Wealth Planning Archives | Page 7 of 21

As Inflation Falls and Net Worth Rises, Many Still Feel the Pinch

The S&P 500 fell for the second week in a row, but the losses were minor. Technology stocks were hit the hardest last week, while energy stocks surged. Credit card debt broke the $1 trillion mark for the first time; some economists think this is a sign that the consumer is tapped out and simply buying on credit.

It is important to remember that net worth has risen over the past few decades from $44 trillion in 2000 to $150 trillion today. Since 2000, credit card debt has gained 106%, but net worth has gone up almost 250%! Credit card debt accounts for 21% of disposable income, which is lower than the average of 26% over the past 20 years.

Inflation remains top of mind for most people over the last 18+ months. While the news continues to tell us that inflation is coming down, most people aren’t feeling the decrease in prices in their pocketbook: Food prices are still higher than where they were a few years ago and overall, it feels to most like it just costs more to live today than it did a few years ago.

Consumer Price Index (CPI), which tracks a basket of goods and services purchased by households, continues to be watched closely for signs that inflation is dropping.

In July, inflation was up 3.2% year over year, well below the June 2022 level of 9%. Energy, food and vehicle prices lead the charge on the way down. Over the past year, energy prices have been down 12%, food inflation eased to 4.9%, and used car prices fell by 6%. Energy prices have helped reduce headline inflation. Over the last three months, headline inflation has been running at a 1.9% annual rate. Cars and shelter make up 50% of the core inflation basket. (Shelter does not include home prices, only a measure of rents.)

Inflation is moving in the right direction – lower – but remains more persistent than expected over the first half of the year. Core goods dropped from 12% to .8% over the past year, while core service inflation has slowed only to 6.1% in July, down from a peak of 7.3% in February. When you take out food and energy, overall inflation has seen less progress, especially in services. The Fed target level of 2% remains the goal, but we may not see that until sometime next year.

Inflation vs. the Stock Market: 1928-2022

Chart showing average market returns from 1928 to 2022 when inflation is over or under 3%.

The stock market has experienced above-average returns when inflation was below average and has seen below-average returns when inflation was above average. Since 1928, inflation has been below 3% about 55% of the time; the average return in those occasions has been 15.7%.

The market has experienced positive returns while inflation is over 3%, but nowhere near the average annual return of lower inflation. Higher inflation doesn’t guarantee lower stock market returns, but it makes sense that the markets aren’t happy with an increase in economic volatility.

The U.S. economy has expanded in the first half of the year, as measured by GDP. Consumer spending — which is 65% of GDP — remains resilient, partially as seen through the increase in credit card debt and increased net worth. Labor markets remain very tight, with unemployment at 3.5%. The Fed’s choices over the next few months will be critical for the markets to successfully navigate either a “soft landing” recession or no recession at all.

Although inflation continues to move in the right direction, the economy remains strong, which may continue to keep prices higher than the Fed would like. As of now, economists think that the Fed will not raise rates in September, and many are forecasting the end of the interest-rate cycle. If that is the case, that should be a positive for the market as we head into the latter part of the 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: A Wealth of Common Sense, Carson Wealth, JP Morgan

Promo for an article titled What Does the U.S. Credit Rating Downgrade Mean for Investors?

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.

What Does the U.S. Credit Rating Downgrade Mean for Investors?

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+.

Chart showing credit ratings of various nations. — *Note: Data as of Aug. 1, 2023. Sources: Credit rating agencies, Reuters research. Prinz Magtulis | Reuters, Aug. 3, 2023*

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.

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

Promo for an article titled Here's How to Keep a Market Pullback in Perspective.

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.

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

Here’s How to Keep a Market Pullback in Perspective

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.

Sources: LPL Research, Ned Davis Research 7/19/21. All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. The modern design of the S&P 500 Index was first launched in 1957. Performance before then incorporates the performance of its predecessor index, the S&P 90.

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.

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

Promo for an article titled Will the Market Rally in the Second Half Here's What History Tells Us.

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.

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

Will the Market Rally in the Second Half? Here’s What History Tells Us

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

Chart showing S&P 500 returns in years when the index gained at least 10% in the first six months of the year. — *Source: Bloomberg Finance LP. Data as of July 5, 2023. Past performance is not indicative of future results. It is not possible to invest directly in an index.*

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

Chart showing market returns in each year of a presidency. — *Source: Carson Investment Research, YCharts 12/30/2022. @ryandetrick*

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

Chart showing start and end dates of the recessions since World War 2. — *Source: Carson Investment Research, NBER 11/21/2022. @ryandetrick*

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.

