Insight Archive - Page 12 of 14 - Concord Asset Management

Weekly Market Insights – Monday, May 15, 2023

Attention Turns to the Debt Ceiling:

Stocks were mixed last week as good inflation news was offset by mounting debt ceiling concerns and rekindled regional banking fears.

Over the last month, The Dow Jones Industrial Average returned –1.92%, while the S&P 500 returned –0.31%. The Nasdaq Composite Index returned 1.73%.

Source: Charles Schwab & Co, Inc.

Uncertainty Weighs on Stocks

The week got off to a quiet start as investors waited on April’s two key inflation reports scheduled for release on Wednesday and Thursday. When consumer prices rose less than forecasted, stocks broke out of their lethargy and moved higher. Stocks also got a boost on Wednesday afternoon from comments from the White House, hinting at an opening for negotiation on the debt ceiling.

Despite a substantial cooling in producer price increases, stocks turned mixed on Thursday amid a disappointing earnings report from a Dow Industrial component and new data that reignited investor anxiety over regional banks’ financial health. Stocks ended the week the way they began, largely drifting in an otherwise directionless fashion.

Inflation Pressures Ease

Consumer prices rose 4.9% year-over-year, the tenth consecutive month that the headline inflation rate has declined. This was a slight improvement over March’s 12-month increase of 5.0%. April’s monthly inflation rate was 0.4 percent, above March’s 0.1 percent rise. April’s increase was driven by higher housing, gasoline, and used car costs.¹

Inflation progress extended into wholesale prices, which rose 0.2% in April–below the consensus forecast of a 0.3% rise. For the last twelve months, producer prices increased 2.3%, an improvement from last month’s 2.7% year-over-year gain and the lowest recording since January 2021.²

This Week: Key Economic Data

Source: Bloomberg Finance L.P.

This Week: Companies Reporting Earnings

Source: EarningsWhispers

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken
Chief Investment Officer
Concord Asset Management

—

Footnotes and Sources

¹The Wall Street Journal, May 10, 2023
²CNBC, May 11, 2023

The companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks, including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications, and other factors. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. Please consult your financial professional for additional information. This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.

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Weekly Market Insights – Monday, May 8, 2023

Friday Rally Trims Losses; CPI Report Next Week:

A Friday rebound, triggered by big tech company earnings and a strong jobs report, shaved much of the week’s accumulated losses.

Over the last month, The Dow Jones Industrial Average returned 0.39%, while the S&P 500 returned 0.72%. The Nasdaq Composite Index returned 0.98%.

Source: Charles Schwab & Co, Inc.

Stocks See-Saw

Renewed regional bank concerns weighed on investor sentiment last week, despite the rescue of a troubled bank before the start of the trading week.

But worries were not isolated to regional banks. Secretary of the Treasury Janet Yellen commented that the federal government may hit its debt ceiling earlier than expected, heightened investor jitters over a potential technical default. The stock market also slipped in the wake of the latest rate hike decision by the Federal Open Market Committee (FOMC).

Solid earnings from one mega-cap tech firm and a strong employment report steadied investors, resulting in a Friday bounce that ended a volatile week on a positive note.

Fed Hikes Rates

Amid concerns in the regional bank sector and tightening credit conditions, the Fed elected to increase interest rates by 0.25%, citing elevated inflation and robust job gains. Investors were more focused, however, on what the Fed signaled about its plans since the expected rate hike.

The Fed indicated it may pause further rate hikes, suggesting that future decisions will be based on economic data and prevailing financial conditions. Following the announcement, interest rate traders assigned an 89% probability that rates would remain unchanged following the next meeting of the FOMC in June.^1,2

This Week: Key Economic Data

Source: Bloomberg Finance L.P.

This Week: Companies Reporting Earnings

Source: EarningsWhispers

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken
Chief Investment Officer
Concord Asset Management

—

Footnotes and Sources

¹The Wall Street Journal, May 5, 2023
²The Wall Street Journal, May 3, 2023

Weekly Market Insights – Monday, May 1, 2023

Stocks Rally as Attention Shifts to Fed’s May Meeting:

Strong earnings from several mega-cap technology companies offset renewed regional banking jitters and weak economic data, leaving stocks higher for the week.

Over the last month, The Dow Jones Industrial Average returned 2.65%, while the S&P 500 returned 1.46%. The Nasdaq Composite Index returned -0.27%.

Source: Charles Schwab & Co, Inc.

Earnings Drive Rebound

It was a very busy week of earnings reports, but none more important than those from the Big Tech names. After two days of sharp losses on revived regional banking fears and otherwise lackluster earnings results, stocks rallied powerfully on a succession of positive earnings surprises from several mega-cap companies.

Also aiding the sentiment was last week’s first quarter Gross Domestic Product (GDP) report. Though the report showed muted economic growth that fell short of expectations, investors were encouraged by strong consumer spending.

Slowing Growth

In a sign that higher rates are slowing economic growth, first-quarter GDP slowed to a 1.1% annualized growth rate as healthy consumer spending helped offset a decline in business investment and a slowdown in nonresidential investment.

Economists had expected first-quarter GDP growth to come in at 2%. The business inventory investment slowdown reduced the headline GDP number by 2.26%.¹

The initial estimate of GDP also reported some disappointing inflation news as the quarter-over-quarter Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, rose 4.2%, which was higher than the 3.7% forecast.¹

This Week: Key Economic Data

Source: Bloomberg Finance L.P.

This Week: Companies Reporting Earnings

Source: EarningsWhispers

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken
Chief Investment Officer
Concord Asset Management

—

Footnotes and Sources

¹CNBC, April 27, 2023

Weekly Market Insights – Monday, April 24, 2023

Stocks Show Small Losses After Mixed Week:

Stocks remained resilient last week amid mixed earnings reports, hawkish Fed-speak, and lingering recession fears, closing out the five trading days with small losses.

Over the last month, The Dow Jones Industrial Average returned 5.31%, while the S&P 500 returned 4.46%. The Nasdaq Composite Index returned 1.75%.

Source: Charles Schwab & Co, Inc.

Stocks Hold Firm

Stocks traded most of last week around the flatline as investors grappled with several headwinds.

The first was disappointing earnings results, coupled with the absence of earnings guidance from some companies due to an uncertain economic climate. Weak economic data, including declines in housing and leading economic indicators, also weighed on investor sentiment. Finally, multiple Fed officials spoke last week, signaling that inflation remained too high and that further rate hikes may be likely.

Underneath the seemingly placid surface of the major market indices, there was substantial price action at the individual stock and sector level. Poor earnings results hit communication services stocks and regional banks, while margin pressures put pressure on auto stock valuations.

Housing Weakness

Two housing reports reflected ongoing fragility in the housing market and fed prevailing economic slowdown worries.

Sales of new homes fell 0.8% in March, dragged down by a 5.2% slide in new multi-family home construction. Sales of single-family homes were a bright spot, rising 2.7% to a three-month high, though that hopeful note was tempered by an 8.8% drop in new application permits–an indicator of future new home building.¹

Existing home sales also suffered a month-over-month decline in March, falling 2.4%. Sales plummeted 22% from March 2022 levels as higher mortgage rates and tight inventories impacted affordability.²

This Week: Key Economic Data

Source: Bloomberg Finance L.P.

This Week: Companies Reporting Earnings

Source: EarningsWhispers

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken
Chief Investment Officer
Concord Asset Management

—

Footnotes and Sources

¹Yahoo Finance, April 18, 2023
²CNBC, April 20, 2023

Weekly Market Insights – Monday, April 17, 2023

Lower Inflation Lifts Spirits in Uneven Week:

The combination of an improving inflation outlook resulted in a week of uneven, albeit positive, performance, in which cyclical and financial stocks rallied while technology, real estate, and utilities lagged.

Over the last month, The Dow Jones Industrial Average returned 4.68%, while the S&P 500 returned 4.15%. The Nasdaq Composite Index returned 3.07%.

Source: Charles Schwab & Co, Inc.

Inflation Retreat

Stocks treaded water ahead of last week’s inflation data and the start of a new earnings season. Stocks rallied on a favorable March consumer inflation report, only to falter after the release of last month’s Federal Open Market Committee (FOMC) meeting minutes, which hinted at a potential recession later this year.

