We invite you to watch Agili’s latest video, Market Insights: First Quarter 2023. A full transcript of the video, featuring Michael Joyce, is below in italics.



Hi. This is Michael Joyce from Agili, Your Personal CFO. And I’m pleased to share with you our thoughts for the Winter of 2023.

The Markets in 2022 — and Looking Forward to 2023

Now, as we all know, we just came off a pretty bad year for the markets in 2022. The bond markets never had a year as bad as 2022 and the US stock market was down nearly 20% over the course of the year. But for the year 2023, I’m actually kind of optimistic about where we’re going to end up. But it may be a little bit of a rocky road to get there.

Recession Possibilities — and Mitigating Factors

I’m going to first talk about two of the scary things. The first one is recession. I think there’s wide consensus that there’s going to be a recession; it may be the most predicted recession of all time. But there are a couple of things, I think, that could really play a part in making it either not a severe recession — or maybe we don’t have a recession at all.

I mean, I think there’s no doubt that there is some softness in parts of the economy. The housing market is in a recession. The auto industry is in a recession. And there are other parts of the consumer goods sector that have gotten soft — and I think they’re going to get even softer.

Stable Service Economy

However, a big part of the US economy is the service economy; and the service economy did not see the high highs and they won’t see the low lows. I’m not saying the service economy is going to be robust, but it will be much more stable; it will be much more stabilizing for the economy.

Strong Jobs Market

Secondly, we have to think about how strong the jobs market is right now. The unemployment rate is still near a decades’ low of 3.7%. And even if the demand for labor softens a little bit, there’s still such a big spread between the demand for labor and the supply for labor. There are still two times as many job openings as there are people to fill those jobs.

Cash on Hand

Third, households still have a lot of cash cushion. There’s still over a trillion dollars more sitting in money market accounts than there was prior to the pandemic.

Rise in Consumer Confidence

Fourth, we’ve seen a little bit of a rise in consumer confidence – and a lot of this has been because of lower gas prices, frankly. I mean, gas prices peaked in the summer and they’re down over 30% since their peak – and they’re about where they were last year. That’s made people feel a little bit better about the prospects for the economy.

Possible Impact of Recession on Corporate Earnings

When we’re talking about recession, we have to look at how it may impact corporate earnings. I think it is reasonable to expect that there will be some impact on corporate earnings. We have modelled into our forecast a modest decrease in corporate earnings which, to be fair, hasn’t happened yet. But we think if there is some softening in the economy, it could well happen, and that will impact valuations as we’ll talk about.


Inflation: Evidence We May Have Hit Peak Inflation

The second scary thing to talk about is inflation. I think there’s a lot of evidence that we might have already hit peak inflation. There’s been major improvement in the supply chains and that has certainly helped. And some of the tightening of monetary policy that the Fed has done has had some impact as well. So maybe we’ve hit the peak of where we’re going to be with inflation. But that’s not really enough. What really matters is how quickly inflation goes down – because if it doesn’t go down that fast, interest rates will still have to stay pretty high and that will impact valuations. Although it will be good for bonds — where we’ve been able to get some very nice yields in the bond market.


Concern About the Fed Raising Rates

I also have some cause for concern, at least in the short-term, that’s related to the old adage, “Don’t fight the Fed.” The Federal Reserve really seems intent on softening aggregate demand in the economy and to do so by raising rates. And whether they get it right or not is a matter of debate – how much they raise rates, when they stop – that all depends upon how things transpire in the next three to six months.


US Stocks Valuations

Valuations on US stocks right now are pretty much where they should be. Given where interest rates are, given where earnings are (at least how we forecasted earnings), the US stock market is trading at about 17x earnings – and that’s about right. It doesn’t mean that we’re going to have a big jump from here, but it probably is trading where it should be.


Good Bond Yields

As I mentioned before, we are very pleased with the yields that we’re seeing in bonds. We’re commonly seeing for two- or three-year bonds yields that are in the 5+ handle, the 6+ handle, tax-free municipal bonds over 3%, so we’re very happy about that.


Low Valuations of International Markets

In international markets, those markets are very cheap. We’ve talked about this over the past couple of quarters, but the valuations of international markets are still near a 20-year low relative to the valuation [of] the US stock market. And with international markets, in particular, we have to talk about the extreme strength that we’ve seen in the US dollar — which has been really a major headwind for the international markets, particularly the emerging markets. But over the past two months, the US dollar has backed off a little bit. It’s still very strong, but it’s backed off a little bit, and that’s provided a little bit of a tailwind to some of the international markets. So, maybe we will see what had been a headwind turn into more of a tailwind.


Past Economic Inflection Points

Michael Joyce, Penn State Graduation

Now I’m going to put you in the “Way Back Machine” for a little bit and go back 40 years because I want to talk about inflection points. And we really don’t know when there’s an inflection point, when the markets are going to start to rise, at least in a sustained manner. And if we go back 40 years – I know this is hard to believe because of my youthful appearance, but go back 40 years when I started in the financial business in the summer of 1982. And on the day that I started, the Dow Jones Industrial Average hit a multi-year low of 776. Now, the Dow Jones Industrial Average is over 33,000. It’s increased 42-fold. Now, I’ll leave it up to you to decide whether there’s any correlation between when I started in the financial business and the robust returns that we’ve experienced over the long-term since then. But the date that I started was the inflection point – because less than three months later, the markets hit an all-time high (what was then an all-time high). And this is important because we were in a very bad recession at that time; it was the worst recession since the Great Depression. Unemployment rates were in the double digits, as opposed to 3.7% now, and three months later, we were still in a nasty recession. So, it’s very difficult to pick the inflection points.

But we do know that the markets run in cycles and there’s a time to be a little bit more cautious and a time to be a little bit more aggressive. And, overall, we’ve been a little bit more cautious over the past 18 months – and as I said, we may have a little bit of a volatile road, a rocky road, in the near-term, so we’re still a little bit cautious, but maybe a little bit less cautious than we have been over the past 18 months, especially when investing for long-term goals and objectives.


Secure Act 2.0

Required Minimum Distributions (RMDs)

I also wanted to talk about a very recent piece of legislation that’s going to have a major impact on our clients and almost everybody – and that is the Secure Act 2.0. Now, I’m not going to talk about everything in there because there is a lot in there — it’s going to have some major impact on our clients – but I will mention a couple quick things. First of all, the Secure Act 2.0 delays the date [at which] people have to take the required minimum distributions to age 73. And then in 2035, that’s further delayed to age 75. So, that will allow people to build up more money in retirement accounts without a tax drag before they have to start taking that money out, which of course, is then taxable.

Catch-Up Contributions

Another part that I’m going to highlight from the Secure Act 2.0 is that it will allow for greater catch-up contributions into retirement plans for people who are over the age of 50. And if you’re between the ages of 60 and 63, there’s actually going to be a second catch-up you can do starting in 2024. So, there are a lot of provisions in this Act. It’s going to impact many, many people. So, I would strongly encourage you to contact your financial strategist at Agili to see how this might impact you: When do you have to take your required minimum distributions? Can you put more money into your retirement accounts to max them out?

If you have any questions whatsoever on any of our thoughts, feel free to contact your financial strategist at Agili or to contact me.

Thanks a lot and I hope you have a great day.