Sources: Bloomberg, Carson, JP Morgan

Promo for an article titled Don’t Wait Until Retirement to Learn About Medicare — Here’s What You Should Know.

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.

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

Don’t Wait Until Retirement to Learn About Medicare — Here’s What You Should Know

Inflation continues to come down after reaching a peak of 9.1% in June 2022 — a far cry from the high inflation days of the early 1980s, but levels we hadn’t seen in 40 years nonetheless. June’s Consumer Price Index (CPI) came in at an annualized rate of 3%, the lowest level since March 2021 and the 12th consecutive month of price decreases. The CPI remains above the Fed’s target rate of 2%, and while this report is good news for prices and pocketbooks, it is unlikely to stop the Fed from raising rates again later this month. Energy prices also are decreasing; gas was $5 a gallon at this time last year, and price increases were at their highest levels.

Inflation Pulls Back on Lower Energy, Food and Used Car Prices

Contributions to CPI Inflation (Year-Over-Year)

Chart showing category contributions to CPI, year over year, since September 2021. — Data source: Carson Investment Research, BLS 7/12/2023. Pandemic-impacted categories include car and truck rentals, furnishings and supplies, apparel, airline fares, lodging away from home including hotels and motels. Housing includes rent of primary residence and owners’ equivalent rent. Medical care includes medical care commodities and services. @sonusvarghese

The largest increase in inflation remains healthcare, which is up significantly since the start of the pandemic. For many people, the cost of healthcare is the biggest unknown for retirement planning. How long will I live? What medical needs will I have? Do I need long-term care coverage, and what will that pay for? Do I have enough money to pay for my healthcare needs as I get older, or will I have to depend on my kids or other family members?

Luckily for those who are about to turn 65 — or who are already older than 65 — there is Medicare, which includes several different forms of health care, some provided by the federal government and some by private insurers. Medicare can be complicated to understand, but it is important to know your options.

When do I sign up for Medicare?

The initial enrollment period is a seven-month period around the time you turn 65 and includes the three full months before the month you turn 65, the month you turn 65 and the three full months after the month you turn 65.

There are exceptions to the window for those who are still working and opportunities to enroll later in life. In some cases, though, you can end up paying higher rates by waiting.

What does Medicare entail?

Medicare consists of five major parts:

• Part A covers hospital and skilled nursing care, as well as some home and hospice care. As soon as you turn age 65, you are eligible for Part A, usually at no cost. At age 65, most individuals opt into Part A at a minimum. The main downside is that you are no longer eligible to contribute to a health savings plan if you chose Part A.

• Part B covers outpatient care, such as office visits, diagnostics and some preventative services. If you are on Social Security, you are automatically enrolled in Part B, which has a monthly premium that varies based on your income. If you are still working, you can decline Part B. Once you retire and lose your work insurance, you have an eight-month special enrollment period to sign up for part B.

• Part D is your drug plan that’s offered by private insurers. They require a separate premium that is regulated by the government. There are a wide variety of plans, so shopping to make sure you get the right one is important.

• Part C, also called Medicare Advantage, offers hospital and medical coverage along with benefits you do not get with basic Medicare, like vision, hearing and prescription drugs. Part C is offered through private insurers, and the out-of-pocket expense is capped by the government. If you chose Part C, you will probably not need Part D.

• Medigap Coverage is technically not part of Medicare, but it is commonly purchased as a supplement to Medicare. It is sold by private insurers to cover some costs that Medicare doesn’t, like copayments and deductibles.

What does Medicare not cover?

Medicare does not cover everything, and you will need to pay for or obtain other coverage as mentioned above for services that are not included. Some of the items and services Medicare does not cover are:

• Long-term care
• Most dental care
• Eye exams
• Dentures
• Cosmetic surgery
• Routine physical exams
• Hearing aids
• Concierge services

Medicare & You, the official U.S. government Medicare handbook, contains much more detailed information. (This is a good link to bookmark for future reference.)

If I am not eligible yet, what should I do?

As you approach age 65, mark your calendar for the specific date that you would like to enroll. If you are still working, it may make sense to enroll in Part A only and continue with your company insurance.

