The following post is courtesy of Diane Harrison who is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.
Full disclosure: my retirement monies are largely held in various accounts managed by Vanguard. As such, I receive a slew of analyst forecasts and predictions as part of my client communication media that comes as that firm’s client. The tone of these has been migrating from subtly cautionary in outlook to more subdued in expectation as the first quarter of 2023 closed. A summary of the Vanguard Investment Strategy Group’s collective views released last week included this:
- We expect the Fed to raise its rate target by another 75 basis points (0.75 percentage point) this year, to a range of 5.5%–5.75%. We don’t foresee rate cuts before 2024.
- As more restrictive financial conditions take hold, we foresee the unemployment rate rising to 4.5%–5% by the end of 2023.
- A U.S. recession in the second half of the year remains our base case.
Translation: inflation is not in check, the economy is still uneven at best, bearish at worst, and it’s only going to get worse as we proceed through the year. Not the kind of news financial marketers and investors get excited about in general.
So, for those of us who must continue the good fight and both raise capital as well as manage money for a living, how do we go about doing just that this year? Let’s try to see our investment glass as half full instead of springing a leak and examine some points of light that we can focus on when discussing business with clients and prospects.
HOUSING WILL LEAD THE WAY BOTH OVER THE SHORT AND LONG TERM
Though consumer sentiment is shaky and fears of more job cuts weigh on individuals, Vanguard’s investment team points out that the entrenched tightness of the housing market coupled with strong trends for demand to live in certain parts of the U.S. will bolster the market even through these very real economic concerns. Stated this way: ‘Our researchers believe U.S. housing activity will be driven in the next couple years by: 1) the structural undersupply of homes that’s prevailed since the 2008 global financial crisis; 2) robust demographic trends and favorable sentiment toward homeownership; and 3) strong borrower fundamentals and high equity cushions’
STOCK REPORTING WILL PROVIDE A ROADMAP TO THE MARKET”S DIRECTION
More than 170 stocks will be reporting first quarter earnings the third week of April, and the markets are basically holding their breath awaiting the news that will drop, which will indicate the relative strength of the early year’s resilience in the face of inflation and economic pressures. According to the Wall Street Journal on line on 4/24: ‘Analysts expect S&P 500 companies to report a roughly 6% drop in earnings per share from a year earlier, which would be their worst showing since the spring of 2020 when the pandemic paralyzed the economy… Besides this week’s blizzard of earnings reports, Wall Street is also waiting for the first estimate of how quickly the U.S. economy grew in the first three months of the year, among other data. Economists predict it will show a slowdown to growth of 1.9% at an annual rate, down from 2.6% in the fourth quarter.’
Of course not every company is struggling, making the hunt for outperformers ever more important during this year. Fundamentals and quality research will be vital to equity money managers’ marketing messaging, combined with a solid demonstration that their stock picking process yields better results than general market performance.
EYES REMAIN ON THE BANKING INDUSTRY IN THE WAKE OF SEVERAL FAILURES SIGNALLING THE TENUOUS FAITH DEPOSITORS HAVE AT PRESENT
While no one expects a global run on the banks in the wake of a couple of highly profiled failures spotlighted early this year, investors are wary of over extending themselves on credit and will almost certainly want to retrench and remain cautious for the remainder of this year. Again from the Wall Street Journal: ‘High rates have already caused cracks in the banking system, with the second- and third-largest US. bank failures in history rocking markets last month. The worst of the crisis seems to have passed, but scrutiny remains harsh on smaller and mid-sized banks that seem to be under the most threat of seeing customers yank their deposits.’
IT’S NOT A REPEAT OF 2008…THANK GOD!
While much of the current market news is bearish and frankly unnerving, investors can keep in mind that they should be stress testing their portfolios and their outlook on decisions they plan to make this year by keeping at the forefront a personal ‘Can I live with this worst case scenario?’ applied to how their monies are positioned. Tidying up credit extensions, keeping a comfortable chunk of monies in cash and gold as a security measure, and not making risky financial decisions ahead of the next few months are all defensive measures that can help alleviate the nervous climate pervasive in these early days of Q22023.