Topic: Market Movement

As we wind down the summer and get ready to enjoy Labor Day weekend, we are looking forward to cooler weather and calmer markets than we have seen in August. The month played out like we thought it would, with the markets taking a respite from the strong start to the year and stocks falling nearly 5% from the late July peak.

Each year, the S&P 500 typically experiences three corrections of 5% or more and one correction of at least 10%. (In March, we saw a pullback of nearly 8% after the failure of Silicon Valley Bank.) On average, a bear market happens almost every three years. Interestingly, the markets typically see more than seven 3% corrections in a year. 

It is vital to remember that volatility is normal — even in a bull market. Thinking of volatility in the stock market as a series of speed bumps rather than a roadblock can help you remain focused on the long-term plan rather than the short-term pain. 

Volatility Is the Toll We Pay to Invest

S&P 500 per year (1950-2022)

Michael Burry, known for correctly predicting the epic collapse of the housing market in 2008, recently made news with another big bet against the stock market. It’s important for investors to remember that he is a trader who runs a hedge fund. He is not focused on long-term investing. He is hoping that one of his bets hits it big, and he then keeps a large portion of his investors’ profits. He is hoping for one big hit, but the assumption is that he knows he will have many strikeouts along the way.

It may take years for his investment theory to play out — if it plays out at all. We don’t have insight as to changes he makes or when he may decide to close out his short bet against the market. This is not the first time that he or other outspoken hedge fund traders have made bold predictions on the direction of the market. The chart below provides some interesting perspective on Burry’s recent warnings and how the market has fared for the six months that followed. This is a good reminder not to listen to the noise or get caught up in the headlines about large bets against the market.

Burry-ed

Six-month annualized S&P 500 rise after Michael Burry warnings

As fall approaches, we will begin to hear more discussion of a potential government shutdown on Oct. 1. Despite the debt-ceiling agreement earlier this year, Congress has not agreed on spending levels for fiscal 2024.

Historically, government shutdowns have not had a major impact on GDP or the stock market. The last six government shutdowns occurred in quarters with positive GDP growth. If another shutdown were to occur, this would be the seventh. However, Moody’s — the only one of the three major rating agencies that has not downgraded the U.S. debt — has commented that a shutdown this fall could lead to either a potential downgrade or put the U.S. on watch for one. 

A shutdown may lead to higher spending, which could continue to keep the economy humming along. At the same time, the U.S. is experiencing higher interest service costs due to higher interest rates, higher spending on entitlements and lower tax revenues. All of these factors are worsening the federal deficit. It is more than likely that after the 2024 election, we will be looking at a period of fiscal austerity to rein in spending.

Real GDP Growth Rate During Past Government Shutdowns

Percentage change from the preceding quarter

This year’s key players — the Federal Reserve Bank, Wall Street and Main Street — all suggest that the outlook feels better today than at this time last year. With the market pulling back some in August, valuations look less lofty heading into the final quarter of the year. For fixed-income investors, better protection is being provided as well, with interest rates near peak. It is important to remember that even bull markets see periods of volatility — and volatility is perfectly normal for this time of year.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, FactSet, U.S. Bureau of Economic Data

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

While we may hear about bonds or fixed income in the news, they typically don’t draw as much attention with retail investors because they are not as well understood or as alluring as stocks. While stocks fell for the third week in a row, bond yields moved higher. In just the last month, 10-year Treasury yields have gone up over 50 basis points (0.5%), reaching their highest levels since 2007. Yields across the globe are at their highest levels since 2008.

The Federal Reserve bank controls short-term rates. We have often heard about how many times the Fed has raised rates over the last year and a half. With the higher rates, we earn more interest on our cash, as money market rates are now over 5%. But what is driving long-term rates higher?

Inflation

Inflation has been front and center since the recovery from the pandemic. As we wrote last week, year-over-year inflation continues to come down compared to prices, but items generally cost more than they did than a few years ago. While the trend remains one of cooling and expectations are that prices should continue to fall, the Fed continues its rhetoric of higher rates for a longer time — and there still is the possibility of one or two more rate hikes.

Growth

We have been waiting for a recession for more than a year. The economy has survived rate hikes of more than 525 basis points (5.25). At the same time, most people who want a job can find one, and the unemployment rate is near historical lows at 3.5%. The consumer is still eager to spend, and credit card debt broke the $1 trillion mark for the first time.