After reports of a more pronounced slowdown in producer prices on Thursday, stocks surged higher, with technology and communication services companies leading the charge. A weak retail sales number on Friday shaved the gains to close out the week.

Trending Lower

Last week provided fresh insight into inflation, and the news was encouraging.

The Consumer Price Index (CPI) rose a very modest 0.1% in March, while the year-over-year increase in consumer prices was 5.0%, down from February’s 12-month rise of 6.0%. Declines aided the March report in groceries, gasoline, medical care, and utilities.¹

The read on supplier prices was even more positive. The Producer Price Index (PPI), which many economists see as a signal of future consumer prices, declined 0.5%–the most significant monthly decline since 2020. The 12-month increase as of March was 2.7%, an easing from February’s year-over-year climb of 4.9%.²

This Week: Key Economic Data

Source: Bloomberg Finance L.P.

This Week: Companies Reporting Earnings

Source: EarningsWhispers

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken
Chief Investment Officer
Concord Asset Management

—

Footnotes and Sources

¹The Wall Street Journal, April 12, 2023
²The Wall Street Journal, April 13, 2023

Weekly Market Insights – Monday, April 10, 2023

Hiring Cools; Recession Fears Rise:

Stocks ended a shortened week of trading mixed amid revived recession fears on Wall Street triggered by weak economic data.

Over the last month, The Dow Jones Industrial Average returned 3.48%, while the S&P 500 returned 4.04%. The Nasdaq Composite Index returned 5.35%.

Source: Charles Schwab & Co, Inc.

Recession Fears Resurface

Renewed recession worries dented investor sentiment, and the week kicked off with a weekend announcement by OPEC+ nations of their intention to cut oil production.

The prospect of higher oil prices not only revived inflation fears, possibly hurting the chances of a rate-hike pause by the Fed, but it raised concerns over future consumer spending. Stocks weathered the news well but buckled on weak manufacturing and services data in subsequent days. Stocks trended lower again after a lower-than-expected open-jobs number and a slowdown in private-sector hiring.

Stocks stabilized to close on Thursday, despite an increase in jobless claims and a pick up in March layoffs.

Cooling Labor Market

A string of labor reports last week reflected signs of a cooling labor market, beginning with an unexpectedly significant decline in the number of open jobs (falling below 10 million for the first time in nearly two years). The JOLTs report preceded payroll processor ADP’s employment report that saw a rise in private sector hiring of 145,000 (short of the consensus forecast of 210,000) and smaller wage gains.^{1, 2}

After reports of a jump in initial jobless claims on Thursday and a 15% rise in layoffs in March, Friday’s March employment report showed the smallest increase in nonfarm payrolls (+236,000) since December 2020.³

This Week: Key Economic Data

Source: Bloomberg Finance L.P.

This Week: Companies Reporting Earnings

Source: EarningsWhispers

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken
Chief Investment Officer
Concord Asset Management

—

Footnotes and Sources

¹CNBC, April 4, 2023
²CNBC, April 5, 2023
³CNBC, April 7, 2023

Are We There Yet?

By Gary Aiken | April 4, 2023

Quarterly data showed earnings declining, economic growth slowing, and inflation cooling in alignment with the Federal Reserve’s policy goals.
Stock and bond markets fluctuated within a range during Q1 as market participants grappled with competing data showing the potential for avoiding a recession colliding with bank failures.
Global financial assets seem fairly valued given expectations for growth and inflation. Risks remain skewed to the downside as central banks continue to tighten monetary policy.

Click to download this report

Economic Commentary: According to Plan

One year ago, the Federal Reserve embarked upon its current mission to return inflation to its 2% target. The Federal Reserve removes money from the economy by selling government bonds. These actions include selling short-term government bonds, which raise short-term interest rates (Fed Funds), and selling holdings of longer-term government bonds (quantitative tightening). Removing excess money from the system should quell inflation under the simplified definition of too much money chasing too few goods.

After the first year of these actions, it seems to be working. The year-over-year headline inflation rate, as measured by the Consumer Price Index for All Urban Consumers (CPI-U,) declined from its peak in June 2022 of 9.1% to 6.0% as of February 2023 (the latest data we have before publication). The slowdown in the pace of inflation is easier to notice when looking at the following chart showing the CPI level. Since the peak of the annual inflation rate, inflation has slowed to an annualized pace of 2.3%, which is close to the Fed’s target.

Inflation Index Level

Source: Bloomberg Finance L.P.

The Fed has achieved this slowdown through what can only be described as aggressive actions. In the past forty years, the Fed has never increased the Fed Funds target rate by 475 basis points in any tightening cycle except for the current one. While tightening cycles of the late 1970s and early 1980s had larger absolute moves in the Fed Funds target rate, this is the first tightening cycle since 1959 to include an actual year-over-year decline in money supply. So, no Gen-X investor like me has ever experienced anything like this. No Boomer investors like my mentors have ever experienced anything like this. As the Chinese Proverb says, may you live in interesting times!

The U.S. is not the only place experiencing inflation. Eurozone inflation was 8.5% for February as measured by the Euro Area MUICP All Items year-over-year NSA. Again, the year-over-year picture doesn’t show the work of the central banks’ tightening efforts. The European Central Bank raised its main policy rate by 50 basis points in March to 3.5%. While hiking rates like the U.S., Eurozone M2 money supply has grown by 3% as opposed to money supply declines in the U.S. The EU inflation rate since June has slowed to a 3.9% annual pace; still elevated, but showing progress.

Japan, which has desired some inflation to fight a decades-old deflation, had a 4.3% inflation rate as of its January calculation, but its policy rate stands at –0.1% (that’s correct, negative yields still rule Japan even with 4% plus inflation!). This is to say that even with other central banks taking aggressive actions of their own, the U.S. Federal Reserve, under the leadership of Jerome Powell, is taking no prisoners and successfully slowing the pace of inflation.

Federal Reserve Fed Funds Target Rate Hiking Cycles

Source: Bloomberg Finance L.P.

This success is not without cost. The Federal Reserve expects growth to slow. They expect the unemployment rate to go up. They don’t anticipate a recession, but do not rule it out. Importantly, they repeatedly say that the Federal Reserve prefers lower growth, higher unemployment, and even a mild recession to sustained inflation. This policy choice comes to a head in press conferences and Q&As, but none so visceral as the interaction on Capitol Hill between Senator Elizabeth Warren and Chairman Powell:¹

Senator Warren: “Well, but it is [the number of job losses the Fed expects may result from a 1% increase in the unemployment rate], and it’s in your report, and that would be about two million people who would lose their jobs. People who are working right now making their mortgages. So, Chair Powell, if you could speak directly to the two million hard-working people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them? How would you explain your view that they need to lose their jobs?”

Chair Powell: “I would explain to people more broadly that inflation is extremely high and it’s hurting the working people of this country badly, all of them. Not just two million of them but all of them are suffering under high inflation, and we are taking the only measures we have to bring inflation down.”

Senator Warren: “And putting two million out of work is just part of the cost, and they just have to bear it?”

Chair Powell: “Well, will working people be better off if we just walk away from our jobs and inflation remains five percent, six percent?”

Up until the failure of Silicon Valley Bank in mid-March, the economic picture looked reasonably positive. The unemployment rate remained low for the first quarter, with average weekly jobless claims under two hundred thousand and continuing claims averaging less than 1.7 million. Real average hourly earnings were still negative (declining purchasing power) but showed some improvement. Remarkably, in the face of a slowing economy, the labor force participation rate increased to 62.5% while the unemployment rate declined to 3.4%. Retail sales and inventories were generally flat during the first quarter, as were industrial production and goods orders as the services sector continued to grow.

Corporate balance sheets look to be in good shape. The average “current ratio” (short-term assets/short-term liabilities) for large U.S. companies was approximately 1.25, and the size of total debt at about 25% of total assets. However, the effects of Chairman Powell’s desired slowdown began to show in the earnings data, in forward guidance from companies, and finally in announcements of layoffs. S&P 500 Q1 2023 corporate profitability declined by approximately 2.4% year-over-year. Large U.S. companies saw their gross margins and profit margins decline below their 10-year quarterly averages in Q4 2022 and Q1 2023.

