A Time to Be Thankful

SUMMARY

• Inflation has been trending down over the past year.
• Unemployment is very low.
• The S&P 500 has had a positive trend this year, so far.
• We have much to be thankful for.

This Thanksgiving, as we reflect on the economy and markets, there is much to be thankful for:

Inflation is Lower

A year ago, the headline inflation rate was 7.1% and just starting to roll over. As of last month, it is 3.2% (see chart below) and continues a downward trajectory. Over the next year, the debate will be whether inflation can continue to fall closer to the Federal Reserve’s target of 2% and whether, if it stabilizes between 2% and 3%, the Fed will decide no more rate hikes are warranted. Broadly, we think that is the case.

The Economy is Growing

The Atlanta Fed makes a dynamic forecast of economic growth for the current quarter using incoming data. We have found it to be a remarkably good real-time indicator and especially useful as their series is produced monthly. A year ago, financial markets were concerned about a recession in 2023. The reality has been much better, with the growth rate so far in 2023, higher than in 2022. We think the economy is unlikely to fall into recession for the calendar year 2024, though we think a small decline is possible in the 4th quarter. This is even more remarkable given the magnitude of the rise in interest rates.

Unemployment is Very Low

The latest unemployment rate is just 3.9%, only fractionally higher than a year ago and one of the lowest rates in the last 50 years. The Fed has a dual mandate of inflation and unemployment. Although their focus has been squarely on inflation over the last year, we surmise they must be feeling fortunate that the former is falling without the latter rising. In our view, we do not see a significant rise in 2024

Stocks Have Turned Up Again

A year ago, the S&P 500 was around 4000 and is now 4500; including dividends, this represents a total return of over 15%. While the index has yet to eclipse its 2022 high, as we wrote last week in our Weekly View, the primary trend (slope of 200 day moving average - red line below) continues to be positive, which we regard as a good omen for 2024.

Savers are Being Rewarded

The rise in interest rates has been dramatic and has resulted in a tough bear market for bonds. From its low, the bear market was made worse because yields fell so low in 2020, with the 10-Year Treasury yield below 1%. Over the last year 10-year yields have been up but returns are positive as the yield has more than compensated for the decline in price. Furthermore, savers are now being rewarded with interest rates high in absolute terms, and now above the rate of inflation.

While we are thankful for these market-related positives, we are especially thankful to the Financial Advisors and clients who trust us to be good stewards of the assets we manage. You are always our number one priority, and we never take that trust for granted. We hope you all enjoyed the Thanksgiving holiday.

Risk Discussion: All investments in securities, including the strategies discussed above, include a risk of loss of principal (invested amount) and any profits that have not been realized. Markets fluctuate substantially over time, and have experienced increased volatility in recent years due to global and domestic economic events. Performance of any investment is not guaranteed. In a rising interest rate environment, the value of fixed-income securities generally declines. Diversification does not guarantee a profit or protect against a loss. Investments in international and emerging markets securities include exposure to risks such as currency fluctuations, foreign taxes and regulations, and the potential for illiquid markets and political instability. Please see the end of this publication for more disclosures.