The housing market is showing signs of stabilizing, even with 30-year mortgage rates reaching levels not seen for many years. The infrastructure bill passed last year has hopes of revitalizing spending in infrastructure and manufacturing. Artificial intelligence is expected to change the way we live and work for the better, and the U.S. GDP continued to grow at an annual rate of 2.4% in the second quarter.

Uncertainty

Investors tend to require more yield or compensation for locking up money over a longer time versus short-term periods of time. For bonds, that means demanding a higher yield for bonds that mature in 10 years than those that mature in two years. When things are more uncertain, investors demand even higher yields. A few events recently have added to bond anxiety, and thus higher yields:

• Fitch downgraded the credit rating of U.S. Government debt by one notch, from AAA to AA+.

• At the same time, the U.S. government is issuing more debt than expected to pay for spending, due to a combination of lower tax revenues and higher interest costs from higher interest rates.

• The Bank of Japan raised rates on its 10-year bond to 1.0%. The Bank of Japan is a large buyer of U.S. Treasuries, and with higher rates being offered in Japan, it may choose to shift its buying to its own bonds.

A combination of better growth and uncertainty seems likely to be behind the higher rates. A more resilient economy could mean that the Fed plans to keep interest rates higher for longer, even if it doesn’t raise rates again.

With yields near the peak, this may provide an opportunity for investors to extend the duration (think of maturity) of their fixed income portfolio to lock in some of the highest rates we have seen since 2007. One way to accomplish this is a laddered bond portfolio of Treasuries.

A bond ladder, illustrated below, refers to purchasing bonds in a stepladder fashion with consecutive maturities to reduce credit risk, interest rate risk and volatility in a portfolio. For example, one may purchase an even amount of bonds maturing in increasing spans of time. As the bonds mature, you replace them in the next step of the ladder. If rates go down, you want to extend the bond ladder farther into the future. If you are worried rates will rise, you would want to shorten the bond ladder.

Most economists are not expecting the Fed to raise interest rates much further than where they are today, with the Fed Funds rate at 5.25-5.50%. With inflation on the decline, there is discussion of disinflation starting to rear its head, especially with vehicle and shelter prices easing further. With the government issuing more supply of Treasuries to cover a rising deficit and fund the tax shortage, longer-term bond yields continue to rise and decrease the spread between the short-term Treasuries and longer-term Treasuries. 

Higher long-term bond yields mean investors expect the Fed to keep rates on the higher side for a longer time, especially with the strong recent run of economic data. Expectations for future growth are shifting higher as the economy continues to prove its resilience. Ultimately, the bond market is signaling that rates may have to be higher than we have been used to over the past decade, which can be a good thing for investors seeking income.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: JP Morgan, Schwab

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

In a surprise move last week, one of the three credit rating agencies downgraded the credit rating of U.S. Government debt by one notch, from AAA to AA+. Fitch’s explanation for the move was that the downgrade “reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to AA and AAA rated peers over the last two decades that has manifested in repeated debt-limit standoffs and last-minute resolutions.”

The change echoes a similar move by Standard & Poor’s (S&P) in August of 2011, when it downgraded the U.S. debt from AAA to AA+. The timing of last week’s downgrade is unusual given a lack of near-term concerns with the debt ceiling and the continued strength surrounding the U.S. economy. When the S&P downgraded U.S. debt in 2011, the economy was softening, inflation was declining, and yields were falling in other global markets. This time around, central banks are hiking rates in most markets.

Moody’s remains the last of the three major credit rating agencies to maintain a top rating for the U.S. After the downgrade by Fitch, the U.S. ranks lower than Australia, Canada and some European countries, as seen in the chart below. If Moody’s were to downgrade the U.S. debt, that could exacerbate fiscal concerns — but even then, while volatility may increase, economists are skeptical that it would have a material impact on the U.S. bond market.

The U.S. debt is still viewed as a safe haven for many reasons: The U.S. has the ability to service the debt (even at higher interest rates), the economy is growing at a solid pace, and foreign capital inflows remain strong. There is no worry that the U.S. will default on its debt.

OECD Countries’ Credit Ratings

After a downgrade, the U.S. now ranks lower than Australia, Canada and some European nations like Germany in terms of creditworthiness under Fitch metrics. These nations were also rated triple A by S&P, a notch above the U.S.’s AA+.