It is important to note that this dichotomy of declining corporate prospects and seemingly stable consumer/employment data are best explained by the phrase “long and variable lags.” It takes time for monetary policy to work its way through the system. It takes time for the perverse incentive of high short-term rates to convince spenders to save and investors to sit on their hands, but eventually, it works. By my measure of rolling inflation since the June peak, I’d be so daring as to claim it is working. It’s quite possible that by the time we get to mid-2023, those year-over-year inflation comparisons will drop dramatically from 6% to something resembling the Fed’s stated target range.

The conundrum for the Federal Reserve is whether they should stop raising rates now and let the natural progression of long and variable lags work their way through the system, or continue pursuing their stated goal until they see the whites of inflation’s eyes. If the Fed stopped now, they could risk inflation surging again and having to restart the tightening process. This starting and stopping partly led to the stagflation of the 1970s. On a less gloomy outlook, if they have done enough and stopped now, it might still be possible to have a soft landing. Our view is that they have done enough, and the data should tell them to stop sooner rather than later.

Market Commentary: Great Financial Crisis PTSD

The academic debate amongst economists translates into a tug-of-war between the bulls and bears in the financial markets. The stock and bond markets bounced between FOMO (fear of missing out) and PTSD (post-traumatic stress disorder) during the first quarter.

A Range Bound Stock Market

Source: Bloomberg Finance L.P.

The chart above shows the S&P 500 bouncing in a range since the June lows — right when inflation started to peak. We seem to have a clear direction — sideways. When I find myself in times of uncertainty, I ask questions. What was I worried about? Where do the facts stand now? What does history tell us about similar situations?

The expected impact on valuations from rising interest rates has played out. With respect to the situation at regional banks, the Federal Reserve, FDIC, and Treasury seem to have found a temporary solution to provide liquidity to banks that made errors in investments even as the Fed was delineating the direction of interest rates for all to see. Only time will tell if depositors continue to pull money from banks, but my view is that small and medium-sized banks serve an important purpose — providing customer service at a local level that large banks just cannot afford to provide. Financial companies are prone to asset/liability mismatches and liquidity crises, so could an insurance company or two be in crisis? Perhaps, but I believe it would likely be idiosyncratic — not systemic.

For all the overwrought comparisons to the Great Financial Crisis, residential real estate does not seem as problematic this time. Just the opposite, the system is overwhelmed with borrowers who will never sell because they locked in historically low interest rates and monthly payments. Yes, the refinance market will be light, and mortgage banking business profitability will likely be lower. We’ll factor that into our view on allocations to banks, but home demand remains strong and neither homebuilders nor their financiers engaged in the crazy land speculation that went on in 2005-06. The commercial real estate market may have some issues related to valuation upon refinance and the change in occupancy trends following work-from-home shifts. As always, geography and property type matter, but there has not been overbuilding or oversupply. Smart building owners will convert to residential or find other uses, and lenders generally are stingy in their underwriting leading to low loan-to-value ratios and safe collateral.

On the global stage, we were worried about the prices of commodities and the reopening of China. The price of oil has returned near to its pre-pandemic level thanks to slowdowns in ex-China demand, the availability of cheap Russian oil to China, and the near replacement of global rig count. Even the Biden administration seems to have turned a corner, allowing new drilling in Alaska. The chart below shows the price of oil and the global oil rig count. The horizontal line is the Biden administration’s $70 price, below which they said they would be comfortable buying oil to replenish the Strategic Petroleum Reserve. The fears of a dislocation in commodities may therefore be overblown.

Oil Market Equilibrium?

Source: Bloomberg Finance L.P.

The War in Ukraine may continue indefinitely, but the fear of commodity dislocation seems to be fading one year later. Markets are great at putting buyers and sellers together at the right price. For Corn, Wheat, and Soybeans, that price is basically the same as before the War started. The Bloomberg Commodities Index is 5.5% lower than it was on February 15, 2022, before the War started. So, we could now argue that the global slowdown in demand and the opening of the world post-COVID took out the inefficiencies from lockdowns.

As for Emerging Markets (EM), while China may be able to get cheap oil from Russia, their demand for other natural resources is still to be found in EM. We believe Chinese tourists and trade will be beneficial to EM economies this year — complementing any boost from U.S. tourism and trade. Even so, Emerging Markets are not independent of the slowdown in demand from the U.S. and Europe. Further, these countries are maturing, and as countries mature, their growth rates naturally slow. For the December 2022 quarter, EM GDP grew at a 2.78% real rate. This seems slow in a world where we thought that EM economies ought to grow between 5% and 6%; however, when drawing a trendline from 2007 to the present, we can see that that rate is in line with the long-term trend of lower growth rates even in Emerging Markets.

But I sense you asking nervously; a worst-case scenario is still on the table, isn’t it? Here is where I turn to history. The Fed generally hasn’t stopped hiking until something finally breaks, as we’re seeing now in the financial sector. Maybe that’s the harbinger of the recession that has been Concord’s base case for 2023. By the time something breaks, usually, it’s not just one thing that’s broken. Lots of things get broken and need to be fixed. The bond market seems to indicate that the Federal Reserve has already gone too far, and it hasn’t shown up yet in the economic data or corporate performance.

If the Fed has indeed gone too far and the next step is a pause or a cut, what does that mean for stock markets? Since 1972, the Federal Reserve has had eight major tightening cycles. The following chart shows the end of a rate cycle, the maximum drawdown in the S&P 500, and the returns for the index six and twelve months later:

Source: Bloomberg Finance L.P.

While none of these scenarios exactly match where we are today, we can see that the fearmongering on Twitter about how when the Fed finishes hiking, that means it’s too late and all is lost — is hyperbole. Ultimately, there’s the chance that the Federal Reserve has lucked into a scenario where they have done their job appropriately.

Final Thoughts: Resetting Our Expectations

In December 2021, the Fed announced that they would finally be letting go of the zero bound and quantitative easing. The endpoint of the subsequent volatility we’ve experienced is our arrival at some new equilibrium. So, the natural questions are: What does equilibrium look like, and as the kids in the back seat on a road trip might ask, “are we there yet?” In economics, this equilibrium is defined by R* (“R-star”) or the natural rate of growth in the economy.

Pre-pandemic, the natural growth rate for the U.S. Economy was between 2% and 3%. Going forward, given structural issues like a lack of immigration and an increasingly burdensome debt level, it seems like a natural growth rate for the U.S. economy might be a slower 1 to 2%. If inflation has returned to its pre-pandemic growth rate of between 2 and 3%, then expected long-term interest rates — like the 10-year U.S. Treasury Note — should yield between 3% and 5%.

So, where were we in Q1 2023 versus this reset expectation? Treasury Inflation Protected Securities real yields for the 10-year note ended the quarter at 1.3% and an implied inflation rate of 2.3% against the backdrop of a 10-year nominal U.S. Treasury note at 3.6%. Check.

BBB Credit Spreads vs. Historical Average

Source: Bloomberg Finance L.P.

What about other types of bonds? The difference between a bond’s yield and the equivalent government bond is called a spread. The spread describes how much compensation an investor should receive for taking on the credit risk inherent in lending money to a company. On average, companies rated BBB (the bottom rung of investment grade) have had a spread of approximately 235 basis points (a basis point is 1/100^th of a percent). At the end of Q1, the 10-year BBB spread is 227 basis points. Check.

What about less credit-worthy borrowers, like those who issue Junk Bonds? On average, companies rated below BBB have yielded a spread for investors of approximately 507 basis points. At the end of Q1, that spread is 555 basis points. Check.

So, the bond market seems to reflect fair value. What about stocks? Assuming a long-term, risk-free rate of 3.6%, a 1.8% dividend yield, and a long-term return of 10.8%, large cap stocks ought to have a reasonable P/E in that environment of approximately 19x. At the end of Q1, with declining earnings and rising prices, the S&P 500 P/E ratio is approximately 19x. Check.

Earnings for the S&P 500 declined year-over-year falling approximately 2.4% for Q1 2023 compared to Q1 2022. This shows the resilience of American companies. Inflation, adjusting to a post-pandemic recovery, and War have not significantly compromised profits. Gross margins in Q1 2023 were at roughly 34.6%, versus an average of 35.6% for all of 2022. Profit (net income) margins were 12.7% versus 13.3% for all of 2022.

