The Dow (+1.8%), NASDAQ (+4.3%), and S&P 500 (+2.5%) continued their 2023 rally. Year-to-date (YTD), the Dow has gained a modest 2.6%, while the tech-heavy NASDAQ has gained an astonishing 11.1% so far. Meanwhile, taxable bonds and tax-free municipal bonds were flat last week, but have shown gains of nearly 3% YTD.
The US Q4 GDP was reported last week at an annualized rate of 2.9%, exceeding estimates of 2.8% and providing fuel for a market rally. Positive economic news was also reported in the Eurozone, which has benefited from lower energy prices, as a warmer winter has eased fears of an energy shortage. Further, the global economy has benefitted from the re-opening of the Chinese economy, but that could also lead to inflationary pressures with increased demand of goods and services.
At Menninger & Associates, we continue to invest our clients’ portfolios with caution. We have always tried to invest our clients’ hard-earned assets based on fundamentals of the economy, rather than chasing the markets in fear of missing out. Simply put, we don’t like what we are observing right now. Leading Economic Indicators (LEIs) have historically been an accurate predictor of a recession, and those values are heading in that direction. Another historically accurate predictor of a recession is the inverted yield curve, and that has been extraordinarily inverted for a couple months now, as the 3-month and 10-year Treasury yields are inverted by about 0.7%. Lastly, we are about 29% of the way through earnings season, and earnings beats are lagging historical averages, and 4th quarter earnings are expected to drop 5% - 7% from the prior year. It is very difficult to knowingly invest our clients’ portfolios in an aggressive manner so long as all these indicators are pointing to turbulence ahead. Thus, we continue to proceed with caution.
More earnings reports of big tech companies are expected this week, but all eyes will be on the Fed, as they raise interest rates by an expected 0.25%. More importantly, investors will be focusing on the Fed’s speech after the announcement on Wednesday, and the important monthly jobs report released on Friday.
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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