PFA Updates

Jun 19, 2023

Hello Friends,

Our Investment Committee met recently and reviewed the markets, economy and our investment models. In short, the markets continue to move forward slowly, described by some as "melting up". The S&P 500 is up the most this year of the major indexes, about 12%, but what's not healthy is 90% of the growth has been from only seven technology company stocks.[1] Half of the companies in the S&P 500 are negative and another 25% are underperforming for this calendar year.[2] Though it feels good to have another positive quarter of growth in our investment accounts (three in a row), we need broader participation from all indexes, especially small cap companies, to feel confident that the bear market is truly behind us.

Last year we talked with clients about the four key reasons why we were in a bear market: the Fed was raising interest rates aggressively, inflation was rampant, supply chain issues were still problematic and the unknown economic impact from the Russia-Ukraine war. It was our opinion that we had to see improvement in at least two of these areas for the markets to start their recovery. Well, it looks like we are getting help from three of the four - the Fed paused interest rate hikes at its June 14th meeting, check; inflation has reduced significantly, not to the Fed's target, but significantly over the last year, check; supply chain issues for the most part are behind us, check! The Russia-Ukraine war continues unfortunately, but we have seen significant improvement in the other three which is why we believe the markets have been positive since 4th quarter of 2022.

Last month I talked about how corporate America is profitable, unemployment is below 4% and the American consumer continues to spend. These are good trends for strength in the economy. This past week Marc Chaikin wrote an interesting article titled "America's Economic Engine is Better Off Than Many Folks Think".[3] He believes that mainstream media feeds us too much negative news, cherry picking the bad stuff while ignoring the good strengths of the economy. Here are some highlights of his commentary:

-"the economy isn't as bad as the media makes it seem. In reality, the American consumer is thriving."

-"The US consumer is America's economic engine. If most people are doing well, the economy booms. But if a lot of people are struggling, the economy grinds to a halt".

-"The mainstream media makes it seem like everyone is drowning in credit-card debt. In actuality, credit-card delinquencies are near record lows. When times are really tough, people default on credit cards. That is not the case today".

-"The current personal savings rate for US consumers is in line with its historical average. People saved the same percentage of their income in 2006 that they're saving today"

-"As long as the US consumer keeps buying, American businesses (and their stocks) will continue to prosper. This is yet another angle in support of a "bullish" market thesis. Put simply, America's economic engine is still going strong today.”

We are thankful that the debt ceiling crisis is behind us, and the Fed has paused interest rate increases for now. Our overall investment strategy has not changed, but we remain ready to make prudent changes as economic data dictates. If you have any questions about your investment accounts, please feel free to reach out to us. For now, go out and spend some money to help move our economy forward.

We hope your summer is off to a great start!

PFA Investment Committee

[1]earningscout.com

[2]earningscout.com

[3]chaikinanalytics.com