Access Insights

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.
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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.
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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.
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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.
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Kind Regards,
Jeremy M. Hartman
President, Access Financial & Income Tax Services

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Dear Clients:

I hope this letter finds you well and looking forward to Summer! It’s been several months since my latest correspondence yet many of the same headlines have been driving the economy and markets. Financial markets have performed favorably year to date after a very rough 2022. Looking back just a tad bit further, major indices are at levels today exactly where they were at the end of 2020 into early 2021. Despite these trends, longer-term historical averages remain consistent with averages dating back to the early 1900’s. I think we all know what this means in terms of management of financial assets.

To this point, the economy has digested one of the most aggressive interest rate hiking cycles The Federal Reserve has ever embarked upon. This past week they, after pausing for the first time in this rate hiking cycle, prepared investors for 1-2 further quarter point hikes. Most weren’t expecting this more hawkish tone and don’t believe the Federal Reserve can easily continue hiking after pausing. I say to this point as there is often a lag effect here, where some impact needs approximately 12 months to work its way through the financial system. We have seen progress made on the inflation front, a debt ceiling debate behind us, credit markets remain healthy, we have seen cracks to certain segments of the banking system in 2023, housing has softened as expected, yet unemployment has remained robust. I see the conflicting data presented above, along with a host of other data, presenting investors with continued uncertainty on where things go from here. There is data that would support a bearish outlook, and there is data that supports a bullish outlook. Many economists point to the labor market as a big reason to be more optimistic.

I’ve looked back over several market newsletters I’ve written (going back years and years), and I continue to see my use of the phrase “cautiously optimistic.” I’ve heard this more and more as I listen to technicians and market economists. I’m going to continue to keep this in the front of my mind as it has navigated some very turbulent times over the years and will likely continue to do so.

I’ve read, and heard, so much about whether we are heading into a recession at the hands of The Federal Reserve. Have they done too much tightening, in a short period of time, that our economy can’t withstand. One thing I can say with certainty is that our economy moves in cycles: from expansion, to peak, contraction, to trough. We are going to experience them all in perpetuity. We can’t say exactly where we are on that cycle at any single point in time, but we can assess easily how investment decisions overlap with the general stages of the cycle. Let’s examine the modern day. Most believe we are in a period of contraction (I agree here), and it is unknown if we have seen a trough yet. Whether we have or not is not of major consequence to me. Portfolio decisions are considerably more deliberate (both in terms of time and thought), more emphasis on defense than offense, and quality is key when making investment decisions.

The most fundamental factor driving equity prices is a company’s earnings and profitability. Companies report to Wall Street their earnings each quarter. Analysts adjust their expectations for these reports based on various factors such as economic conditions. As the economy is contracting, analysts scale back earnings expectations, and this can impact stock prices. Through these recent quarters, earnings have proven to be surprisingly resilient. I feel that earnings growth is, if not at, near a trough and expect to see earnings growth resume as we enter the back half of 2023 into 2024. Historically we see stock prices recover in advance of corporate earnings. Based on current conditions, one could view this as a more bullish sign.

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), via my website at www.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

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Dear Clients:

Greetings and a Happy New Year to everyone! My wishes to a happy and healthy 2023. I wanted to begin 2023 with an assessment on our economy, global financial markets, and provide some thoughts on the year ahead.

In 2022 we saw the economy held hostage by The Federal Reserve’s mission to combat inflation with monetary tightening and sharp interest rate hikes. Much of this current battle with inflation was self-inflicted and they have now shown an unwavering resolve to this mission and to reestablish their credibility. This course of action had a significant impact globally on foreign currency, interest rates, and an impact on international central banks and their own economic struggles. Our employment picture here in the U.S. continues to flourish making it harder for The Federal Reserve to tame inflation. Even with massive corporate layoffs starting to hit the wire, we continue to say unemployment levels near all time lows. This theory has scared investors in that The Federal Reserve has stated they are staying the course, are willing to overshoot on this cycle of interest rate increases, and ultimately will risk recession to tame inflation. I, along with several economists you may listen to believe there needs to be a time to assess such drastic measures. And the time if takes for these measures to cycle through the economy can take up to a year in certain instances. Given this, the end is near for such hikes. The question now is for how long rates will be held at these levels. The idea of higher for longer has become much more popular as of late.

The attention has now turned to the impact all of this is having on corporate earnings. We are just beginning another round of earnings reports and the consensus is that these rate hikes will result in further contraction in corporate earnings estimates. I expect some mild contraction, not to the extent of many. This, and the following quarter or two, will be key to markets going forward. Once we have a stronger assessment of corporate earnings, we will have a more solid sense of the path of stock and bond pricing.

2023, similar to 2022, will bring market swings tied to various factors. A changing political landscape here in the United States and an impending debt ceiling debate will be an issue. A continued conflict in the Ukraine, China continuing to reopen from Covid lockdowns/our ongoing tensions there, and our constant attention to domestic economic data (housing, employment, consumer spending, consumer and wholesale prices, etc.) will all persuade markets this year.

2022 was a difficult year for stocks and bonds, both domestically and abroad. This is extremely rare to see both asset classes struggle together. You need to travel back to 1969, with the exception of 2018 where both stocks and bonds declined fractionally, to find a year when both stocks and bonds each declined by more than 3%. Despite there being pockets within the markets that performed well, 2022 was a difficult year. The themes we have preached over the years worked and I am pleased with how we managed through this period. I say this expecting much of what we saw to continue albeit with most of this in the rear-view mirror. Diversity among investments, strategic use of cash and short-term investments, staying committed to the plan we designed, and not making irrational decisions during irrational financial times, all are required to manage through volatile and troubled financial markets.

My previous correspondence discussed some ideas relating to forecasting and forward-looking theory. We used a much more macro approach versus sharp and pointed predictions in the short and medium term. We said the markets and economy were starting to find themselves in better lockstep than the previous 12 to 18 months. Since then, the markets have recovered slightly. Again, we are seeing more opportunities to invest or reinvest. Given this, and what we discussed above regarding market and economic headwinds, we are not in a place where we have an all clear. We have to work through some of these factors in 2023 before we find ourselves at a point where growth can resume.

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

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