April 10, 2023
Dear Valued Client:
Enclosed are your reports and spreadsheets for the period ending March 31, 2023.
Market Recap – Quarter to Date and Outlook
Markets were resilient in the first quarter, showing modest gains. There were more interest rate hikes and major bank failures. This news was mitigated by better inflation numbers, quick action by government officials in the banking sector, and signals by the Federal Reserve that interest rate hikes will soon end.
Regarding performance, risk-on assets that went down the most in 2022, showed the biggest gains. Growth stocks outperformed value stocks and international markets moved up nicely as well. Municipal bonds showed modest gains. The fact that growth assets went up the most shows a prime example of why we do periodic rebalancing of your portfolios. Buying equities when they go down or go “on sale” as far as we are concerned gives us an edge in our investment performance.
With respect to the banks, we do not believe there is a systemic problem. We believe that Silicon Valley Bank in California was poorly run and a disaster waiting to happen. In Europe, Credit Suisse was acquired by UBS. Credit Suisse was also a very poorly run institution with wealthy clients and major executives fleeing. We believe the US Banking Sector is undervalued at the moment and we own these assets through “Value” mutual funds and exchange traded funds.
Consensus estimates for 2024 earnings are coming in at around $245 per share for the S&P500. With the index currently trading at approximately 4,100, we have a forward earnings yield of 6.0%. We believe this is fairly valued for now. Clients should continue to dollar-cost average (*). We would look to re-balance at the 3,750 or so levels of the S&P500 index.
There are several items to keep an eye on for the equity market to continue to increase in the short term. Initially, we must be correct in our belief that there is NOT a systemic banking challenge. We also should examine inflation, jobs, and earnings.
On an overall basis, core inflation remains stubbornly elevated. The consumer price index (CPI) reached an annual rate of 9.1% last June and is now down to an annualized rate of 6.0%. The Federal Reserve has a target rate of 2.0%. This downward trend must continue for equity markets to increase.
As crazy as it sounds, core unemployment needs to go up slightly to tame inflation. You are looking to see smaller amounts of job creation and wage growth. Unemployment of about 4% is ideal.
The most important factor to stock market valuation is earnings. If the consensus estimates are correct and the above positive outcome takes place on inflation and jobs, the markets should continue to go up. If inflation continues to go up and we do not get an economic soft landing, market volatility will increase.
The final piece is non-economic news. We all know what can happen if there is a pandemic. We also live in a dangerous world where issues concerning North Korea, the Middle East, Russia, and China can always put a damper on our best laid out plans.
This is why a prudent approach to your investments is what we strive for. Our office “stress tests” all clients on how well you can hold up in the eventual bear markets. Virtually all our clients have the same or more income coming in from their investments than when the bear market started. If you do not understand this, we suggest you come in for a meeting or arrange a virtual meeting with our office.
We are working on some client events for the summer. Our speaker last summer from the FBI is now commanding speaking fees of nearly $50,000 per speech. His FREE trial on our clients proved to be a nice bargain.
We congratulate Anthony and Genna Sandomierski on the birth of a healthy Anthony Michael Sandomierski Jr. who was born on March 22nd.
We will have a paid summer intern added to the staff this summer. Ethan Diamond is a senior at the University of South Carolina and a graduate of CBA.
Three members of our staff are studying for the CFP® exam and will take it this summer as continuing education is a major point of emphasis for our team.
Clients are encouraged to come in for a financial planning check-up. There is a lot of availability on the calendar for Zoom meetings and office meetings. We are here for you.
Thank you once again for your business as we continue to thrive.
Jack D. Oujo, CPA/PFS, CFP®, CSA, MS Taxation
- Investment Recommendation Disclosure: The client acknowledges that the representative is relying upon the client information (e.g. risk tolerance, time horizon, and investment objective) for the purposes of providing recommendations to the client. The client agrees to give the representative notice of any significant changes in the client information and to provide the representative with any additional information that the advisor may reasonably request.
- Historical Performance Disclosure: Past performance is not indicative of future results. The investment return and principal value will fluctuate with the market. Investor’s shares when redeemed may be more or less than their original cost.
- General Market/Investment Risk Disclosure: Investments are subject to market risks including the potential loss of principal invested. Yields and prices will fluctuate along with the market and other economic conditions. Securities may be worth less than the original cost when redeemed.
- Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but Avantax does not guarantee the accuracy or completeness of any statement.
- A portion of municipal bond’s income may be subject to state or local taxes. A portion of a municipal bond’s income may be subject to the federal alternative minimum tax. Investing in municipal securities can be volatile and include such risks as: adverse tax or court rulings, legislative or political changes, market and economic conditions, issuer, industry-specific (including the credit quality of municipal insurers), and other conditions.
- The Avantax affiliated companies exclusively provide financial products and services, and do not provide or supervise tax or accounting services. Advisors may provide tax, accounting or other services through their independent outside businesses, but these services are separate and apart from Avantax.
- Standard & Poor’s is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index
- Asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
- Dollar-cost averaging does not assure a profit and does not protect against loss in declining markets. Such a plan involves continuous investment in securities regardless of the fluctuation of price levels of such securities. An investor should consider his or her financial ability to continue his or her purchases through periods of low price levels.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
(*) Performance and Data numbers are per Morningstar and Earnings Estimates are per Bob Brinker. Client spreadsheets are normally sent four times per year to clients with over $750,000 of investment assets and twice per year for clients at the $500,000 to $749,999 level.
** Represents brokerage, direct to fund and annuity assets under management as of 6/30/2019