American companies are not the only ones seeing resilience in the face of hardship. While companies outside the U.S. have a lower return on equity, their valuation metrics reflect fair value as well. The P/E multiple for stocks in the MSCI ACWI (All Country World Index) – ex U.S. increased from 11.5x in Q1 2022 to 12.6x in Q1 2023. Their 32% gross margins are competitive to those of U.S. companies, as are their profit margins of roughly 13%. So, a check mark for the general reasonableness of equity valuations across the world.

Unfortunately, even if we are at longer-term equilibrium with respect to valuations, markets don’t stay there very long. From our vantage point, while many excesses have been wrung out of the system, the pendulum momentum is likely still swinging to the downside.

Downside risks come from the aggressive Federal Reserve actions to quell inflation as the effects of an inverted yield curve (when short-term rates are higher than long-term rates) filter through the economy. Companies are hiring less and spending less on new projects as they strive to limit earnings declines and margin compression. A split Congress with a looming debt ceiling limit likely means that government spending growth will be curtailed, limiting U.S. growth expectations. The relaxation of pandemic responses, including the reinstatement of student loan repayments, will put stress on retail and services income as borrowers must start diverting cash to make payments that were on hold for three years. Alternative assets like real estate have not been fully repriced to the market. To the extent that forced sellers set market prices, there may be market participants who will record losses even if they are not selling those assets. Thus, our base case remains a recession at some point during 2023.

We remain focused on limiting volatility in portfolios and focusing on companies at reasonable valuations who can sustain profitability even in difficult economic circumstances. A range-bound bond and stock market may mean that some investors’ emotions will float between FOMO and PTSD. The wise investor will continue to put money to work as opportunities present themselves. We strive to count ourselves among them.

Author

Gary Aiken, Chief Investment Officer

Gary Aiken is the Chief Investment Officer for Concord Asset Management and is responsible for macroeconomic analysis, asset allocation, and security selection as well as trading and investment operations.

Gary has over 21 years of investment experience and holds an undergraduate degree in economics from the University of Maryland and an MBA from The George Washington University School of Business.

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Footnotes and Sources:

¹Transcript: The Semiannual Monetary Policy Report to the Congress U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy. Tuesday, March 7, 2023.

Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice. The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications, and other factors. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. Please consult your financial professional for additional information. This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.

Concord Asset Management, LLC (“CAM” or “IA Firm”) is a registered investment advisor with the Securities and Exchange Commission. CAM is affiliated, and shares advisory personnel, with Concord Wealth Partners. CAM offers advisory services, including customized sub-advisory solutions, to other registered investment advisers and/or institutional managers, including its affiliate, Concord Wealth Partners, LLC. CAM’s investment advisory services are only offered to current or prospective clients where CAM and its investment adviser representatives are properly licensed or exempt from licensure.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CAM or its affiliates, or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from CAM or CWP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. IA Firm is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of IA Firm’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://concordassetmgmt.com/.

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Don’t Call It A Pivot

By Gary Aiken | January 6, 2023

Inflation started to show signs of moderating. The Federal Reserve continued raising rates, but signaled a slowdown for the pace of future hikes.
The bear market rally that started in October continued well into the late fourth quarter. Stocks and bonds both showed strong returns amid declining volatility.
While the stock and bond markets’ direction implied optimism about a potential end to monetary tightening, inflation stressors like strong wage gains and low unemployment provide a contradictory set of data points.

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Economic Commentary: Inflation Still A Threat – No Cause Yet For A Party Or A Pivot

There are three concurrent stories impacting the global economy and financial markets. The first is the rise of inflation in the United States and Europe due to both the pandemic and central bank policy responses to the pandemic. The second is the continuing War between Ukraine and Russia, putting the European post-COVID- 19 recovery in jeopardy and leading to rises in the prices of energy and agricultural commodities. The third is uncertainty and tension created by China’s internal and external policies: the continued effect of COVID-19 lockdown policies on the supply of goods into and out of China, as well as the regime’s ever-present saber-rattling against Taiwanese independence.

Inflation continued to be the dominant concern impacting markets and investor risk appetite, with a decidedly risk-on mentality driving asset prices in the fourth quarter. The financial markets story was better in Q4 – with both stocks and bonds rallying and the Federal Reserve slowing the pace of rate increases to 50 basis points (0.5%) in December. Still, we believe that it’s much too early to be breaking out the champagne and streamers.

Headline inflation may be slowing, mainly due to price drops on some big ticket items (e.g., cars, energy prices). At the same time, Core CPI [Consumer Price Index – excluding food and energy] remains stubbornly elevated. Unemployment remains low with job growth posting strong gains month over month, while wages continue to accelerate. Unemployment and core inflation are key data points the Fed is watching to measure how close they might be to accomplishing their mission.

In short, there’s a case to be made that the economic data point to the potential for a U.S. wage-price spiral. The threat of such a scenario has been driving the Fed’s hawkish decision-making. As long as wage growth and core CPI are stubbornly stuck above 5%, the idea that the Fed might stop raising rates seems like wishful thinking and a lot of happy talk by folks who want to keep the party going.

Investors are wise to refer to Fed Chair Jerome Powell’s August Jackson Hole speech as the most important and reliable indicator of where the Fed is headed. Powell said explicitly that he’s going to be Paul Volker, not Arthur Burns – the former being the “stop-go” dove who led the U.S. into the “Great Inflation” of the late 1970s; the latter being the steel-nerved hawk who tamed double-digit inflation and put it in the rear-view mirror.

Chair Powell may have recently tempered his tone on rate hikes, coming across at times even a bit wishy-washy. The Fed has returned to a data-dependent framework to identify the terminal Fed Funds rate for this cycle. We caution, however, that moderation in the rate of change is not a sign that the rate hike regime is coming to an end. In his December press conference, Chair Powell reiterated that the Fed “has more work to do.”

Market participants who believe that we’re going to be in a rate-cutting cycle in late 2023 need to put down the stemware. Such an outcome would require many things to come true that are low-probability outcomes in our view. A rate-cutting regime would have to be predicated on inflation disappearing while wages and employment are still going gangbusters. That kind of quick deceleration doesn’t make much sense, mathematically.

Abroad, the war in Ukraine continues unabated, and it’s highly unlikely the war will end any time soon. That means continued dislocations in energy and agricultural commodities. Europe is facing a recession and high inflation at the same time. While the major economies built large natural gas reserves earlier in 2022 and benefited from a mild Autumn, Europe will use a lot (if not all) of that store over the winter. European industrials will have to face production cuts, which will impede profitability and result in a declining trade surplus. This puts the European Central Bank (ECB) in the unenviable position of having to raise rates into a recession; if they don’t raise rates and the U.S. does, that would bring continued strength in the dollar relative to the Euro, and while this might be positive for European exporters, it is unclear how deep production cuts will need to be as energy rationing becomes more prevalent.

In China, supply chain disruptions due to its zero- COVID-19 policy are still fueling inflation in the U.S. While at first glance, China’s normalization would seem to be positive for markets, ending those policies and fully opening up China could have negative consequences for inflation in the U.S.

There was great hope after the conclusion of the 20th Party Congress that Chairman Xi would relax COVID-19 restrictions and China would open up again, but that has not happened yet. In the face of historic riots, it took weeks for even the barest concessions by the government. The economic impact of lingering COVID- 19 restrictions, compared to the rest of the world, marks a stark contrast: e.g., wait times for container ships at the Port of Los Angeles, which had one of the world’s worst backlogs during COVID-19, have nearly disappeared. At the same time, port congestion, cancelled sailings, and “blank” sailings continue to impede shipping goods from China to the U.S.

As a graphic display of this disparity, compare the two maps below. One shows port traffic at ports along the U.S. Pacific coast.

U.S. Destination Shipping

Source: Bloomberg Finance L.P., Mapbox, OpenStreetMap

The other shows port traffic along China’s Pacific coast. COVID-19 lockdowns, which are increasing port congestion in China, have had an enormous impact on the entire Chinese economy.