We do not have long-term concerns about the downgrade. Here are a few key points to keep in mind:

• Fitch is considered the third-ranked rating agency of the three and has less influence on the market than S&P or Moody’s. 

• The downgrade is not a growth forecast but a commentary on the state of the current (apparent) instability of our government from a political standpoint.

• This is not about the ability of the U.S. to service its debt. Fitch had warned during the debt-ceiling standoff earlier this year that it was considering a downgrade because a country refusing to pay its debts in a timely manner was not entitled to a AAA rating.

• We don’t expect the downgrade to affect many investments because few require AAA ratings. After the S&P downgrade in 2011, many institutions changed their investment mandates to state government bonds instead of a specific credit rating.

• The debt limit has been lifted for two years, inflation is slowing, and economic growth remains strong.

• Washington has passed multiple bipartisan deals with a split Congress. Gridlock can be a fiscal positive as the markets tend to perform best when the party that controls the White House and Congress are not the same.

We continue to believe U.S. Treasuries are considered to be the safest asset in the world. The Fitch downgrade is highlighting long-term political issues that are preventing the government from coming to agreements in a timely manner. There still is no substitute for U.S. Treasuries in the global financial markets, and the U.S. market remains the largest, most liquid and safest in the world.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Lord Abbett, Moody’s, Reuters, Schwab

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

The S&P 500 closed higher for the fifth consecutive month; the odds favor a down month relatively soon. Historically, August has been a poor-performing month, ranking worse than only February and September going back to 1950.

If the markets do experience weakness in the coming months, investors may be surprised — and talking heads may say that they are finally right for saying that the market is due for a pullback. It may present buying opportunities for those with cash on hand, or it may be a challenge to refrain from panicking for those who get nervous when the market drops. Remember, most years see a temporary decline of 5% or more at least three times.

Pullbacks are common, and they should be expected. When they happen, many people tend to go straight to the worst-case scenario — that the sky is falling, and the market will never recover. Often, this can happen because of what people read or hear on the television. Many people may get in trouble because they extrapolate strength or weakness into perpetuity. They don’t believe that the trend will turn in a different direction.

The news can sway your outlook. Remember, most analysts or stock market predictors have an angle. They are not playing the long game and are focused on the short term. With our clients, we are focused on the long term, typically 10 years or longer. We are focused on whether you achieve your financial goals; the longer your time horizon, the higher the probability of success in the markets.

Time Horizon Matters

The chart below shows us another good way to look at the long-term picture: a rolling 30-year return of the S&P 500 (the blue line), compared to the latest one-year returns (the orange bars) for each 30-year period. 

Returns in any one year are all over the map. As we wrote recently, returns for any one year can vary from the average — but over the long run, the average return doesn’t change much from year to year. A one-year return can make you feel good or bad, but if you stay invested over the long term — and don’t sell out of the portfolio in a down year — it shouldn’t have much bearing on long-term results.

30-Year Returns vs. 1-Year Returns

The narrative of this year’s rally has changed over the last two months. This is no longer just a “Magnificent Seven” rally by the top tech giants. Resilient economic data in the U.S., receding inflation pressures and expectations for the Fed ending the rate-hiking cycle have led to a broader market rally since early June.

If we can avoid a hard-landing recession, the overall market valuation appears reasonable. The long-term average over the past 100 years for stocks has been about 10% per year. After the three and half years of this decade, we have experienced two bear markets and world-changing events, and the market is averaging slightly over 10% per year. We will continue to preach against making investment decisions based on one-year returns!

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: LPL, Carson, American Funds, A Common Sense Guide to Investing

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

During the first half of the year, the market was obsessed with a potential recession. When would it come? Would it be a hard or soft landing? As the summer moves on, this concern has given way to a quiet calm.

The banking crisis in March and the debt-ceiling debate in May seem like a year ago already, with little damage done to the economy. Market performance for the first half of the year was strong, which was surprising to many. After the rally for the first half of the year, the S&P 500 is less than 10% away from a new all-time high. 

The historical precedent for a potential second-half rally is there: A strong first half of the year typically begets a strong second half, as shown in the chart below. Since 1950, when the S&P 500 has been up over 10% in the first half of the year, the median gain for the index in the second half has been another 10%. Second-half returns after a strong first half have been even better when the prior year was negative. Remember, though, that past performance is not indicative of future returns.

