What is bad for American workers and consumers may not, in the end, be bad for American investors. Whether we end up in recession or not in 2023, we are likely to emerge from this year with a slow-growing, low-inflation economy in 2024. - David Kelly: Chief Global Strategist at J.P. Morgan
Last week's market recap:
- The S&P 500 closed the week down -.65%. Year-to-date the index is up 3.55%
- NASDAQ closed the week up .55%. YTD the index is up 6.47%
- U.S. Aggregate Bond index was up .15% for the week. YTD the index is up 2.89%
- 10-Year Treasury Rate decreased a basis point, ending the week at 3.48% down from 3.49% the prior week.
- Fed Funds Target rate is 4.50%
- The 1-Year Treasury is yielding 4.71%
- A 6 Month Treasury is yielding 4.84%
- The 6 month Treasury has a higher yield vs the 1 year and beyond. This is the bond market telling the Fed, “The economy is not strong enough to sustain these higher rates much longer.”
- If your savings account is still under 1%, you may want to find a new savings account.
The week ahead:
- Busy week of earnings: Microsoft, J&J, Tesla, Verizon, Boeing, Visa, etc.
- PCE Index – Personal Consumption Expenditures (Inflation data)
- 1st estimate of Q4 GDP (Recession data)
- Pending Homes Sales
Congress needs to continuously pass laws to raise the debt ceiling if we want the government to borrow more than the maximum amount passed by law. Over and over and over again. The debt ceiling has been raised more than 100x since World War II, and 22x in the past 25 years. In the last 10+ years, it’s been increasingly used as a political weapon or bargaining chip by attention seeking politicians on both sides of the isle. A U.S. sovereign default or even downgraded debt would obviously not be good for global financial markets. The political theater surrounding the debt ceiling is certainly a risk to global financial markets, but it is usually avoided in the final hour. Expect headlines to increase (and potential volatility) until the debt ceiling is increased.
Economy: Hard or Soft Landing?:
- Fed will pause soon
- Peak dollar
- China Reopening
- Inflation easing
- Earnings stronger than expected
- Fed continues to hike
- Sticky inflation
- Lagging effects of rate hikes
- Earnings contraction
Fixed Income yields are attractive again. This should provide a solid foundation for diversified portfolios going forward. Equities can certainly go lower from here. Consensus seems to be that equities will have a volatile first half of the year followed by a stronger second half of 2023. Bonds are better positioned to once again provide a solid foundation for diversified portfolios.
2023 Financial Planning Notes:
- Later age for RMDs
- Bigger contribution limits on retirement accounts
- Higher income limit for Roth IRA contributions
- Increased Standard Deductions
- Higher Marginal Tax Bracket Thresholds
- 529 rollovers to Roth IRAs (requirements need to be met)
- Higher threshold for 0% long-term capital gains
As always, let us know if you have any questions.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
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