April Newsletter to Clients

Enjoy this month’s edition that features an introduction to our new employee as well as a review of short and long-term views on the stock market.

Moneywatch welcomes new employee Brianna Corby to our team. With the title of Client Support Specialist, Brianna will assist Lee Chapman, our Operations Manager, as well as our advisors, in providing a variety of services to you, our clients. Brianna holds a Bachelor of Science degree from the University of Akron and lives with her fiancée, John, and their son Grayson in Lexington. We know you will enjoy interacting with Brianna on the phone and when you visit the office.

NEWS FLASH! Stocks were up during the first quarter of 2023! Are we back in a bull market? Here is what we know for sure:

• The S&P 500 Index of large, U.S. companies was up 7.36% during the first quarter, although still down over 8% over the last 12 months;
• Small, U.S. stocks as measured by the Russell 2000 index were up 2.63% for Q1 although down 12% over the last 12 months;
• International stocks were up 8.5% in Q1 and down just 1.4% over the last 12 months.

So, what do these numbers tell us about the future? First, the good news:

1. When the S&P 500 finishes up more than 7% during the first quarter, the full year has never been lower. In fact, 16 of 16 times this happened with an average full year return of 23.1%;
2. Inflation, as measured by the core personal consumption expenditures price index – a name only its mother could love – slowed modestly during February, the latest month figures are available. If that pattern holds, it could help stocks if the Federal Reserve determines inflation is under control so it can slow or stop its interest rate increases.

If we list the good news, there are probably some concerning indicators as well:

1. A key manufacturers index was down again in early April. New orders fell, customers’ inventories grew – could be indications of a manufacturing slowdown. Since 1948, this is the 16^th time the index was this low. 12 times the economy was either already in a recession or moved to one soon. The other 4 times a recession did not occur;
2. Stocks may be a bit pricey relative to company earnings. Currently, the S&P 500’s Price to Earnings ratio is slightly above 22 based on the last 12 months’ earnings. Meaning, investors pay $22 for the right to earn $1. Historically, the average is 16.

For those trying to time the direction of the stock market in the near future, the term “mixed signals” would be an understatement. For those appropriately focused on their own specific, individual goals, the main variable is when you will need to access your investments for income. So, for those not planning to access their funds for the next decade or so, what returns might be expected over the next 10 years?

Savita Subramanian, stock strategist at BofA Securities, believes the S&P 500 index is priced a bit high relative to expected company earnings and predicts 7% average annual returns over the next decade. Comparatively, the index has earned an average annual return of 10.15% since adopting 500 stocks in the index in 1957. As always, a well-diversified portfolio of stock and bond mutual funds designed for your needs is the way to go.

Thank you for your continuing confidence.