Chinese Destination Shipping

Source: Bloomberg Finance L.P., Mapbox, OpenStreetMap

But even if China did fully reopen, that could set the stage for a resurgence in global inflation. Right now, in its semi-lockdown state, China is using less oil and fewer commodities (e.g., copper, iron, aggregates) than typical. If fully opened, they would be using more resources and likely push up commodity and energy prices worldwide, at a time when the U.S. strategic petroleum reserve is at its lowest since the early 1980s. Moreover, in any return to growth, China would likely export their own inflation to the rest of the world through higher prices on exported goods. That means any relaxation of China’s zero-COVID-19 policies might not be the deflationary boon that many people expect. It could be inflationary.

Market Commentary: Markets Being Irrationally Exuberant?

Stock and bond prices were both up in Q4, as measured by the S&P 500 Index and the Bloomberg Aggregate Bond Index. Market participants were oversold in September just as we started seeing signs that headline inflation was slowing and (hope against hope!) could roll over. The idea started to take root that we had passed “peak inflation” and that the Fed might be closer to the end of its tightening regime.

Stock and bond prices generally rose during Q4

Source: Bloomberg Finance L.P.

Thinking that we had hit bottom, giddy investors once again started buying risky assets like stocks and piling into long-duration bonds – because yields were attractive on a relative and absolute basis for the first time in over a decade. The latter also served as a hedge against an aggressive Fed causing a recession, as long-duration bonds might rally in the face of declining GDP. So, Q4 saw two trades (a risk-on trade and a flight to safety trade) driving equity and bond prices up in tandem.

As a side note, this continued 2022’s anomalous trend of highly positive correlations between stocks and bonds. Stocks and bonds typically move together with a small positive correlation. This means that if stocks are down, then bonds should go down far less and sometimes in the opposite direction. This is what creates a diversification benefit for investors. Over the past year, that correlation has been stubbornly high, meaning that investors in both stocks and bonds have suffered losses together and enjoyed the rallies together. For investors, cash and previously out of favor sectors (energy) have provided diversification benefits this year.

The other key development in Q4 was that market volatility declined significantly: the VIX Index, which measures expected stock volatility was down 27%, and the MOVE Index which measures bonds market volatility was down 22%. The chart above shows these indices coinciding with cycles of this year’s risk-on (bear market rallies) and risk-off (trend) periods in stocks and bonds.

Stock and bond volatility fell during Q4

Source: Bloomberg Finance L.P.

Despite all the negative economic pressures, stock market multiples at the end of 2022 are only slightly lower than where they were at the beginning of the year. Earnings and profit growth slowed during the year, but price-to-earnings (P/E) ratios remain high, at 18.6x trailing earnings to close 2022.

Based on the risk-on environment going into 2023, investors appear to be assuming higher inflation, higher interest rates, and high P/E ratios. One of those variables is going to end up being wrong. One side of that see-saw has to come down: either interest rates and inflation will decline or market multiples will have to fall. History would tell us it’s stocks that suffer: typically periods of high inflation and high interest rates yield below-average stock market returns.

Final Thoughts: Despite The 2022 Year-End Gift, Many Risks Remain

It has been humorously said that economists have predicted thirteen of the last five recessions. And it’s true that investors tend to climb the “Wall of Worry,” using that as an excuse to be negative on stocks, despite the long-run success of U.S. markets.

I agree with the axiom that, in the long run, the best time to buy stocks is when you have cash, but some indicators of shorter-term relative value are better than others. The spread between the 10-year Treasury yield and the 2-year Treasury yield is an indicator that is nearly perfect in predicting recessions. The chart below shows this spread against the shaded regions which are the official start and end dates of recessions. When this indicator turns negative (as it is today), it means that the yield on short-term money is higher than the yield on long-term money.

Market matrix US sell 2 year & buy 10 year bond yield spread

Source: Bloomberg Finance L.P.

Investors are paid to wait, instead of making long-term investments. Economic activity reflects this as capital allocators (CEOs and CFOs) prefer to hold cash as opposed to spending on new machines, inventories, or other investments in their businesses. Consumers prefer saving to consumption. As business activity reflects these changing sentiments and preferences, profits decline. Business leaders course correct by cutting costs—inventory and labor. This induces a general slowdown in economic activity—a recession. This is the GOAL of Chairman Powell and the Federal Reserve in their policy to combat inflation.

Investors are wise to take advantage of the rise in asset prices in the fourth quarter and rebalance their portfolios. Here at Concord Asset Management, we are evaluating client portfolio models and investment options to prepare advisors and their clients for what may be another tough year in 2023. With inflation at 7.1% (Nov 2022) vs 7.0% a year ago (Dec 2021), the Fed seems to have sufficient reason, runway, and resolve to continue raising interest rates. Even a reopening of China does not appear to have uniquely positive characteristics for investors in the upcoming year. The Ukraine/Russia stalemate portends dark times for Europe.

Still, the stock and bond markets provide opportunities for investors who are risk-aware and have a solid financial plan. Meeting with your advisor to discuss your personal situation enables you to establish an appropriate risk tolerance for short-term market volatility. We look forward to having some dry powder available for when that volatility presents opportunities in 2023.

Author

Gary Aiken, Chief Investment Officer

Gary has over 21 years of investment experience and holds an undergraduate degree in economics from the University of Maryland and an MBA from The George Washington University School of Business.

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Concord Asset Management, LLC (“CAM” or “IA Firm”) is a registered investment advisor with the Securities and Exchange Commission. CAM is affiliated, and shares advisory personnel, with Concord Wealth Partners. CAM offers advisory services, including customized sub-advisory solutions, to other registered investment advisers and/or institutional managers, including its affiliate, Concord Wealth Partners, LLC. CAM’s investment advisory services are only offered to current or prospective clients where CAM and its investment adviser representatives are properly licensed or exempt from licensure.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CAM or its affiliates, or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from CAM or CWP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. IA Firm is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of IA Firm’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://concordassetmgmt.com/.

Please Note: If you are an IA Firm client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Patience Not Pessimism

By Gary Aiken | October 6, 2022

Inflation is proving more stubborn than anticipated, with the Fed getting increasingly hawkish and markets becoming more skeptical of a “soft landing.”
A steady decline in asset values so far this year (i.e., a collapse in growth stocks and a correction in bond prices) has created attractive valuations in many asset classes.
Higher interest rates are having mixed impacts on the economy (e.g., the housing market has cooled significantly, but savers are now able to actually earn an attractive return on their savings).

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Economic Commentary

At the end of the third quarter, inflation was still the hot topic on everyone’s mind, especially after the Federal Reserve’s decision in September to implement a third consecutive rate hike of 75 basis points. Inflation ticked up in August after declining in July and stubbornly remained above 8% on an annualized basis, despite gasoline prices continuing to fall steadily since the end of June.¹

The Fed is determined to get a grip on inflation and is bound to do so eventually. As Fed Chair Jerome Powell said after the group’s September meeting, they will “keep at it until the job is done.” Fed officials see rate hikes continuing into 2023, not exceeding a “terminal rate” of 4.6%, with the goal of pulling inflation back down to 2% by 2025.²

Markets now understand that the Fed’s mission, which includes a pull-back on asset purchases, will come with a short-term cost and potentially some economic pain. At a news conference in September, Powell was explicit, “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.” So the question becomes: how painful will it be? No one knows.

Here at CAM, we have been setting expectations for some time that the U.S. will not likely see a V-shaped recovery after any potential recession (i.e., a rapid recovery, nearly to pre-recession levels). But how deep any recession may be—and how long it lasts—will likely depend on how quickly the Fed can end its tightening policies.

This challenging economy is still somewhat of a unicorn, continuing to show many signs of strength.

Typically an economic slowdown is accompanied by rising unemployment, but today’s job market remains competitive. As inflation burned hot in August, payrolls continued to expand, with non-farm jobs expanding by 315,000. Unemployment remained below 4%, labor force participation gained, and wages rose. The chief investment strategist at Charles Schwab told CNBC, “This could very likely be a recession where you don’t see the kind of carnage in the labor market that you see in most recessions.”³

Businesses have continued to invest, with capital goods expenditures reaching a seven-month high in August, according to the U.S. Commerce Department⁴ — another potential argument against a deep recession.

Source: Seegrid Corporation

Furthermore, some of our current economic pain and price inflation can still be chalked up to the “bullwhip” effect of mismatches in supply and demand. COVID disruptions to the supply chain have yet to unwind fully, while consumer demand snapped back more quickly than expected and then slowed toward the end of summer. Such mismatches continue to roil the economy.

