Today I am reaching out with some good news along with an update on markets.
First, many of you have already received an email from TD Ameritrade regarding your account. The email was sent to notify you of the upcoming transition to Charles Schwab.
As you may recall, Schwab purchased TD Ameritrade a couple years ago. It has been a long process to merge the two companies, but the end is near. Over this coming Labor Day weekend, your TD Ameritrade account will convert to a Charles Schwab account.
Let me be clear, the conversion of your TD Ameritrade account to Charles Schwab will have no impact on the management of your account. It will not lead to any additional fees or a drop off in services you have come expect from your custodian and Kessler Investment Group.
You will notice new statements and login portal. Otherwise, there will be little to no change in your interaction with the custodian.
Of course, in the event you have questions about this conversion, please do not hesitate to call the office. We are here to serve you.
Second, Kessler Investment Group has moved! While some of us would have preferred a move to a tropical climate, our love of Columbus won out. We have simply moved from Suite 1A on the first floor to Suite 3B on the third floor of the same building. Elevator access is available for those who choose not to use the stairs. No change has occurred with parking. We look forward to welcoming you to the new office soon.
The new address is 50 Washington Street, Suite 3B, Columbus Indiana 47201.
Now, on to our thoughts regarding the stock market, economy and interest rates.
As we headed into 2023, the negativity among market experts and amateurs was thick. It was difficult to find anyone who would voice an optimistic outlook for stocks heading into the new year. After all, what was there to be optimistic about, right? Rising interest rates, inflation, Ukraine, recession fears, etc. Not to mention, stocks posted a sizeable decline in 2022.
Well, here we are at the half way mark in the year and stocks are solidly higher as measured by the S&P 500 Index (SPX). The Federal Reserve has paused hiking interest rates, inflation is down significantly and the recession continues to get pushed down the road.
We are not surprised by stocks being higher at this point in the year. It has been our experience that when sentiment is decidedly negative (or positive), we start preparing for stocks to move in the opposite direction. This year has been no exception. The question is, “What now?”
Stocks
We believed stocks would do well this year, so we are pleased with results so far. While there still appears to be room for stocks to run higher, we expect the SPX toward the 4,600 level before hitting resistance.
As we move into the third quarter, we expect stocks to grow more volatile. We do not expect a complete reversal for stocks or anything like a crash. There is simply too much cash on the sidelines, corporate strength and softening inflation to lead to a major drop in stocks.
Whatever volatility we experience in the third quarter, we believe stocks will regain their footing as we head into the end of the year. We believe the momentum that has pushed stocks up will continue once we get through the 4,600 level.
Economy
While there are reasons to be concerned about the direction of the economy, we see more reasons to be optimistic. Yes, we believe a recession is likely to happen in the next year. If so, we think it will be shallow and affect white collar workers more than blue collar workers. This means we are looking for more of a “1990-like” recession rather than a “1982-like” recession. Short and shallow rather than deep and long is another way to describe the recession we expect to see next year.
Student loan payments start up again later this year. This could weigh on consumer spending which will slow the economy but it will also bring inflation down. However, housing remains solid and, while consumers have increased their borrowing, consumer balance sheets remain strong.
Interest Rates
The Federal Reserve decided to hit the pause button when it comes to rate hikes that began early last year. Inflation has steadily come down and there is evidence to suggest it will continue to glide lower without further rate hikes.
The Fed is telegraphing two more rate hikes this year but they have telegraphed rate hikes before without following through. We think there is a good chance the Fed is done raising rates this year. The next move by the Fed will be a cut in our view. This cut may not happen this year or not until a couple more hikes. Regardless, we are close to the end of Fed intervention and that is good for the economy and stocks.
We expect mortgage rates to stabilize and even decline. Short term interest rates should also come down. Inflation is headed in the right direction so this will pull rates down with it.
Overall, we are pleased with how the market has responded to economic and political forces. It makes sense to us. We think some volatility lies ahead but by year end, we expect to look back at 2023 and wonder what all the worry was about.
Sincerely,
Kessler Investment Group, LLC
All information in this presentation is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Certain statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Please consult your adviser for further information.
Opinions shared in this presentation are not intended to provide specific advice and should not be construed as recommendations for any individual. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.