Please find the next blog in our market update and outlook series.
- Stocks and bonds were mostly lower in May, although strong returns from large cap tech allowed the S&P 500 to reach a modestly positive return
- Year-to-date returns remain solid in most indices, a result that may come as a surprise to many investors given prevailing economic headwinds
- On the domestic front, the Fed is still fighting inflation while also trying to provide adequate liquidity to maintain stability in the financial system
- Some cracks started to appear with recent bank failures, but bank deposit outflows have stabilized and the crisis appears to be contained
- US GDP grew at a rate of 1.3% in the first quarter, a sharp slowdown from the 2.6% rate in the fourth quarter of 2022
- Consumer confidence remains low as household investments (401k, IRAs, etc.), savings account balances and home values wane
- The probability of a recession has risen and the yield curve remains deeply inverted (10-year yield minus 3-month yield)
- Fiscal policy remains challenged given high debt and borrowing costs, leading to a debt ceiling deal which caps spending and makes modest budget cuts
- In Europe, economic growth has proven somewhat resilient, thanks to a mild winter and no material escalation in the Ukraine/Russia conflict
- Europe faces similar demographic and fiscal challenges to the US – France recently raised the retirement age sparking widespread unrest
- China’s economy is showing signs of growth, but the strength of China’s post-reopening rebound has so far been more tepid than hoped
- As asynchronous growth plays out across regions, the risk of inflation and interest rate volatility could also rise
- Central banks may find themselves with inadequate policy tools to engineer a soft landing and a stable pricing environment that has prevailed for the last few decades
- Investors will have to remain committed to strategic investment programs, while also ensuring adequate portfolio liquidity and flexibility to reposition as the market environment unfolds
Disclosures
The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.
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Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements.
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Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions,(ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put.
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