PFA Updates

Apr 10, 2023

Welcome to the second quarter of 2023. There was a positive mood in the room as our team met last week to review quarterly performance, investment allocations and prepare billing/quarterly reports for clients. Long short, the first quarter for 2023 was positive for both stocks and bonds, so that gives us two positive quarters in a row.[1] It does not feel like the markets are positive given the negativity in the news. On any given day, you can find headlines on Yahoo Finance that warn of impending economic doom and on the same news page, others that indicate the market has bottomed out and is ready to "surge". As we have said before, no one knows when the next Bull market will begin. We all hope it's sooner than later.

We follow numerous economists and market technicians on a regular basis. The general consensus is that we are not out of the woods yet, but most are beginning to become more positive for the second half of this year. The four key reasons for the downturn in 2022 were inflation, supply chain issues, Russia/Ukraine war and the Federal Reserve raising interest rates aggressively. All four of these headwinds are still with us, though three of the four are improving. Inflation is decreasing but not to the level the Federal Reserve has targeted. Supply chain issues continue to dissipate, and there is hope the Federal Reserve may pause its interest rate increases following the upcoming May meeting. We are telling clients, at this point, that we see 2023 as a tale of two halves - the first half of the year is still working out the woes of 2022, while we are hopeful the second half of the year brings improving inflation and economic news leading to more sustained growth in the markets. Patience still rules the day.

The one upcoming event that concerns us is the debt ceiling debate brewing in Congress. Partisan politics is the current norm for the US. We can debate many sides of the issue, as well as the lack of fiscal responsibility of Congress, President Biden, and his predecessors. We recognize the increasing national debt is a legitimate concern of many Americans. The last time this happened was in August of 2011 - the US government essentially shut down for three weeks, closing national parks, threatening cuts to Social Security payments, etc. The stock market dropped 15% in that time period.[2] In the end, Congress agreed to raise the debt ceiling, federal employees returned to work with back pay and the stock market recovered within a number of months. We are watching this drama closely and are hopeful our political leaders can find a solution without causing unnecessary angst to the American public.

Our Investment Committee has no plans to increase our stock allocations yet. We'd like to be able to put a timetable on it, but we can't at this time because our decision will be data dependent. We will draw market and economic information from many sources before we finalize our strategies. When we do decide to increase stock allocations in our models, you will be the first to know. Until then, feel free to reach out to us if you have any questions about your investments. 

Happy Spring,

PFA Investment Committee

[1] www.morningstar.com

[2] www.invesco.com