30 Years of S&P 500 Returns After the Benchmark Index Climbed 10% or More Through June

Hindsight makes investing decisions look easy: The average bear market return without a recession was -23%, and the bear market we just went through was down 25.4%. October has been the most common month when bear markets have ended (including seven of the last 18), and last October was no different. 

Dating back to World War II, stocks have performed well the year after a midterm election. The chart below outlines year-by-year market performance during the presidential cycle for both re-elected presidents and new presidents. The second year has been the worst for new presidents, and last year was no different. However, the third year for a new president has been the strongest for market returns, and for the first half of the year, this has again held to form.

History shows that elections tend to have little lasting impact on the markets, even if certain sectors and industries are affected by actual policy changes. That does not mean that the volume of politics and commentary won’t rise as we get closer to the end of the year, as next year is an election year.

Under New Presidents, Stocks Underperformed Early and Improved Later

S&P 500 returns based on four-year presidential returns

The economy remains resilient as we begin the second half of the year. Going back to World War II, we have not seen the start of a recession in the year before an election year. There is still a chance for a soft-landing or mild recession, but the consumer remains strong. While credit card balances are higher than where they were in 2019, disposable income has grown at a great rate and the percentage of debt to income is lower than before the pandemic.

Unemployment levels remain near all-time lows. Employment growth has now beaten economists’ expectations for 14 straight months. During the first five months of 2023, the economy added 1.5 million jobs.

The housing market is showing signs of recovery as new home sales are up over 30% since November, energy prices have fallen and consumer confidence is improving. Earnings expectations are beginning to rise as margins are stabilizing with inflation coming down. All these factors reduce the risk of a near-term recession.

Recessions Since WWII

The main risk of a recession last year was due to the Fed raising interest rates as quickly as it did. The Fed now is much closer to the end of the rate-hiking cycle. The path back to all-time highs is never easy, but the market has made big strides so far this year. The consumer has driven the recovery and carried the economy. 

As a reminder, most Wall Street analysts predicted gloom and doom at the start of the year. On Tuesday, one of the last of the country’s major bear economists issued a mea culpa, admitting to clients that they were wrong and had missed out on the market run since October. 

The key to staying on track is to avoid emotional reactions, no matter how stocks perform on a year-in-and-year-out basis.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Bloomberg, Carson, JP Morgan

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

We wanted to take this occasion to look back at the content we’ve produced so far this year and share the five most widely read pieces of 2023 in case you missed any of them — or if you want to revisit and share them with friends and family.

Every week, we thoughtfully craft these pieces with our clients in mind, broaching subjects we think are relevant and interesting. This is not syndicated content. We want you to find value in these letters — especially in times like these.

1. A New Bull Market Has Begun — Here’s What Investors Should Know

June 15, 2023 | The S&P 500 closed more than 20% higher than its October low. For now, the 2022 bear market is over.

The duration of a bull market has varied significantly. Historically, bull markets have averaged 39.4 months and have produced an average gain of 130.1%. If you exclude the Great Depression, the average bull market has lasted 51 months and produced an average gain of 147%. We are now eight months into the current bull market, starting at the October low. Read more >

2. The Fed Raised Rates Again — Here’s What That Means for Investors

Feb. 9, 2023 | Though it appears that the Fed may be close to ending its rate-hiking cycle, additional increases still are likely.

As long as demand (GDP) and employment remain as strong as they are, the Fed will remain hesitant to cut rates and may even continue to raise them past the 5% federal fund target level. Remember, the stock market is a leading indicator, and it should lead the economy as it eventually stabilizes. Read more >

3. What Will It Take for Bonds to Bounce Back from a Historic Meltdown?

Feb. 2, 2023 | Strong yields and the prospect of a less hawkish Federal Reserve are breathing new life into bonds in 2023.

The Fed is poised to continue raising rates. However, the increase is unlikely to be as dramatic as 2022. Strong yields and the prospect of a less hawkish Federal Reserve are breathing new life into bonds. Read more >

4. An Introduction to ChatGPT, With Some Assistance From ChatGPT

April 20, 2023 | The AI tool has the potential to be transformative, with capabilities that could change how businesses allocate resources.

