We invite you to watch our latest video, Agili Market Insights: Second Quarter 2023 Views. 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 Agili’s outlook at the midyear of 2023. At the beginning of the year, I wrote a commentary where I quoted some lyrics from the 1970 song by the Five Stairsteps that said, “Oooo Baby, things are going to get easier, Oooo Baby, things are going to be brighter.” And as we stand at midyear things are, indeed, a little bit brighter. The markets have done pretty well so far this year after being in a bear market last year. January was a good month and for most of our clients, if they looked at their statements at the end of February, March, April, and May, it looked like not much was happening. Now June was a good month.
But really, there was a lot happening. If you think about it, we had, in March, the whole bank drama that occurred. And in May, we had the whole debt ceiling negotiations. We were always confident that they were going to come out with a deal to raise the debt ceiling – we just thought there would be a little more brinksmanship which would create a buying opportunity at that time.
US Stock Market – A Bit Pricey
But if you look at the US stock market, which is trading at this point midyear – the S&P 500 is a little bit over 4400 — it’s a little bit pricey right now. That’s the index. Because most of the returns so far this year have been very narrow. It’s been driven by seven or eight stocks, like Apple, Microsoft, Amazon, Nvidia – and these are all great companies – but they’re a little bit pricey right now. A couple of them are trading at over 30 times next year’s earnings; that is, the earnings for fiscal year 2024, not even for fiscal year 2023. And some are trading even higher than that. But if you take those seven or eight stocks out, the US stock market is trading at a pretty reasonable value. If you look at stocks like Verizon, or Pfizer, or CVS Health, they’re all trading at about seven times earnings and they’re all paying really nice dividends.
So, this is not going to be a year, in our opinion, that you often have after a year with a bear market (like there was last year), where returns are 20 or 30 percent. It could happen. That would be great. But we’d be very surprised about that. But it is a market where you should be selective. Don’t fall for FOMO, the “fear of missing out.” On the other hand, don’t be afraid to invest in securities that are more reasonably valued and have very good long-term prospects.
Bond Market – Better Yields on 3-Month Treasury Bill
Now turning to the bond market, we continue to be very pleased with the yields that we’re getting on bonds. If you look back, not even a year and a half ago, the 3-month Treasury bill was yielding .05%, which even Agili’s summer intern knows rounds to zero. And right now, that yield is about 5¼%. So those yields are looking pretty good right now. And they’re being driven by the Fed.
We can talk a lot about the Fed, we can talk a lot about the inverted yield curve – which is often an excellent indicator of a future recession — but the Fed right now is probably close to the end of their tightening cycle. Inflation is coming down, it’s just not going go down that fast, as we had predicted. It’s going to take a long time for inflation to reach the Fed’s 2% target. But it is, indeed, coming down.
Recession Concerns Helped by Service Sector
As far as a recession [goes}…We don’t know if there is going to be a recession. We’ve been recession sceptics for the past couple of years. There have been many prognosticators predicting a recession for the past two years. They said, “In six months, we’re going to have a recession,” and six months go by, and they say, “In six months, we’re going to have a recession,” then another six months go by, and they say, “Well now we really mean it, there’s going to be a recession.”
But as we’ve talked about over the past several quarters, the service sector, which is a much bigger part of the economy than it was 40 years ago, back in Mr. Volcker’s economy, tends to be less volatile and it’s also been pretty resilient. So, the service sector is indeed keeping us out of a recession overall, and that’s a good thing.
Maintaining Allocations in International Markets
International markets are also up. In fact, by many indications, they’re up more than the US market is this year. And that’s a good thing as well. The economies in some of the foreign markets didn’t suffer some of the really bad consequences that many people expected, including us. And also, the dollar has backed off a little bit, which has created a little bit of a tailwind for these international markets. But right now, their valuations are still pretty reasonable when you look at them relative to the US stock market, so we are certainly maintaining our allocations in those areas.
Safety of Banks
After the bank drama of March, a lot of people were wondering, “How safe is my money in the bank?” You know, they saw some runs on the bank on some pretty big banks and they got worried about that. And for the vast majority of banks, you shouldn’t worry about that. Banks are pretty well reserved and, you know, you do have FDIC insurance, so it’s a good idea to stay under the $250,000 limit for the FDIC [coverage] if at all possible. And I think most individuals can. Businesses, though, run payrolls – that gets a little bit trickier – but, again, for the most part, you shouldn’t really worry about the safety of the funds that you have in the bank.
Returns on Bank Accounts
What you should worry about is if you are getting any return. Many of the larger banks, many of the regional banks, are still paying on their money market funds .01% — which also rounds to zero. And as I mentioned before, Treasury bills – very short-term Treasury bills – are yielding over 5% right now. So, if you’re looking to get a little yield in very short-term securities, you should consider Treasury bills instead of just leaving larger balances in your bank account.
Michael Joyce Included in “100 RIAs to Watch” by AdvisorHub
I also wanted to mention that, very recently, I was named as one of the “Advisors to Watch” by a publication called AdvisorHub. So, I’m very pleased about that. Agili was listed as number 33 on that list and we’ll be talking more about that on social media in the near term.
Upcoming Anniversary Parties with Clients
I also wanted to mention that 2023 is the 30th anniversary of Agili. Actually, March 1st marked our 30th anniversary. So, for our clients watching this video, we are going to be sending out invitations to some dinners we are going to be having in both in Virginia and Pennsylvania, so keep your eye out for that.
So, I’ve been very pleased to share with you our outlook for the summer of 2023. If you have any questions, contact your financial strategist at Agili or contact me. Thank you and have a great summer.
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