Ford announced last month that it has more than 40,000 pick-up trucks it can’t finish building for lack of parts.⁵ Consumer appliance maker Whirlpool is experiencing component shortages.^6,7 Natural gas is in short supply heading into the winter season, not just because of the war in Ukraine but also because electricity providers had to draw down gas reserves to meet surging demand during an unusually hot summer.⁸ Supply shortages, bad weather, war, labor shortages, and high consumer demand are squeezing the markets for everything from tires⁹, to frozen vegetables¹⁰, to Halloween candy¹¹ and Christmas trees.¹²

At the same time, some sectors of the economy definitely are showing signs of weakness.

Retailers are finding themselves with too much inventory of the things they can get as consumer spending has slowed. Amazon recently announced its second Prime Day-type sale for 2022, when it normally has only one such event per year. Walmart and Target are planning an early start to their holiday shopping sales. Such efforts, using discounts to reduce inventories, could help bring down prices over the remainder of the year.¹³ Overstocked inventories are also causing a ripple effect through the transportation industry, with global shipping beginning to slow as well.¹⁴

While rent remains high, the market for home purchases has finally begun to soften. Price increases are slowing, home sales dipped half a percent in August¹⁵, and the senior economist for Realtor.com recently said that “the upward momentum has lost steam, and it is clear that the market peak is now firmly behind us.”¹⁶

So, when you add it all up, it would be an understatement to say that economic signals are mixed. The Fed’s war on inflation may slow the economy and cause a marginal increase in unemployment, perhaps even a recession. However, many parts of the economy will only be slowing from a white-hot level that we believe is objectively unsustainable, and supply issues will eventually slowly sort themselves out. In sum, we’d argue it’s a time for patience and caution, not pessimism.

Market Commentary

The thing to remember about securities markets is that assets are priced on a forward-looking basis. Essentially, prices reflect future events and earnings, not current ones.

As such, market retrenchment during the third quarter was likely driven by investors finally coming to terms with the fact that the Fed will not let up any time soon on its inflation fight. Rates will continue to rise, and some sort of recession is more likely than not.

Moreover, economic forecasts for the U.S. have come down from 1.7% annual GDP growth to just about zero this year (0.2%) and less than 2% annually through 2025.¹⁷

So, even though stocks recovered from July through mid-August, they pulled back again through the end of September as a “soft landing” scenario became less and less likely. The S&P 500 peaked on August 16 at just over 4,300 and with the exception of a brief rally in mid-September, slid steadily through the quarter end, even flirting with bear market territory. The S&P 500 is off about 23% from its high in Q4 2021.

The DOW showed a similar pattern, peaking on August 16 and then sliding into bear territory on September 23, with the DOW currently off about 15% from its high in Q4 2021. The biggest losses by far, however, have been seen in the tech-heavy, growth-oriented NASDAQ, which peaked on August 15 and approached bear territory by the end of September. The NASDAQ is down about 32% from its peak in November 2021, as high inflation tends to take a bigger toll on growth stocks compared to other sectors of equity markets.

Source: BlackRock Fundamental Equities, with data from Bloomberg and the National Bureau of Economic Research (NBER)

Bond investors are also feeling the pain in 2022, with longer-term issues (10+ years) getting hit hardest in the third quarter since they are most sensitive to changes in interest rates. According to Morningstar, every one of its taxable bond categories is in the red for 2022, through mid-September. The least-impacted sector of fixed income has been ultra-short bank funds and high-yield has held up better than most, only down about 10% as of mid-September.¹⁸

The bright spot in all this negative news is that price-earnings ratios for stocks—especially growth stocks—are at some of their most attractive levels in years. In the case of a shallow recession, equities may be positioned for a strong bounce. Bond yields, which tend to overshoot in both a positive and negative direction, may now also offer significant value as the Fed’s rate hike regime approaches its finale, likely in the early part of next year.

Final Thoughts

In principle, we believe that long-term investors should remain invested across market cycles and that trying to time the ups and downs of market cycles is a fool’s errand.

This time around, the Fed has embarked on an important task. While we don’t want to underestimate the challenges of a recession, like many investors we believe that the perils of high inflation are worse. Remember that those of us under the legal retirement age have never lived through a prolonged period of high inflation. We have never seen firsthand the destruction of it. Also, remember that while inflation is high in the U.S., relative to recent history, it remains higher around the world.

We believe that the U.S. will come out of this difficult period with a stronger economy and more rational valuations across a wide range of asset classes. This may set the stage for strong investment returns:

The average S&P 500 return in the 12 months following an inflation crest was 11.5%.¹⁹
The average 12-month [equity] return immediately following a 15% or greater decline is 55%.²⁰
Bear markets average 14 months in length with an average return of -33%, a relatively short time compared to bull markets that average 71 months and an average total return of 263%.²⁰

Source: CNBC

Rather than seeing this as a time for pessimism, we see it as a time for cautious opportunism, particularly around financial planning work. For example, with interest rates on CDs creeping toward 4%²¹, one can finally earn an attractive return on savings. Many Americans have hesitated to even save an emergency fund given the dearth of return on savings, but now may be the time to reassess one’s allocation to cash savings, which is likely an under-invested portion of their financial plan.

Now may also be a good time for tax planning, such as exiting legacy positions that may have been difficult to liquidate when asset values were higher. Given where asset values are today, there may be an attractive opportunity to execute any pending Roth IRA conversion.

In short, we believe in staying on the long-term course. Investors are experiencing the end of the longest bull run in American history. Markets have been and will likely remain choppy. Growth is expected to be tepid. We may see a recession. Global supply issues may take longer than we’d like to work themselves out.

Recessions and market corrections are the anomalies. Recoveries, however, often happen faster than anyone expects, so steadiness and patience are key to riding out any coming storm.

About Concord Asset Management:

Concord Wealth Partners built Concord Asset Management (CAM) to bring institutional quality service to their clients and financial advisors.

CAM’s service goes beyond simply providing institutional quality investment management; our team brings deep industry knowledge, proprietary research, investment due diligence, and real-time market analysis to help clients and advisors make better and more informed decisions about their financial future.

Our core belief is that clients should always be put first and that everyone’s financial goals are unique; that means their investment strategy should be too.

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Footnotes and Sources:

¹Goodkind, Nicole. “The Fed Is Fighting Inflation. Could Deflation Be Its next Battle?” CNN Business, Cable News Network, 13 Sept. 2022.

²Cox, Jeff. “Fed Raises Rates by Another Three-Quarters of a Percentage Point, Pledges More Hikes to Fight Inflation.” CNBC, CNBC LLC, 21 Sept. 2022.

³Cox, Jeff. “Payrolls Rose 315,000 in August as Companies Keep Hiring.” CNBC, CNBC LLC, 2 Sept. 2022.

⁴Mutikani, Lucia. “U.S. Core Capital Goods Orders Surge; Consumer Confidence Rises Further.” Reuters, Reuters, 27 Sept. 2022.

⁵Isidore, Chris. “As Many as 45,000 Fords Can’t Be Sold Because They’re Missing Parts.” CNN Business, Cable News Network, 20 Sept. 2022.

⁶Trentmann, Nina. “Whirlpool CFO Faces Higher Costs as Component Shortages Force Production Line Shifts.” The Wall Street Journal, Dow Jones & Company, Inc., 21 Apr. 2021.

⁷Campbell, Callum. “3 Supply Chain Challenges Impacting Retail in 2022.” Supply & Demand Chain Executive, AC Business Media, LLC., 5 Apr. 2022.

⁸Zizka, Tom. “Tight Natural Gas Supplies Will Mean Higher Heating Bills, When the Weather Turns Cold.” FOX26 Houston, FOX Television Stations, 26 Sept. 2022.

⁹Winer, Madeleine. “Tire Supply Chains Are ‘Anything But Normal’ And They Won’t Be For A While.” TireReview, Babcox Media Inc., 23 June 2022.

¹⁰Future Market Insights, Inc. “Freeze Dried Vegetables Market to Top US$ 194.2 Billion by 2032 as Demand for Products with Longer Shelf Life and High Nutritional Content Surges.” Yahoo Finance, Yahoo, 24 Aug. 2022.