Take time to research Medicare plans to match your specific needs. At CD Wealth Management, we think this is an important part of your retirement and should be something you review each year.

The CD Wealth Formula

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

Sources: Blackrock, Bloomberg, Carson, Schwab

Promo for an article titled Can the Market Repeat Its Performance from the First 6 Months?

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.

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

Can the Market Repeat Its Performance from the First 6 Months?

The first half of the year marked the second-best six month start for the S&P 500 this century, beaten only by 2019. The market is treading water so far in July, which seems appropriate considering the heat wave that has enveloped the country.

After cratering last year, technology shares carried the S&P 500 for the first half of 2023. Energy led the way for the S&P 500 last year, while technology brought up the rear, and the opposite has been true this year. The chart below shows a breakdown of the S&P 500 along with a comparison of market-weighted returns and equal-weighted returns.

The S&P 500 is a market-weighted index, with the largest stocks carrying the most weight. Apple, Microsoft and Amazon account for 17.62% of the S&P 500 Index. Due to the strength of returns for those three stocks in the first half, the return of the market-weighted S&P 500 index significantly outperformed an equal-weighted index.

In the equal-weighted index, each of the 500 holdings is roughly the same weight, with the largest holding being only .28% of the overall index. That’s a significant difference, compared to Apple being 7.66% of the overall market-weighted index. Since most of the return of the S&P during the first half of the year was from seven large-cap technology stocks, the equal-weighted index did not perform as well, with five sectors being negative.

A Tale of Two Markets

S&P 500 Performance by sector, year-to-date 2023

Chart showing S&P 500 market performance by sector from January 1 to date in 2023. — Source: Blackrock Investment Institute, with data from Refinitiv, June 14, 2023. Chart shows the year-to-date return of the S&P 500 index both market-weighted and equal weighted. Past performance is not indicative of current or future results.

We often talk about average return, or what the market has averaged over a long period of time. As a reminder, the market is rarely average. Just look at the last three years, starting with 2020: a drastic drawdown to start the year with the global pandemic, followed by a steep recovery in the same year. Then 2021 was another strong year, only to see the bottom fall out in 2022 for both stocks and bonds. Over the last 72 years, the market has fallen in the “average range” only four times — a good reminder that the market seldom gains the average of 8-10% in a calendar year.

An Average Year Isn’t So Average

S&P 500 gains between 8-10% are quite rare (1950-current)

Chart showing market average returns from 1950 to 2022. — *Source: Carson Investment Research, YCharts 1/2/23 (1950-current)*

Wall Street strategists remain bearish on the market for a variety of reasons: stretched technology valuations, stubborn inflation, current money market and short-term bond yields, the commercial real estate recession and ongoing concern about regional and smaller banks. They are more bearish now than they have been anytime over the last 24 years for the final six months of the year.

In other years when they expected a negative return over the final six months, we have seen the following returns, with the average return for those four years being 12.2% over the final six months:
• 1999: +7%
• 2019: +9.8%
• 2020: +21.2%
• 2021: +10.9%

Wall Street Strategists Stick to Cautious Equity View

Their S&P 500 target points to the most bearish second-half outlook on record

• S&P 500’s second-half outlook implied by strategists’ average year-end target

Chart showing the second-half outlook for the S&P 500 implied by strategists' average year-end target. — *Source: Bloomberg*

Still, there is no guarantee of positive or negative returns for the rest of the year. Ample cash remains on the sidelines, waiting to be deployed. While investors have hunkered down in cash, this also suggests that this money could make its way into the economy and the markets. This can lead to paralysis and contentment with short-term cash returns, but it also can be detrimental to long-term financial goals.

Every cycle is different, which makes investing amid uncertainty a challenge but also highlights the importance of being invested in a diversified portfolio. Equities historically have been the highest-returning asset class over the long run, and we do not see anything to alter that precedent going forward. We will continue to monitor the markets closely and make changes as necessary.

The CD Wealth Formula

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

Sources: Blackrock, Bloomberg, Carson, Schwab

Promo for article on the formula for wealth.

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.

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.

Our 5 Most Popular Articles So Far in 2023, in Case You Missed Them

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.

Loupe focusing on text on financial newspaper

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.

Version of Michelangelo's painting "The Creation of Adam" depicting the development of artificial intelligence and machine learning. AI chat concept.

