We thought it would be beneficial to share with you some key observations from three of our research partners along with an outline of our conclusions. 

iM Global Partner’s Market Slides

a.  While a recessionary bear market is still our near-term (12-month) base case, it may be a relatively moderate one given the strength of the labor market, ample household savings and solid business balance sheets. The Fed’s response will also be critical in terms of the timing and magnitude of when it starts cutting rates.

b.  Even in our recessionary base case, the stock market could rally further in the very short-term on (misplaced) optimism that the worst is over and recession has been avoided. But at some point, earnings will start getting revised lower and a recession priced into the market. The timing and magnitude are never certain, but the weight of the evidence supports sooner than later and the S&P 500 index at least revisiting its October 2022 low of 3600. That would be roughly a 20% decline from current levels.

NDR Digest

a.  Global Asset Allocation Current:

• 65% stock (Overweight compared to 55% benchmark)
• 10% cash (Marketweight compared to 10% benchmark)
• 25% bonds (Underweight compared to 35% benchmark)

b.  The ability to maintain momentum will be more challenging in the second half of 2023, but a renewed global slowdown is still likely at least six months away, thus supporting our overweight position in global stocks. In June, raised our 2023 global real GDP forecast to 2.8% form our prior estimate of 2.4%. The U.S. economy continued to avert recession, as it drew underlying strength from slowing inflation. The latest inflation report supported the Fed having smaller and less frequent rate hikes – but we expect a 25bps hike later this month. We increased our YE S&P target from 4300 to 4500 and suggested to watch for an overshoot before a late-year pullback. A continued slowdown in growth and inflation, rising levels of optimism, Fed policy, and valuations could contribute to a leadership rotation in the back half of 2023.

Schwab Market Perspective

a.  Global stocks’ double-digit gains may make it easy to forget the drama in the first half of 2023 that included failed banks, hiked interest rates, and a debt ceiling showdown. The second half may see less drama, but milder returns for investors as the Cardboard Box Recession broadens.  During the typical global recession, all areas of the economy (like manufacturing, services, retail, construction, and trade) tend to turn down around the same time. Yet, over much of the past year, only manufacturing and trade seem to be in a global recession. We’re referring to this phenomenon as a Cardboard Box Recession, because items that are made (manufacturing) and shipped (trade) tend to go in a box. Demand for corrugated linerboard, what most cardboard boxes are made from, has fallen similar to past recessions. Evidence of the Cardboard Box Recession suggests the mild recession in corporate earnings may continue. It continues to point to low-to-mid single digit year-over-year percentage declines for earnings per share.

Our Conclusions:

-  We are in a different environment than in the last 35+ years. Over the past several decades, we witnessed incredible globalization, booming offshore manufacturing, increased low-cost labor, just-in-time inventory, the end of the Cold War, persistently low inflation, and a long-term cycle trend of declining interest rates. That is not the world we’re in today.

-  The Cost of Money. Everything pivots on the cost of money. In finance, the “discount rate” is the interest rate used to determine the present value of future cash flows in a discounted cash flow (DCF) analysis. When the cost of capital was zero percent, the upside for stock returns was technically unlimited. Companies could borrow at very low-interest rates, and they could use that money—and many did—to buy back shares of their own stock.

-  Individual and institutional investors seeking better returns than low-yielding bonds, zero-interest-rate money market accounts, and low-yielding CDs shifted their money into equities. “There is no alternative”—or TINA—was their argument. But the winds have shifted.

-  Costs have risen—the cost of money and the impact of that on businesses—and net earnings have decreased. Investors have sought higher-yielding investment opportunities. We are now in the early innings of this new game.

This Is Life:  "Reflecting on the 4th of July" 

On July 4th, 1776 the 13 colonies claimed independence from Great Britain, an event that eventually led to the formation of the United States. Each year on the Fourth of July, also known as Independence Day, we celebrate this event. Celebrations usually consist of fireworks, barbecues, socializing with friends and family, and possibly spending some time reflecting on each of our unique paths to becoming Americans. We all have stories to tell, and we hope you enjoy getting to know a little bit more about the founding members of Guardian Financial Partners, LLC.

Patrick’s Story – I left Singapore in 1975, and came to the US to attend a boarding school in Ojai, CA on a financial aid scholarship. In 1978,  I began attending UCI in Irvine, CA graduating in 1983. In 1986, I received my citizenship after taking the “Pledge” at the Los Angeles Convention Center with 2000 other immigrants. All of us were proud and excited to become Americans.  In many ways, I’m a cliché. An immigrant .…Who became a citizen …. Raised 3 sons … Owns a home …. And is now a proud business owner.  The 4th is also a time to celebrate my mother.  A POW survivor in Singapore, who came to the US in 1986, and also became a citizen. She passed on July 4th 2020 at 86 yrs of age.

Hung’s Story - I wanted to share a piece my daughter Lauren had done a few years ago on my dad/family and their journey. Please click on the attached link. View Time Magazine here. 

Casey’s Story - All four of my great grandparents on my mother's side came to this country from 1911-1918. My paternal great grandparents settled in Los Angeles. One from Romania the other from Russia. They were married in 1921 and became citizens in 1938 and 1941. Life was hard in eastern Europe so they came here hoping for a better life. They definitely loved America. My maternal great grandparents came to this country from the Island of Rhodes in Greece, which was part of Turkey at that time. They settled in Seattle and raised 5 children. Three of the children, including my grandmother moved to Los Angeles in the 1940's. My grandparents were married in 1950 and remained in southern California the rest of their lives.

I feel very fortunate that all of them were brave enough to risk leaving their homes to come to this country not knowing what would lie ahead.

Our stories although different lead three financial advisors/friends taking the risk, and making the proverbial leap to become entrepreneurs. Many lessons have been learned along the way. Our strengths as a firm come from our different paths and values. We realize that collectively we have been able to deliver a wealth management and financial planning  experience we hope each of you appreciate. Most importantly, just as we truly appreciate your trust in us, we have realized our firm only exists if we work together to always look out for you. Many thanks! We hope you had time to reflect on your personal journey this Independence Day 2023.

Best,

Pat, Hung , Casey

Tax Planning

As summer is in full swing, it's easy to get caught up in the excitement of vacations, barbecues, and beach days. However, it's also a great time to start thinking about your tax planning. By taking a proactive approach to your taxes during the summer months, you can potentially save money and avoid any last-minute stress. Here are a few summer tax planning tips to consider.

1. Review your withholding status. If you've experienced any significant life changes, such as a marriage, divorce, or birth of a child, adjusting your withholding can help ensure you're not overpaying or underpaying taxes throughout the year.

2. Consider making estimated tax payments. If you're self-employed or have additional income that's not subject to withholding, making quarterly estimated tax payments can help you avoid penalties and interest on underpayment.

3.  Take advantage of tax-advantaged accounts. Contributing to retirement accounts like IRAs or 401(k)s can not only help you save for the future but also provide immediate tax benefits.

By incorporating these summer tax planning tips into your financial routine, you can maximize your tax savings and have a smoother tax season ahead. If you have any questions, please reach out to us anytime. 

We are here to help and offer objective advice. If you would like to discuss any of these topics or any questions relating to financial planning and/or the markets, please click below and pick a time on our calendar.