As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses. We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.” - Warren Buffet’s annual letter to Berkshire Hathaway shareholders
Last week's market recap:
- The S&P 500 closed the week down -.2.66%. Year-to-date the index is up 3.66%
- NASDAQ closed the week down -3.31%. YTD the index is up 9.02%
- U.S. Aggregate Bond index was down -.89% for the week. YTD the index is up .16%
- 10-Year Treasury Rate increased, ending the week at 3.95% up from 3.82% the prior week.
- Fed Funds Target rate is 4.75%
- The 1-Year Treasury is yielding 5.04%
- A 6 Month Treasury is yielding 5.10%
- The is the bond market’s inverted yield curve is signaling that the economy is not strong enough to sustain these higher rates much longer.
- If your savings account or money market fund is yielding less than 2%, you should probably find a place for you cash.
The week ahead:
- Earnings: Target, Lowe’s, Costco, Best Buy, Salesforce, Nordstrom, etc.
- Home Price Updates
- PMI Readings
- Supreme Court Hearings on Student Loan Forgiveness
January’s equity market rally was partially built on a rebound in the global money supply (Net Global Stimulus mostly from China), appreciation of low-quality and high short-interest stocks, and the view that Fed hikes may not do as much damage to the economy as previously expected. Other factors that may have contributed to higher markets were increased wages, COLA adjustments to Social Security, and the end of tax-loss harvesting season.
Throughout February, we’ve been witnessing a deteriorating earnings outlook. Consumer spending has been increasing faster than personal income. This is resulting in a steep increase in credit card debt. The Fed is continuing to fight inflation and they are saying, they aren’t done. The market has been reflecting this by pricing in a higher terminal rate. It is good to see the market and fed expectations better aligned, but the consumer reliance on borrowing to fuel spending is probably not sustainable. This briefly explains February’s slowdown in equities.
Going forward, the end of the hiking cycle seems to be in sight. Cash is earning an attractive yield. Credit spreads are still at multi-decade lows, so there is still no sign of heightened risk (in the near term) in the bond market. Overall choppiness may remain, but eventually a new bull market should emerge.
Source: JP Morgan
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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