ChatGPT is a powerful artificial-intelligence chatbot that allows you to ask it questions using everyday language, rather than using search terms. ChatGPT responds in a conversational manner. As opposed to Siri or Alexa, these neural networks are trained on huge quantities of information from the internet of deep learning. Read more > 

5. Here’s What Investors Need to Know About Banking Turmoil in the U.S.

March 13, 2023 | With the failure of Silicon Valley Bank and Signature Bank, the financial markets experienced a shock not seen since the Great Financial Crisis in 2008.

Could other banks have a similar fate to SVB? The short answer is yes. But remember: After both the Great Depression and the Great Financial Crisis, processes and procedures were put in place for this very reason. Read more >

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

The dog days of the summer are upon us. As the weather heats up across the U.S., market volatility is cooler than it was before COVID. Last year’s market volatility hastened a flight to cash for many, with record inflows for money market and short-term Treasury notes.

You have heard this from us many times, and we will continue the same mantra: Overweight cash allocations may come with high opportunity costs, i.e., missing out on the market. As the chart below shows, the difference in ending portfolio values between perfectly timed annual S&P 500 contributions and the worst-timed contributions is only $300,000. But the difference between the worst-timed contributions on an annual basis into the S&P 500 and holding cash in short-term Treasury notes is almost $600,000. 

Hypothetical Portfolio Value with $12,000 Annual Contributions (2000-2023 YTD)

We are on much better footing than we were at this time last year (and even at the start of this year), from both a growth perspective and an inflation perspective. The S&P 500 is about 8% from its all-time highs. 

We don’t know when the next shoe will drop, or what will cause it, but there are always opportunities in the market. Stocks remain long-term growth engines of investment portfolios. The chart below looks back over the significant news headlines of the last 23 years; if you were invested in 60% stocks and 40% bonds over that time frame, the cumulative return could have been over 300%. 

Only one time period (2022) shows negative growth, and that was because there has not yet been enough time to recapture that loss. Staying invested through all the bad news — and not timing the market — remains the best strategy.

Investment Portfolios Are Built to Last

U.S. 60% equity, 40% fixed income portfolio returns, %

From a portfolio-management perspective, we continue to look ahead. The markets are forward looking, often telling us what may happen ahead of time. We are watching for the most anticipated recession in history. At the same time, the underpinnings of the new bull market seem to be alive and well.

Housing is making a turnaround, and that is positive for the economy. Inflation continues to show signs of weakening. With an eye on the future, we are making the following portfolio changes as we start the third quarter:

• Over the last year and a half, we have maintained a shorter-duration fixed-income portfolio, as the Fed has been actively raising rates. The portfolio benefited as the very short end of the yield curve (one year and less) saw higher interest rates. The longer-dated maturities and end of the yield curve have continued to yield less than the short-end (inverted yield curve). The Fed paused in June from raising interest rates, after 10 consecutive rate hikes.

There is a possibility of another one or two interest rate hikes, but we believe most of the change is already accounted for in the bond market. Since we are near the end of the Fed raising rates, we are extending the duration of the portfolio and removing our short-duration position. With this strategy, we are able to increase the overall yield of the fixed income portfolio to be well positioned for when the Fed decides to reduce interest rates — and to capture capital appreciation as well.

• For the month of June, we started to see more stocks participating in the rally that has been dominated by mega-cap technology names since the start of the year. More than 10% of stocks in the S&P 500 hit a new 52-week high last week, the most since March 2022. As seen in the chart below, other indexes for the month of June are outperforming the S&P 500. With the broadening of the market rally, we are adding an equal weight S&P 500 position to go along with market-weight S&P 500 exposure to provide a more balanced large-cap growth and value mix while reducing exposure to heavily weighted dividend stocks. 

In June, the Rally Is Broadening Out Beyond Tech

Month-to-date price return, %

As we enter the second half of the year, the market will be closely watching to see if a recession unfolds, caused by additional interest rate hikes, stubborn inflation and any remaining effects of the banking crisis. The expectation is that the recession would be mild, lasting one or two quarters and bringing a decline in corporate profits.

Although money market yields continue to provide a nice return now, they will not last forever. We do not know how much, if any, of a potential recession is priced into the markets today, but the portfolio changes we are making are looking past 2023 and are focused on an improving economy in the years ahead.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Bloomberg, Goldman Sachs, JP Morgan

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.