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.

Silicon Valley Bank headquarters and branch

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.

Promo for an article titled The Portfolio Changes We’re Making as We Enter the Third Quarter of 2023

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.

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

The Portfolio Changes We’re Making as We Enter the Third Quarter of 2023

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)

Chart showing the hypothetical value of portfolios based on timing of contributions.

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, %

Chart showing how portfolio income has performed from 1999 to 2023. — Sources: J.P. Morgan Wealth Management, FactSet. [1] Cumulative total returns for the 60/40 portfolio (S&P 500 and Bloomberg Global Aggregate Index) are calculated from Dec. 31 of the year prior until the updated data. Data as of June 20, 2023.

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, %

Chart showing how the market rally is broadening beyond the tech sector. — *Source: Bloomberg Finance L.P. Data as of June 22, 2023.*

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.

Sources: Bloomberg, Goldman Sachs, JP Morgan

Promo for an article titled 2023 at the Halfway Point: Where We've Been and What Lies Ahead.

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.

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

2023 at the Halfway Point: Where We’ve Been and What Lies Ahead

As we approach the second half of the year, it’s a good time to look back at the trends that have shaped our economy so far. Inflation continued to ease each month, and U.S. economic growth slowed. The Fed continued to raise rates while signaling that we are closer to the end of the rate-hike cycle, and the U.S. government debt-ceiling standoff was resolved without a default (thankfully).

Artificial intelligence was the talk of the stock market for the first half of the year, and as we have written before, mega cap stocks led the market higher, with seven stocks accounting for most of the return of the S&P 500 through June.

Big Tech’s Performance vs. the Rest of the S&P 500

Through June 1

Chart showing that seven tech stocks account for most of the return of the S&P 500 through June. — *Sources: FactSet, Goldman Sachs Global Investment Research*

As we wrote last week, the stock market has rallied by more than 20% from the bottom in October 2022, and a new bull market has begun. Dating back to 1928, the S&P 500’s average return has been 7% over the six months after a rally of 20% follows a drawdown of 20% or more (like we saw during the first nine months of 2022). That is significantly higher than the average rolling six-month return of just 2.9%, as seen in the chart below. These findings suggest the possibility of further gains from here.

Drawdown Recoveries: What Happens Next?

Chart showing that the S&P 500’s average return has been 7% over the six months after a rally of 20% follows a drawdown of 20% or more, higher than the average rolling six-month return of just 2.9%.

Fixed income markets were positive for the first half of the year. Short-term yields, money markets, CDs and Treasury bills continued to offer attractive rates not seen for many years. Last week, the Fed kept the Fed Funds rate unchanged, ending a streak of 10 consecutive increases going back to March 2022. However, bank officials were quick to point out that the tightening cycle is not necessarily over.

“Allowing inflation to get entrenched in the U.S. economy is the thing we cannot allow to happen for the benefit of today’s workers and families and businesses, but also for the future,” Fed Chairman Jerome Powell said.

The Fed’s new summary of economic projections indicates that there still could be two more rate hikes to come. The question is whether the Fed is posturing and hedging its bets, as inflation fell again in May to 4%, still above the Fed’s target 2% level. It also is important to remember that it can take time for Fed rate hikes to work their way through the economy, often 12 to 18 months.

Here are some of the key indicators and trends we are watching for the second half of the year:

Leading Economic Index (LEI)

Used to predict the direction of global economic movements over the next few quarters, this index is comprised of 10 components whose changes tend to precede changes in the overall economy. There is still much discussion on a potential recession in the second half of the year — or whether one can be avoided altogether.

Labor market

The unemployment rate is 3.7%, remaining near its all-time low but up slightly from its recent measure of 3.4%. For inflation to fall to its 2% target, the Fed needs to see continued weakening in the labor market and slower payroll growth.

Credit crunch

Lending standards have tightened with higher interest rates and the effects of the Silicon Valley Bank failure. This may affect corporate earnings, which could lead to downside in the S&P forecast. There also is concern about the commercial real estate market, as a tremendous amount of debt needs to be refinanced this year. With interest rates still high, we could see a record level of default on commercial real estate property.

Market breadth

As we wrote last week, we have started to see sectors other than mega-cap tech names beginning to rally. Technology had been the only sector with positive returns, but in June, we are seeing other sectors turn positive. A continued improvement in other sectors would bode well for the market during the second half of the year.

