witnessing geopolitical headlines we will continue to see more and more of our own political headlines, especially as we move closer to the November elections.There isn’t a direct link between Presidential election years and market outcomes. Since 1952, the market as measured by The S&P 500 has averaged a 7% gain during Presidential election years while averaging 16.8% in years prior to Presidential election years. Also since 1952, the market has not declined during a Presidential re-election year. The data does support a growth trajectory although we know past performance is not a guarantee of future performance. What is important here is that we are going to hear more and more political speak, positive or negative, and will impact financial markets.
As always, I want to stress my availability to discuss this newsletter or any other questions/thoughts you may have. No question or conversation is too small. Feel free to telephone (508-405-0065), email (jhartman@accessfits.com), or reach out to schedule a meeting in person. I also want to make myself available, at your discretion through any of the means I just mentioned, to anyone (family, friend, work associate, etc.) who you feel may find value in my services.
Kind Regards,
Jeremy M. Hartman
President, Access Financial & Income Tax Services