¹¹ViaVid. “The Hershey Company Second Quarter 2022 Earnings Results Prepared Remarks.” ViaVid Communications Inc., 27 July 2022.

¹²Van Buskirk, Chris. “Could the Drought Steal Christmas? From Tree Farms to Apple Growers, ‘It’s Just Brutal’ as Scorching Heat Waves Add to Problem.” Mass Live, Advance Local Media LLC, 14 Aug. 2022.

¹³Martín, Hugo. “A Second Prime Sale Shows Amazon Is Nervous about the Economy Too.” Los Angeles Times, Los Angeles Times, 26 Sept. 2022.

¹⁴Murray, Brendan. “Container Ships Cancel Voyages From Asia as Demand Softens.” Bloomberg, Bloomberg L.P., 26 Sept. 2022.

¹⁵Veiga, Alex. “US Home Sales Slipped, Prices Grew More Slowly in August.” AP News, The Associated Press, 21 Sept. 2022.

¹⁶Bahney, Anna. “US Home Price Reports Show the Cooling Effect of Rising Mortgage Rates.” CNN Business, Cable News Network, 27 Sept. 2022.

¹⁷Rugaber, Christopher. “Jerome Powell Has a Tough Message for Investors: Tighten Your Seatbelts, Because Recession and Unemployment Are Coming.” Fortune, Fortune Media IP Limited, 22 Sept. 2022.

¹⁸Lynch, Katherine. “Why 2022 Has Been Such a Terrible Year for Bond Funds.” Morningstar, Morningstar, Inc, 25 Sept. 2022.

¹⁹DeSpirito, Tony. “Taking Stock: Q4 2022 Equity Market Outlook.” BlackRock, BlackRock, Inc., 22 Sept. 2022.

²⁰Capital Group™. “Correction or Bear? 6 Charts That Explain Market Declines.” Capital Group, Feb. 2019.

²¹Whiteman, Doug. “CD Rates Today: September 28, 2022—Top Rates Pay Up To 3.60%.” Forbes Advisor, Forbes Media LLC, 28 Sept. 2022.

Concord Asset Management, LLC (“CAM” or “IA Firm”) is a registered investment advisor with the Securities and Exchange Commission. CAM is affiliated, and shares advisory personnel, with Concord Wealth Partners. CAM offers advisory services, including customized sub-advisory solutions, to other registered investment advisers and/or institutional managers, including its affiliate, Concord Wealth Partners, LLC. CAM’s investment advisory services are only offered to current or prospective clients where CAM and its investment adviser representatives are properly licensed or exempt from licensure.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CAM or its affiliates, or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from CAM or CWP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. IA Firm is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of IA Firm’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://concordassetmgmt.com/.

Nothing New Under the Sun

By Mitch York | July 6, 2022

Inflation has hit a 40-year high. We expect “demand destruction” to cause a significant decline in inflation by year-end, but remain elevated above normal levels.
Once behind the curve, the Fed is front-loading large interest rate hikes in order to cool the economy and fight inflation.
Stocks are off to their worst first half of a year since 1970, and bonds their worst start ever, but markets are resilient, and they recover.

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Economic Commentary

As the second quarter ends, the hot topics on everyone’s minds are:

Has inflation peaked, and if not, when will it peak?
What is the Fed doing about it?
Will the Fed drive the economy into a recession? If so, how severe will it be?

We know why we have inflation. It’s the result of unequal supply and demand caused by the pandemic. The combination of a money supply expansion during the Covid-19 lockdown, the release of pent-up demand once the lockdown ended, and supply chain disruptions have sent inflation to a 40-year high.

This year, two new supply constraints arose – the Zero-Covid Policy in China, where many goods are manufactured, and the Ukraine War, creating shortages in energy and food.

The result? According to the U.S. Labor Department, inflation has jumped to 8.6% for the 12-month period that ended in May.¹

So, what can we look forward to? It is likely that supply chain challenges will remain as China and Russia will remain wildcards. However, it’s unlikely that inflation will be this high at the end of the year as the demand side of the equation becomes front and center. Pent-up demand will eventually wane, a natural cure for high prices is high prices, and the Federal Reserve is finally acting with conviction.

The Fed has kicked the wheels of demand destruction into motion. They are front-loading significant interest rate hikes, the latest a 0.75% hike in June. Fed member expectations of future hikes indicate 3.4% by year-end. In addition, the Fed commenced “quantitative tightening” in June – an activity that reduces money supply and slows down the lending activity of banks.

There is evidence that the Fed is starting to get what it wants as higher interest rates on mortgages are taking a toll. Housing starts have fallen off a cliff, declining 14.4% from April to May and -8.6% from a year earlier. New mortgages have plunged an incredible 32% year-over-year as well. The housing market is the first shoe to fall as demand destruction becomes a reality.^2,3

The Fed’s aggressive actions are not without risk. At this point, the Fed’s position has changed from “not moving fast enough to curb inflation” to “moving so fast it will cause a recession.” But this change in perspective just shows how complicated things are. The aggressive, front-loaded interest rate hikes have ironically increased expectations that the Fed will cut rates as soon as 2024. We know from history, that interest rate cuts and loosening of monetary policy lead to robust growth. Expect the recession, if it comes to fruition, to be relatively mild and short-lived.

Market Commentary

With inflation surging to 40-year highs, supply chain issues lingering, and the Fed instituting the largest rate hike in 28 years, the financial markets have plummeted. The S&P 500 and NASDAQ indices have sunk into bear territory, down 21% and 30%, respectively. The Dow (DJIA) keeps flirting with that unfavorable distinction and is currently down 15% through the first two quarters. For the S&P and DJIA, this is the worst start to a year in over 50 years. For the NASDAQ, it is the worst ever.⁴

While bonds should provide a buffer when markets crash, U.S. Treasuries have also delivered double-digit losses to start the year. The 10-year Treasury has lost more than 10%, and declines in longer-term Treasuries exceed 20%. Investment-grade corporate bonds have dropped a staggering 16%, and the Bloomberg US Aggregate Bond Index, tracking all maturities of Treasuries and corporate bonds, is on pace for its worst year in history, currently down over 10%. Unfortunately, this means the usually reliable balanced portfolio of 50% stocks and 50% bonds has declined more than 14% to start the year.^4,5

Final Thoughts

The constant barrage of pessimism, lingering inflation, and recession talk from financial news organizations has everyone scared and gloomy. Still, it’s important to reflect on the past 25 years. We’ve seen dramatic conditions in the economy and markets before, so there is truly nothing new under the sun.

In the late 1990s, Russia defaulted on its debt. Then came the bursting of the Dot-Com Bubble, followed by 9/11. Soon after, a downgrade of U.S. debt, a housing market crash, and the bankruptcy of Wall Street bastion Lehman Brothers led to the Great Recession. And, most recently, a global pandemic shut down the global economy for months.

During those tumultuous periods, many people thought they knew what was happening and sold stocks or stopped putting money into the markets. However, one common theme has continually persevered – markets are resilient. Back in 1997, knowing all the pending economic and market calamities, would anyone have guessed the S&P 500 would generate an average annual of nearly 10% and a cumulative return of more than 900% over the next 25 years?⁶

In conclusion, there’s nothing new here; we’ve seen this before. Markets are resilient, and they recover. With so much risk currently priced into the markets, there is opportunity. Forward-looking stock valuations have declined dramatically, and yields on bonds are at multi-year highs. Despite an unbelievable lineup of bad news, if you have a long-term focus, you need to look past these things, even if it’s painful.

Times like these remind us how important it is to consult with your advisor to make sure your portfolio is aligned with your risk tolerance and time horizon. It’s this valuable partnership between the Client, Advisor, and CAM that will help guide you through these uncertain times by making prudent decisions and avoiding costly mistakes.

Author

Mitch York
CIO
Concord Asset Management

—

Footnotes and Sources

¹Current US Inflation Rates: 2000-2022, US Inflation Calculator, June 10, 2022

²Troy Green, “Existing-Home Sales Fell 3.4% in May; Median Sales Price Surpasses $400,000 for the First Time,” National Association of REALTORS®, June 21, 2022.

³Mika Pangilinan, “Mortgage Applications Inch Higher in Weekly Survey,” Key Media, Inc, June 29, 2022.

⁴Morningstar, June 2022.

