New Investment Option/Market Review
Our new Ultra Aggressive allocation is a new diversified portfolio that invests in Mutual Funds, Indexes and a handful of individual stocks. It should provide more participation in the Equity Markets which should result in higher, long-term returns. It’s more for younger investors who have a higher risk tolerance and are wanting to compete more with popular stock indexes without much concern for volatility. To be clear, this is not for the faint of heart. Periodically, it will be a bumpy ride. In the last four years, we’ve had two bear markets. The Nasdaq (a popular U.S. stock index that generally invests in the tech sector) lost approximately 37% from the end of 2021 into 2022 from peak to trough, for example. Please let us know if you’d like more details.
Is the economy in for a soft landing? First, we should probably take a moment to define what a “soft landing” is. In basic terms a soft landing is an effort by the Federal Reserve Open Market Committee (FOMC) to slow the economy and bring down inflation, while preventing the US from entering recession. Our base case, in no small part due to the strength of the labor markets (and by extension consumer spending), is that the Powell Fed will continue to push the inflation numbers in the direction of the 2% target without causing the economy to tip into recession.
We may be in the minority calling for the soft landing. For example, two of the firms we follow closely – Capital Group and AGF Insights – are both calling for a recession either later this year or in 2024. Capital Groups’ economist Jared Franz thinks the economy will shrink by one percent in 2023. He points to the inversion of the yield curve as the key. “The yield curve is more Inverted now than it has been since the 1980s. Of all recession indicators, it has been the most accurate one.” Kevin McCreadie, CEO and Chief Investment Officer of AGF, thinks we’ll likely enter recession due to the lag effects of the Fed raising interest rates so quickly. They both may be right. But it’s a good time to mention that back in August 2022 we asked if it matters if we’re in a slowdown (i.e., “soft landing”) or mild recession. Answer: Not really, as long as it is mild.
Why are we in the soft-landing camp? First, it’s about Fed….. and the Fed has reason to pause. Inflation numbers are trending down, banks are struggling and more likely to default and banks are loaning less money. All of these issues are moving the Fed closer to their goal. Increasing rates significantly further could pressure our economy into a recession. On the positive side, Consumer Spending, Manufacturing, Housing and the Service Sector are all showing signs of stability and improvement.