July Newsletter to ClientsSubmitted by Moneywatch Advisors on July 12th, 2023
Enjoy this month’s edition that features a look at the economy, a review of the stock market’s first six months of the year and a reminder of the September transition from TD Ameritrade to Schwab.
Economics gets a bad rap. Thomas Carlyle, the Scottish historian, coined it the “dismal science.” Similarly, President Harry Truman reportedly said, “Give me a one-handed economist. All my economists say ‘on one hand’, then, ‘but on the other…”
For the last 18 months there has been talk about a looming recession. Now, the common definition of a recession is two consecutive quarters of negative growth in gross domestic product. Negative growth? Who talks like that? But, what if we can make economics fun?
In 2008, then-Federal Reserve Chairman Alan Greenspan revealed that he monitored sales of men’s underwear to help forecast economic downturns. His theory was that, when the economy slows, men buy less underwear because why spend money on something no one sees? Good news: in 2023, men’s underwear sales are up.
Conversely, the lipstick index maintains that lipstick sales increase during recessions, in part because lipstick is a relatively inexpensive pick-me-up. In 2023, makeup is growing in dollars and units sold , according to Circana, a consumer analytics firm. Although it seems counter-intuitive that an increase in sales might indicate a recession, we’ll put that one in the bad news category.
So, we have one indicator telling us no recession, another saying the opposite. What about real numbers? The U.S. unemployment rate sits at 3.6%, indicating a strong economy. Furthermore, non-farm payroll growth is 2.5% higher than this time last year – the highest growth since the mid-‘90s. On Wednesday, the Labor Department announced the Consumer Price Index rose 3% compared to last June, the lowest since March, 2021. This is still higher than the Fed’s target rate of 2% so many expect the Fed to raise interest rates again in late July.
As we’ve said before, economic statistics are backward-looking. The stock and bond markets, however, are forward-looking. An investor who purchases stock in a company owns part of that company and the earnings it produces. One pays more for that company if there is an expectation the company will earn more in the future than it does today. What did investors do during the first half of 2023?
- The S&P 500 Index of large, U.S. companies rose almost 17%;
- The Russell 2000 Index of small, U.S. companies rose 8%;
- The MSCI EAFE Index of companies located outside the U.S. rose over 12%;
- The Aggregate Bond Index of government and corporate bonds in the U.S. rose 2.09%.
Based on these 6-month returns, investors appear to have high expectations for the next few years.
TD Ameritrade transition to Schwab update:
Many of you received an email from TD Ameritrade recently describing some key points about the impending merger of TDA and Schwab. Here are some highpoints:
- Our TD Ameritrade accounts will automatically and securely transition to Schwab, at no cost to you, on or about Tuesday, September, 5;
- Our TD Ameritrade accounts will be available, as usual, through Friday, September 1. After that, we will not have access to the accounts until Tuesday, September 5;
- Moneywatch Advisors will remain your advisor of record and will have the same authorizations on the Schwab accounts as we do now on your TD Ameritrade accounts.
As always, if you have any questions or concerns about the transition, please call the office at 859-268-1117.
Thank you for your continuing confidence.