Quarterly Market Perspectives

An Unusually Strong Recovery

News, Quarterly Market Perspectives
Illustration of super hero flying above bar graph

The stock market roared ahead in the first half of 2023, returning +16.9% and defying predictions for another difficult year. The stock market sailed through the demise of four medium-sized banks, a Congressional debt ceiling showdown, higher interest rates, and widespread calls for a recession.

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Artificial Intelligence: Possibilities and Pitfalls

News, Quarterly Market Perspectives
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AI has been gradually permeating many aspects of our daily lives. For instance, recommendation engines use AI to suggest merchandise, movies, and music based on what service providers know we already like and what we share in common with other users. AI is used for word suggestion, dictation, language translation, GPS navigation, facial recognition, and fraud detection, to name a few applications. It can read and process forms.

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Be Steady and Vigilant

News, Quarterly Market Perspectives
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Psychology has brought many ideas to financial analysis, but two that stand out are confirmation bias and myopic loss aversion. Confirmation bias is the tendency to find or accept only research that mainly supports an existing thesis.[1] “The more often one looks at a financial account, the more likely one is to see a loss and, since losses bother us more than gains, they spur turnover.” This is called myopic loss aversion.[2] Combatting these two tendencies is important for investors and their advisors to do, especially in volatile times.

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Market Momentum, Bank Bailouts, and Recession or Soft Landing?

News, Quarterly Market Perspectives
Graphic of man under an umbrella on a stack of money

A year removed from the Russian invasion of Ukraine and three years from the start of the Covid-19 pandemic, supply chain disruptions and bottlenecks have eased, remote working is on the decline, travel and entertainment businesses are seeing a strong recovery, consumer spending is steady, and inflation is beginning to come down—a return to some sense of normalcy. The equity markets have been aligned with the recovery and, perhaps hoping for a soft landing, have come back strongly for the past two quarters. Investors returned to growth stocks in Q1 following a surge by value stocks in Q4, providing a remarkably balanced positive swing to equity portfolios over the past six months.

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Tax Update: Tax Revenues, Secure Act Dates, and Student Loans

News, Quarterly Market Perspectives
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Where does federal tax revenue come from? For all the talk about corporations and individuals paying their fair share and estate and gift taxes being important, it is probably a surprise that the Congressional Joint Committee on Taxation estimates that for 2022, corporate taxes will make up 8% and estate and gift taxes will make up less than 1% of total federal revenue. As those who follow these debates will know, our international competition taxes corporate income at rates less than we do and the creation of aggregate wealth taxes in Europe has been reversed, so we’re unlikely to raise our corporate tax burden or estate tax burden, unless suicidal.

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Creating Wealth in an Ironic Financial Environment

News, Quarterly Market Perspectives
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Is wealth creation possible amidst irony? We certainly hope so, because the financial world seems intent on placing itself in ironic situations. The business phrase that “you don’t know if you have a great company until it has gone through a near-death experience” is attributed to Jack Welch a former CEO of General Electric Company (GE). The financial crisis of 2008 put GE, which by then had moved from being an industrial company to being a financial company, into a near-death experience. The irony is that the experience is dismantling GE, not strengthening it. The financial arm left long ago. The health care arm left recently. The power sector arm will leave soon, and GE will become its aviation arm.

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The Fed Prescribes Pain

News, Quarterly Market Perspectives
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Rising inflation and rising interest rates were the primary reasons the S&P 500 Index returned -18.1% and the iShares Core US Aggregate Bond ETF returned -13.0% for 2022. Fortunately, inflation now seems to be dissipating. Stocks already reflect some of the good news, returning +7.6% in the fourth quarter while bonds returned +1.6% (bond yields fall when bond prices rise). The bull case for 2023 depends largely on whether the Fed “pivots” changing from tightening to easing monetary policy—but in the meantime a recession still looks probable.

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