May Newsletter to ClientsSubmitted by Moneywatch Advisors on May 5th, 2023
Enjoy this month’s edition that features a notice about the TD Ameritrade merger with Schwab and notes on the economy and the markets.
Notice from TD Ameritrade(TDA): As TDA was purchased by Schwab, all of us with accounts at TDA will receive periodic notices regarding the transition scheduled for around Labor Day. In June, you will receive an Account Transition Notice that will provide details about the transition, what to expect, and other details. You do not need to take any action when you receive this notice. We have been told repeatedly that existing TDA account holders will not have to complete any paperwork for the transition to Schwab and that the transition will be seamless. If you have any questions about any notices you receive, please call the Moneywatch Advisors office at 859-268-1117 or email Lee Chapman at firstname.lastname@example.org.
Inflation and the economy: The Federal Reserve raised short-term interest rates for the 10th straight month since March, 2022. This brings the fed-funds rate to a target range of 5.0%-5.25% - its highest level since 2007. These efforts, of course, are designed to slow the economy in order to lower inflation. Inflation appears to be ebbing but the economy, by most measures, appears resilient, if not strong.
The Fed’s headline inflation indicator decreased to 4.2% in March, down from a peak of 7.0% last June. While economic data is mixed, for sure, the broad picture still shows a buoyant economy. First quarter Gross Domestic Product growth came in at a 1.1% annualized rate – a bit slow - but growth of 3.7% in consumer spending, a key driver of the U.S. economy. Additionally, the unemployment rate is still just 3.5%, what many economists believe is full employment.
The market: The data above are lagging indicators, meaning they measure what has already happened. The stock and bond markets, however, are leading indicators, meaning they try to anticipate what will happen in the future. So, with data that often conflicts, what are professional investors predicting for the rest of the year? Barron’s annual survey produced the following:
- Stock investment outlook:
- 36% of respondents are Bullish – the S&P 500 will increase 1% through the end of 2023;
- 28% of respondents are Bearish – the S&P 500 will fall 13% through the end of the year;
- 36% of respondents are Neutral - a very large portion for any poll.
- Is the U.S. stock market overvalued, undervalued or fairly valued?
- 47% Overvalued;
- 45% Fairly valued;
- 8% Undervalued.
- Which asset class will provide a higher return in the next 12 months?
- Stocks – 48%; Bonds – 52%;
- Over the next 5 years?
- Stocks – 95%; Bonds – 5%.
As you know, although making investment decisions based on market predictions is a fool’s errand, it’s still fun. Not unlike predicting NCAA basketball champions or political races. For over 40 years, Moneywatch has invested clients to help them meet their individual needs and by diversifying their portfolios appropriately to help smooth out the ride. That’s our legacy and our strong conviction for what’s in the best interests of our clients.
Thank you for your continuing confidence.