Dear Clients:
I hope this newsletter finds you well and having enjoyed a nice Thanksgiving. My warmest regards to you and your family as we approach the holiday season and year end!
I was recently looking back on my previous correspondence posted June 21, 2023, where we saw stocks close near their highs of the year and interest rates nearing their peak. On the equity side, we have seen markets correct to the downside during Summer and recently climb back with some real strength in November. Much of this recent move higher has come because of a real pullback in interest rates from their October highs. What has come into greater clarity recently is the notion that rate hikes from The Federal Reserve have concluded and markets are now looking forward to future rate cuts. The Federal Reserve must maintain, however, its message of bringing inflation to their target set by Congress so they will continue to leave a rate hike on the table, and not show their cards as it relates to rate cuts, shall economic data warrant. Most economists do not see this happening. The concern has shifted as to whether we will land softly or experience a recessionary period in the coming year.
The actions of The Federal Reserve do play a major role in the path our economy takes, but there are other factors. Geopolitics, employment, the health of the consumer, housing, domestic politics, elections, corporate earnings, etc. etc. etc. all help shape the path our economy and markets take. Not all move in concert and all need attention as it relates to asset management. My career in this industry began in 1998, and I have witnessed so much. I can say that the current state of affairs has been the most difficult to navigate. When I hear this from who I consider to be the best in the business, it makes me feel very satisfied about managing things in the fashion we have as of late.
At this point I am not going to reiterate my “cautiously optimistic” stance for my market forecast. I have looked back at various newsletters written over the years and see this phrase used often. Perhaps this is one of the main ingredients for sound asset management and financial planning. Unlike 2022 and 2023, the bond market will provide us with another tool in the shed of portfolio composition. And despite the recent run the stock market has had, there are several quality areas to explore that have not participated this year. I am excited at the prospects of so many neglected companies, as well as alternative asset classes, to invest in. The overall market performance, after stripping out 5-10 of the largest companies, has lagged significantly and is one that provides so many opportunities. I say this, however, with the idea that we have just in 2023 seen another round of bank failures, continued conflict in Ukraine, an unsettled Middle East, inflation, Federal Reserve actions that we haven’t seen in 40 plus years, a national debt over $33 trillion, and continued issues over the debt ceiling/spending. My point here is that my eyes and ears are always going to be attentive to what are the factors that can prevent us from attaining our objectives. I have used the term headline risk in the past. Headline risk is just as important as all the other forms of financial risk we face today.
I have thought at length recently about one of my fundamental pillars of asset management: Does there seem to be a real disconnect, or not, between pricing in financial markets and the overall state of the economy? It is amazing how the two always seem to eventually find their way back into balance, albeit sometimes with more difficulty and volatility. Even with the emphasis I place on fundamental analysis, technical analysis, asset allocation, diversification, rebalancing, etc., sometimes the simplest of theories is the right one. Perhaps the most sophisticated investor of our lifetime is Warren Buffet, who yesterday lost his right-hand Charlie Munger at the age of ninety-nine. Warren credits much of Berkshire Hathaway’s success to Charlie who joined him in 1978. Charlie and Warren are the epitome of basic fundamental analysis and simplifying their investment strategies.
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
