Guardian Financial Partners
October 2023
Our mission is to help you Preserve Your Assets and Protect Your Lifestyle. Our newsletter is aimed to educate you on the economic environment, as well as provide life perspective and financial planning ideas that can help you!
As always, your well-being is everything to us. If you have any questions about your financial or investment plan, please contact us anytime.
Quarterly Market Review
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. A key driver of recent inflation was the dramatic increase in Money Supply (or M2) that occurred during the pandemic. Now that M2 is contracting, we suspect inflation could continue to decline from current levels. The sharp decline in inflation has been a key driver of economic resilience supporting consumer spending and sentiment – we question whether these benefits will persist.
b. The concentration within the S&P 500 has soared past where it was in 2021 and the tech bubble. It is closing in on a level last seen during the early-1970s- a period know for the leadership of the Nifty Fifty stocks. (Guardian add – Here are few companies from the Nifty Fifty: Avon, JC Penney, Polaroid, Sears, Xerox…50 years later, some of these barely exist as entities.
c. While we anticipate a recession, our base case is that it will be relatively mild, partly because many companies and investors have been anticipating a recession. Amid this build up, some companies, especially tech, have already laid off workers and slowed hiring, which helps to loosen the labor market and ease inflation pressures.
NDR Digest
a. Global Asset Allocation Current:
b. The U.S. economy appears to be on a path towards a soft landing, but we can’t underestimate the risk of a recession, as near-term concerns rise. While Q2 real U.S. GDP showed a 2.1% annual growth rate, economic growth is likely to slow in Q4 and in 2024 (due to student loan repayments, strikes, etc), labor markets should cool and get back into balance, and impacts from credit tightening should be increasingly felt. In the past decade, we’ve regularly assessed whether the global stock market is in a long-term growth phase, known as a secular bull trend. In 2020, concerns arose due to the pandemic’s potential deflationary impact, drawing comparisons to past bear markets like the 1930s and 2000s. In 2022, escalating inflation and interest rates raised worries about the market’s overall trend. However, we concluded that despite fluctuations, global equities remained consistent with a secular bull, backed by factors such as improving liquidity, reduced volatility, and manageable economic growth.
Schwab Market Perspective
a. Recession risks are still with us, evidenced by the recent triple threat of the increase in the value of the U.S. dollar, oil prices, and Treasury bond yields. All three metrics have moved higher since the summer, each putting downward pressure on key areas of the economy and market.
b. Much like parts of the economy and labor market, there are signs of deterioration under the stock market’s surface. Not only are a handful of mega-cap stocks in the S&P 500 still accounting for most of the market’s gain this year, the “average stock” continues to underperform.
c. With economic growth proving more resilient than expected, yields have moved higher to reflect the “higher for longer” stance on rates. Looking out the rest of the year, we the potential for the bond market to stabilize and yields to move moderately lower.
Our Conclusions:
- The narrow breadth of the market reminds us of the late 90s when a few tech mega caps (Microsoft, Cisco and AOL to name a few) dominated but then faded for 3 years straight as the valuations that were stretched too far eventually collapsed. We think of the 500 companies of the S&P 500 as being pillars. Much healthier when we have 300-400 names carrying the weight vs just a handful.
- Bonds could be heading for an unprecedented 3 straight years of negative returns. However, 5-year forward returns for bonds look attractive from here with yields having gone through the negative price adjustment due to the dramatic change in interest rates.
- The interest rate shift over the last 2 years is a true paradigm shift. We do not expect the central banks of the world to return to the low to zero rate world of the past 15 years. We maintain that have an allocation of one’s portfolio to private credit as it provides:
If you have questions about your portfolio, please contact us anytime.
This Is Life: "The Road Back"
Life Perspective
By: Hung P. Nguyen, CFP®
I had written in a previous “This is Life” about my 13-year-old daughter, the soccer player who tore her ACL back in spring of 2022. After a year-long recovery process, she began playing with her club soccer team last summer. I will go into “Proud Papa” mode for a bit here. Her team, the OC Blues is a top-flight club that exclusively trains female players. (One former player, Trinity Rodman, daughter of Dennis Rodman, recently participated in the World Cup).
She was coming off the bench after having started most of her playing days. A little rusty at first, but physically and mentally returning to what can be a fast, physical game. Her team played in a tournament down in San Diego where they played the top teams from all over the country. They ended up winning that tournament by beating a San Diego team that they’ve battled a few times, winning 2-1. By winning, they were invited to Virginia to play the top 8 teams in her age group. While they didn’t fare so well there, it was still quite the achievement.
Recently at practice, she planted and said she heard a pop. Our worst fears were confirmed, she had torn the ACL in her other knee. Nothing is tougher than as parents to see one’s child go through a severe injury, let alone 2 in such a short period of time. A bittersweet moment came 3 weeks after her injury, she was one of a few team players selected to train at the US Soccer Talent ID Center.
My daughter has been amazingly strong throughout this. She said let’s go ahead with surgery because I want to get back on the field. Her strength helped us as parents deal with what she was to endure…again. The surgery was performed in mid-October and the patient is recovering well and getting plenty of attention. : )
We call this section, “This is Life” for a reason. I suppose things like this happen, not just to us, but to others in different forms and fashion. What I find to be true in life, is not how many times you fall down, but how many times you get up. Take care of you and yours!
Social Security and Medicare Updates\
There were recent announcements regarding Social Security and Medicare.
Social Security beneficiaries will receive a modest 3.2% cost-of-living adjustment (COLA) in 2024, the Social Security Administration announced—which is much less than 2023’s historic 8.7% COLA but is still comfortably above the 2.6% average COLA over the past 20 years.
The 3.2% COLA, which takes effect in January 2024, means the current average Social Security benefit of $1,790 will increase by about $57.30 per month starting in January. That’s significantly less than the $144 raise the average Social Security beneficiary received for 2023 after this year’s 8.7% COLA. You can read the full article here.
The Centers for Medicare & Medicaid Services (CMS) released what the monthly premium will be for Medicare Part B enrollees in 2024—and it’s not as big an increase as was feared by some.
The standard monthly premium for Medicare Part B enrollees will be $174.70 for 2024, which equates to a 6% increase of $9.80 from $164.90 in 2023. The annual deductible for all Medicare Part B beneficiaries will be $240 in 2024, an increase of $14 from the annual deductible of $226 in 2023. You can read the full article here.
If you have any questions, please reach out to us below.
