Debt Ceiling..

It is no secret what is moving the stock market higher so far this year!

Four companies (Apple, Microsoft, Amazon and Nvidia) make up over 19% of the S&P 500 index. The ten largest weighted companies out of the 500 companies in the S&P 500 Index now account for 29% of the return.

Artificial intelligence and technology stocks have lifted the S&P 500 up over 9% so far in 2023.

If you were to “equal” weight the 500 companies, the year-to-date return would be approximately 1.14%.

So far, 2023 has been a rally of growth stocks. These were the same stocks that took sharp losses in 2022, many down between 20% to 40%.

So now what?

Debt Ceiling coming to a head?

We have the debt ceiling now coming a head. Treasury Secretary Janet Yellen has repeatedly stated we need to increase the debt ceiling prior to June 1st to avoid default. Well, today obviously is May 22nd, so we are down to the wire.

The stock market melting higher is suggesting a positive resolution. Regardless of your political stance, a default could be equal to an economic nuclear war. Both parties should be fully aware of the consequences.

Let us hope we can put this issue in the rear-view mirror until after the next Presidential election.

With the assumption we are moving beyond the debt ceiling issue, the markets will again focus back on inflation, economic growth, and corporate earnings.

Investors are betting the economy will slow significantly, forcing the Fed to cut rates later this year. The recent numbers suggest 79% believe the Fed will begin cutting rates in November, and 92% say December. Seems as no one believes the Fed. The Fed has stated they have no plans to reduce rates in 2023, even with a slowing economy. Someone is going to be incorrect. Any thoughts?

Economy Slowing?

The first quarter Gross Domestic Product (GDP) was reported at 1.1%. The number gets revised 2 more times, one being this week.

Many are forecasting the 2nd Quarter GDP to be over 2.5%.

It seems the economy is not yet losing steam, as many of the large brokerage firms have forecasted. Many believe this summer we will start to see slowing.

My short-term concern, if the economy does slow as many suggest, how will the stock market truly react, especially absent a rate cut? Was the slowdown already priced into the markets last year? A slowing economy should assist in bringing down “core” inflation, which eventually will lead to the Fed reducing rates sometime in 2024, as Powell has suggested.

Asset Allocation

Technology stocks will not lead the markets indefinitely. With so many economic and political moving parts, having an appropriate asset allocation may be more important than ever.

Bonds now pay attractive rates, which should assist your overall performance, whether the economy slows or not.

Value stocks, which held up much better than growth in 2022, are significantly lagging the market so far this year. Value stocks tend to be more resilient during challenging economic times, and should be an appropriate portion of your overall allocation.

Of course, having short-term cash on hand for expenses is always a key component of your allocation. Not having to sell investments at inopportune times for your current expenses is critically important.

We always review clients’ assets allocation during reviews. If you are in-between review meetings, and still would like to “check-in,” please don’t hesitate to reach out. If any non-clients would like to discuss their current asset allocation, please feel free to schedule a complimentary consultation by clicking here!

Asset allocation typically provides a smoother, less volatile ride. This becomes increasingly critical as you enter and continue through your retirement years.*

*Asset allocation programs do not assure a profit or protect against loss in declining markets. No program can guarantee that any objective or goal will be achieved.

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