Artificial intelligence

The first half of 2023 was all about ChatGPT and anything affiliated with artificial intelligence. Enthusiasm is elevated, and market valuations for some AI stocks are frothy as concerns about a repeat of the tech bubble of 2000 are starting to surface based on the first-half run of technology stocks.

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The second half of 2023 may hold the potential for fewer surprises with a debt-ceiling deal in place until 2025, global central banks moving towards a pause on rate hikes, signs of potential U.S. and China tensions cooling, and bank stress stabilizing. We will continue to closely monitor the markets and adjust the portfolios as necessary.

The CD Wealth Formula

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

Sources: FactSet, Goldman Sachs, Horizon

Promo for an article titled A New Bull Market Has Begun — Here's What Investors Should Know.

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.

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

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

The S&P 500 officially entered bull market territory last week, closing more than 20% higher than its low on Oct. 12, 2022. For now, the 2022 bear market is over.

The stock market has inched higher as the economy continued to surprise while inflation has cooled. Inflation, measured by Consumer Price Index (CPI), has slowed for 11 consecutive months. In May, prices rose at the slowest annual pace since March 2021.

New lows have happened just two times after stocks gained 20% off the bottom: the global financial crisis of 2007-2009 and the tech bubble of 2000-2002. The average return 12 months after the end of a bear market was 17.7%, as seen in the chart below.

A New Bull Market Should Have Bulls Smiling Very Soon

New bull markets start (20% off bear lows) and what happened next for the S&P 500

Chart showing S&P 500 returns after previous bull markets. — *Source: Carson Investment Research, FactSet 5/4/23. A new bull market is 20% off the previous bear market low. @ryandetrick*

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.

S&P 500 | Duration & Performance of Bull Markets (1929-YTD)

Chart showing the duration and performance of bull markets since 1929. — Sources: LPL Research, Bloomberg 6/8/23. Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.

* Ongoing

We still would like to see more breadth in the market, meaning more sectors other than technology participating in the rally. Big Tech gains have been driven in part by investor enthusiasm for the rise of artificial intelligence. ChatGPT has become the fastest-growing consumer app in history. Last week, we started to see other sectors gain momentum, as small-cap and international stocks also began to rally. The seven biggest stocks (Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla) gained 77% this year through the end of May, while the average stock in the index is down 1.2% over the same time.

In or Out?

Three sectors have generated most of the S&P 500’s returns this year.

Chart showing how market sectors have performed this year. — *Data through June 8. Source: Bloomberg.*

The declining dollar has helped international companies, as other currencies have gained compared to the dollar. Since October, the dollar has declined 6% as measured by the J.P. Morgan USD Real Effective Exchange Rate Index. At the same time, investors have continued to shift assets from stocks and bonds into money market funds. Money markets reached a record level at over $5.39 trillion in late May. This flight to cash has been understandable following last year’s decline of both stocks and bonds as well as higher interest rates.

Many investors moved monies from banks to money markets among higher yields on cash alternatives. When cash starts to unwind and move back into stocks and bonds, as it did after the global recession and pandemic, markets may be able to move even higher.

Investors’ Flight to Cash Has Been Followed by Strong Returns

Chart showing returns after investors moved money into money market funds over time. — *Sources: Capital Group, Bloomberg Index Services Ltd., Investment Company Institute (ICI), Standard & Poor’s. As of 5/26/23. Past results are not predictive of results in future periods.*

This doesn’t mean a recession is out of the equation. The Fed has raised rates from 0% to 5% over the last 15 months. These rate hikes are being felt throughout the economy, and we will continue to feel them. It typically takes 12 to 18 months for rate hikes to work their way through the system.

A possible recession doesn’t mean that the market must collapse. Remember, markets are forward-looking, and investors are still positioned for the worst. The biggest risk to the market remains the Fed. Even if the Fed pauses rate hikes in June, it still could resume raising rates in July, possibly by as much as another 50 basis points. The hope is that such a move would ultimately be the last rate hike, but we will continue to follow this closely, as persistent inflation could upend the Fed strategy and the market rally.

The CD Wealth Formula

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

Sources: Barron’s, Carson, Capital Group, U.S. News

Promo for an article titled More Than 100 Days Into 2023, What's the Outlook for Investors?

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.

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