Dear Clients & Friends,
This is often the best time of the year to reflect and give thanks for all the people and causes in our life that we appreciate most. With that being said, it feels to me with all the economic and geopolitical uncertainty swirling around us at the moment it is easy to lose sight of all the positive things out there. Here are just some of the financial realities we’re thankful for now that we’re in the second to last month of the year:
- Resilient U.S. economy. Coming into 2023, the dreaded "R word" (recession) seemed a near certainty. However, the most recent data showed our economy grew at a strong 4.9% clip (annualized) during the third quarter, the fastest rate since the initial COVID-19 recovery. Even though borrowing costs are rising, the consumer remains in good shape, bolstered by a strong job market and rising wages. While the economy is likely to slow in coming quarters, it’s unlikely to slow enough to concern stock markets, given the health of consumers and corporate America.
- End of the earnings recession. Solid third-quarter earnings (vs. expectations) mean the earnings recession is almost certainly over. The market’s reaction to results has been mixed at best amid all the uncertainty. But a 5% year over year increase in S&P 500 earnings is a distinct possibility—perhaps 10% excluding the energy sector.
- Easing inflation pressures. Surging inflation and the Federal Reserve’s (Fed) aggressive response were the big stories of 2022. But it seems inflation has eased enough to keep the Fed on hold at its next few meetings, and potentially cut rates in 2024. Historically, stock and bond markets have tended to perform well after rate-hiking campaigns.
- Fixed income is an attractive asset class, despite recent bond bumpiness. After nearly a decade of very modest returns, yields for many fixed income investments are the highest they’ve been since 2007. Starting yields are the best predictors of future long-term returns, so at these higher yield levels, fixed income returns may be higher too. Moreover, yields for some of the highest quality fixed income sectors are offering attractive income again-- including your run-of-the-mill money market accounts.
There’s no doubt this year has been challenging, given increased economic and geopolitical uncertainty. But taking a more balanced view on the economy and the markets, we believe there are some positives that may help stocks finish the year higher. Even in the face of potential volatility – and despite the myriad of issues we are facing in the US and around the globe – focusing on longer-term goals while tuning out short-term noise remains our best financial advice.
As always, thank you for being our clients. It is our privilege to serve you. We wish you and yours a truly blessed Thanksgiving!
Nick Enzweiler, CFP® is a registered representative with, and securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Mariner Independent Advisor Network, a registered investment advisor. Mercer Partners Wealth Management and Mariner Independent Advisor Network are separate entities from LPL Financial.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of October 31, 2023.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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