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Dear Friends, Happy Michael Jordan day – 02/03/2023 (MJ’s jersey number was 23). For the non-basketball or sports fans, happy day after Groundhog Day. Since the gopher saw his shadow, we have to look for six more weeks of 70-degree winter weather in Sarasota (apologies to our clients living in the “cooler” climates). ZOOM Webinars for Clients – THEY’RE BACK We are excited (and you can be too) that we are going to have a Zoom webinar on Wednesday, March 1, at 5:00. Please join John (and I) as he presents “The New Retirement Rules: Understanding SECURE Act 2.0.” The Setting Every Community Up for Retirement Enhancement Act of 2019, popularly known as the SECURE Act, Congress signed into law in late 2019. But it did not take long for Congress to enhance the landmark bill . Dubbed SECURE Act 2.0, the revised bill enjoys widespread bi-partisan support and builds on SECURE Act 1.0 by strengthening the financial safety net by encouraging Americans to save for retirement. Learn how the recent changes may affect you. Whether you are or planning to be retired, this information should be beneficial to your planning efforts. If you are interested in attending, please email us at Inquire@RealityFinancialPlanning.com and John will send you the ZOOM meeting details. As an FYI, all our past presentations can be found in the Media & Posts tab on our website www.realityfinancialplanning.com. If there are any other topics for which a Zoom presentation would be relevant to you, please let us know. Market Review There was no shortage of gloom as the new year began. The Federal Reserve was signaling higher interest rates, and its aggressive campaign, started last year, to rein in inflation has been threatening to throw the economy into a profit-killing recession. Blah blah. While investor sentiment is far from euphoric right now, 2023 is off to a strong start. What is behind the move?  Last year, the Fed hiked its key lending rate, the fed funds rate, by 75 basis points (bp, 1 bp – 0.01%) in four consecutive moves.
Mix in a 50 bp increase in December, and 25 bp increase this week, and we experienced the most aggressive tightening cycle in over 40 years—1,000 bp in 6 months (St. Louis Federal Reserve) at the end of 1980. Ronald Reagan had not yet been inaugurated. While the Federal Reserve is not yet signaling a halt to rate hikes and commentary suggests it could hold rates at a high plateau this year (what analysts have been calling ‘higher for longer’), the pace of rate increases is set to slow from last year’s nearly unprecedented level. But are investors front-running the Fed? Or are they too optimistic about rates? Fed officials pushed back aggressively last year on a 2022 pivot. Today, investors believe we may see at least one rate cut by the end of the year. Previously, that had not been in the Fed’s game plan, but Fed Chief Powell seemed less wedded to pushing rates above 5% at the February 1 press conference. While Powell is not declaring victory on inflation and he isn’t ready to hint at a turnaround, he was more open to the recent moderation in inflation. The initial reaction was positive. Looking ahead, a significant rise in the jobless rate would probably force the Fed to cut rates, but a drop in corporate profits could negate any benefits from falling rates. How the Fed responds will be heavily influenced by how the economic outlook unfolds. So, what now? From 1970 through 2021, the January return on the S&P 500 Index exceeded 5% 10 times (St. Louis Federal Reserve data). Excluding reinvested dividends, the S&P 500 finished the year higher nine times. The 90% ‘win ratio’ beats the average since 1970 of 74%. During the 10 years when January advanced by 5% or more, the S&P 500 averaged a return of 21.5%. Its best annual return was 31.6% in 1975, which followed the difficult 1973-74 bear market. Its only loss was 6.2% in 2018. There are those who attempt to glean insights from expected market returns based on where we are in a political cycle. Such exercises are interesting, but let’s stress that each economic cycle has its own peculiarities that may override these barometers. We know that past performance is not a guarantee of future results. Ultimately, the economic fundamentals will play a big role as the year unfolds. Stay tuned. Lastly As always, thank you for the trust and confidence you place in us. It is something we never take for granted and sincerely appreciate. Please do not hesitate to reach out whenever you have questions, concerns or whenever we may be of service to you. Sincerely, Joe Downs, CFP® & John Cunningham, CFP® Comments are closed.
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