⁵Bloomberg US Agg Total Return Value Unhedged USD, Bloomberg, June 23, 2022.

⁶Information based on a portfolio of 50% Bloomberg US Aggregate Bond Index, 40% S&P 500 Index, and 10% MSCI EAFE Index.

Concord Asset Management, LLC (“CAM” or “IA Firm”) is a registered investment advisor with the Securities and Exchange Commission. CAM is affiliated, and shares advisory personnel, with Concord Wealth Partners. CAM offers advisory services, including customized sub-advisory solutions, to other registered investment advisers and/or institutional managers, including its affiliate, Concord Wealth Partners, LLC. CAM’s investment advisory services are only offered to current or prospective clients where CAM and its investment adviser representatives are properly licensed or exempt from licensure.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CAM or its affiliates, or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from CAM or CWP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. IA Firm is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of IA Firm’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https://concordassetmgmt.com/.

Attention Turns to the Debt Ceiling:

Stocks were mixed last week as good inflation news was offset by mounting debt ceiling concerns and rekindled regional banking fears.

Over the last month, The Dow Jones Industrial Average returned –1.92%, while the S&P 500 returned –0.31%. The Nasdaq Composite Index returned 1.73%.

Uncertainty Weighs on Stocks

Inflation Pressures Ease

Inflation progress extended into wholesale prices, which rose 0.2% in April–below the consensus forecast of a 0.3% rise. For the last twelve months, producer prices increased 2.3%, an improvement from last month’s 2.7% year-over-year gain and the lowest recording since January 2021.2

This Week: Key Economic Data

This Week: Companies Reporting Earnings

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken Chief Investment Officer Concord Asset Management

—

Friday Rally Trims Losses; CPI Report Next Week:

A Friday rebound, triggered by big tech company earnings and a strong jobs report, shaved much of the week’s accumulated losses.

Over the last month, The Dow Jones Industrial Average returned 0.39%, while the S&P 500 returned 0.72%. The Nasdaq Composite Index returned 0.98%.

Stocks See-Saw

Renewed regional bank concerns weighed on investor sentiment last week, despite the rescue of a troubled bank before the start of the trading week.

Solid earnings from one mega-cap tech firm and a strong employment report steadied investors, resulting in a Friday bounce that ended a volatile week on a positive note.

Fed Hikes Rates

Amid concerns in the regional bank sector and tightening credit conditions, the Fed elected to increase interest rates by 0.25%, citing elevated inflation and robust job gains. Investors were more focused, however, on what the Fed signaled about its plans since the expected rate hike.

This Week: Key Economic Data

This Week: Companies Reporting Earnings

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken Chief Investment Officer Concord Asset Management

—

Stocks Rally as Attention Shifts to Fed’s May Meeting:

Strong earnings from several mega-cap technology companies offset renewed regional banking jitters and weak economic data, leaving stocks higher for the week.

Over the last month, The Dow Jones Industrial Average returned 2.65%, while the S&P 500 returned 1.46%. The Nasdaq Composite Index returned -0.27%.

Earnings Drive Rebound

Also aiding the sentiment was last week’s first quarter Gross Domestic Product (GDP) report. Though the report showed muted economic growth that fell short of expectations, investors were encouraged by strong consumer spending.

Slowing Growth

In a sign that higher rates are slowing economic growth, first-quarter GDP slowed to a 1.1% annualized growth rate as healthy consumer spending helped offset a decline in business investment and a slowdown in nonresidential investment.

Economists had expected first-quarter GDP growth to come in at 2%. The business inventory investment slowdown reduced the headline GDP number by 2.26%.1

The initial estimate of GDP also reported some disappointing inflation news as the quarter-over-quarter Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, rose 4.2%, which was higher than the 3.7% forecast.1

This Week: Key Economic Data

This Week: Companies Reporting Earnings

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken Chief Investment Officer Concord Asset Management

—

Stocks Show Small Losses After Mixed Week:

Stocks Hold Firm

Stocks traded most of last week around the flatline as investors grappled with several headwinds.

Underneath the seemingly placid surface of the major market indices, there was substantial price action at the individual stock and sector level. Poor earnings results hit communication services stocks and regional banks, while margin pressures put pressure on auto stock valuations.

Housing Weakness

Two housing reports reflected ongoing fragility in the housing market and fed prevailing economic slowdown worries.

Existing home sales also suffered a month-over-month decline in March, falling 2.4%. Sales plummeted 22% from March 2022 levels as higher mortgage rates and tight inventories impacted affordability.2

This Week: Key Economic Data

This Week: Companies Reporting Earnings

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken Chief Investment Officer Concord Asset Management

—

Lower Inflation Lifts Spirits in Uneven Week:

The combination of an improving inflation outlook resulted in a week of uneven, albeit positive, performance, in which cyclical and financial stocks rallied while technology, real estate, and utilities lagged.

Over the last month, The Dow Jones Industrial Average returned 4.68%, while the S&P 500 returned 4.15%. The Nasdaq Composite Index returned 3.07%.

Inflation Retreat

After reports of a more pronounced slowdown in producer prices on Thursday, stocks surged higher, with technology and communication services companies leading the charge. A weak retail sales number on Friday shaved the gains to close out the week.

Trending Lower

Last week provided fresh insight into inflation, and the news was encouraging.

The Consumer Price Index (CPI) rose a very modest 0.1% in March, while the year-over-year increase in consumer prices was 5.0%, down from February’s 12-month rise of 6.0%. Declines aided the March report in groceries, gasoline, medical care, and utilities.1

This Week: Key Economic Data

This Week: Companies Reporting Earnings

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Gary Aiken Chief Investment Officer Concord Asset Management

—

Hiring Cools; Recession Fears Rise:

Stocks ended a shortened week of trading mixed amid revived recession fears on Wall Street triggered by weak economic data.

Over the last month, The Dow Jones Industrial Average returned 3.48%, while the S&P 500 returned 4.04%. The Nasdaq Composite Index returned 5.35%.

Recession Fears Resurface

Renewed recession worries dented investor sentiment, and the week kicked off with a weekend announcement by OPEC+ nations of their intention to cut oil production.

Stocks stabilized to close on Thursday, despite an increase in jobless claims and a pick up in March layoffs.

Cooling Labor Market

After reports of a jump in initial jobless claims on Thursday and a 15% rise in layoffs in March, Friday’s March employment report showed the smallest increase in nonfarm payrolls (+236,000) since December 2020.3

This Week: Key Economic Data

This Week: Companies Reporting Earnings

At Concord Asset Management, we design portfolios for the long run, with the ability to navigate various market cycles. However, you can have confidence that we are monitoring these market-moving events, and we will make reasonable, tactical adjustments as necessary.

Author

Inflation progress extended into wholesale prices, which rose 0.2% in April–below the consensus forecast of a 0.3% rise. For the last twelve months, producer prices increased 2.3%, an improvement from last month’s 2.7% year-over-year gain and the lowest recording since January 2021.²

Gary Aiken
Chief Investment Officer
Concord Asset Management

Gary Aiken
Chief Investment Officer
Concord Asset Management

Economists had expected first-quarter GDP growth to come in at 2%. The business inventory investment slowdown reduced the headline GDP number by 2.26%.¹

The initial estimate of GDP also reported some disappointing inflation news as the quarter-over-quarter Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, rose 4.2%, which was higher than the 3.7% forecast.¹

Gary Aiken
Chief Investment Officer
Concord Asset Management

Existing home sales also suffered a month-over-month decline in March, falling 2.4%. Sales plummeted 22% from March 2022 levels as higher mortgage rates and tight inventories impacted affordability.²

Gary Aiken
Chief Investment Officer
Concord Asset Management

The Consumer Price Index (CPI) rose a very modest 0.1% in March, while the year-over-year increase in consumer prices was 5.0%, down from February’s 12-month rise of 6.0%. Declines aided the March report in groceries, gasoline, medical care, and utilities.¹

Gary Aiken
Chief Investment Officer
Concord Asset Management

After reports of a jump in initial jobless claims on Thursday and a 15% rise in layoffs in March, Friday’s March employment report showed the smallest increase in nonfarm payrolls (+236,000) since December 2020.³

Gary Aiken
Chief Investment Officer
Concord Asset Management

Mitch York
CIO
Concord Asset Management