LIFE Newsletter February 2023
We’re excited for what’s ahead
This year it is important to us to shift to producing content that we resonate with. One of the biggest changes for our Life Newsletter will be highlighting organizations that we will be supporting this year. Each charity we highlight will receive a $500 donation from Abound Financial.
We’re excited to share more about the causes that we’re passionate about and hope they inspire you as much as they inspire us.
Life Lessons
“The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.”
Proverbs 21:5 ESV
Investment Updates
INVESTMENT TAKEAWAYS:
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The STAAC maintains its overweight equities recommendation, supported by attractive equity valuations relative to fixed income and the approaching end of the Fed’s rate hiking campaign.
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The Committee maintains its preference for value-style stocks based on relative valuations and technical analysis, despite the strong start to the year for growth stocks. Growth may need a steadier economy and lower inflation to sustain strength.
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Strong recent performance of non-U.S. stocks, attractive valuations, and the weakening U.S. dollar have narrowed the gap between U.S. and developed international equities despite economic challenges in Europe.
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We continue to recommend a slight underweight allocation to fixed income as we think there is greater upside potential in equities.
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The Fed’s determination to keep rates higher for longer caused U.S. Treasury yields to move significantly higher in 2022. Our year-end 2023 target for the 10-year Treasury yield is 3.25% to 3.75%.
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Shorter maturity corporate credit, mortgage-backed securities, and high yield bonds (for income-oriented investors) look attractive.
This research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Faith in Action
This month we would like to introduce Boomer Bennett, who is a beloved community leader in the Sacramento area with Youth for Christ ministries.
Boomer accepted Christ while serving a 16-year prison sentence for a crime he committed in the streets of south central Los Angeles.
Once one of the most influential gang members of his generation, he is now among the most influential Christian thought leaders of today equipping youth & young adults to glorify God through their lifestyle.
Through his gift of preaching and speaking, as well as his leadership, he and his team are now on a mission to build the next generation of Jesus followers.
Family from Left to Right: Ivory Bennett, Kima Bennett, King Bennett, Rylee Bennett, Boomer Bennett, Royal Bennett.
Boomer Bennett is currently the Youth for Christ Placer County Director. He has been commissioned to go to middle schools, high schools, and college campuses building Campus Life Clubs in order to foster a community of Christians on campus, disciple students so they can share their faith on campus and to have a community of believers so they can do life on and off campus with each other. Through these unique Campus Life Clubs, he builds community on and off campus with students as well as community leaders and parents in order to grow Campus Life and Christian influence on public school campuses.
YFC reaches young people everywhere, working together with the local church and other like-minded partners to raise up lifelong followers of Jesus who lead by their godliness in lifestyle, devotion to the Word of God and prayer, passion for sharing the love of Christ, and commitment to social involvement.
Every Friday, Boomer takes students from the Campus Life Club to Dutch Bros so they can experience doing life with each other and talk about Jesus openly in the community!
Economic Update
Whether you’re one to set ambitious New Year’s resolutions or simply use the beginning of the year to reset on a few habits, there’s almost always some value in reflecting on the past year before looking ahead. The same is true for the markets. When we look back on 2022, it’s easy to identify the challenges—but if we look closer, we can also uncover some opportunities.
First, we need to remember what we learned in 2022. The Federal Reserve (Fed) showed us they can and will take swift action to squelch inflation, as demonstrated by the sharp interest rate increases we saw last year. We also saw that severe inflation coupled with the Fed’s interest rate hikes had a larger-than-expected impact on the stock market. We also can’t forget the impact on bonds, with increased Treasury yields and ultimately, the worst year on record for core bonds (as measured by the Bloomberg Aggregate Bond Index).
So what does all of this mean for 2023—and where are these opportunities? In the bond market, it looks like we’ve uncovered some value, especially for those income-oriented investors. This is a welcome change after nearly 20 years of difficulty in finding stable income-producing investments as market interest rates continued to fall. With higher yields now available in some durable areas of the bond market, we believe investors may be able to enhance their income-generating portfolios, while potentially taking on less risk than in years past.
Turning to stocks, the early weeks of 2023 are looking more promising. Inflation is still high, but falling, the Fed is expected to end rate hikes by the spring, and there are renewed hopes for a softer landing for the U.S. economy; our expectation is that the economy will either narrowly avoid a recession or enter a mild, short-lived recession in early-to-mid 2023. These factors have allowed investors to begin charting a more positive path forward, which we believe will continue despite some potential choppiness in the market. We continue to favor U.S. equities over international markets, despite some pressure we may see on domestic profit margins this year. The international markets have also begun to show some signs of life as inflation looks to be peaking in the U.K. and Europe as well. Emerging markets have even bounced back slightly, although uncertainty over China’s economy remains a wildcard.
Overall, we see reason for renewed optimism when it comes to the markets in 2023. Should the Fed pause rate hikes in the near term as expected, we may see a nice stock market rebound supported by falling inflation, reasonable valuations, and stable interest rates. Further equity market volatility remains a risk, but we believe we’ll see more positive outcomes from the stock and bond markets this year.
Please contact me if you have any questions.
Sincerely,
David Laut
CEO, Certified Financial Planner™
O / 916-846-7780
A / 4180 Douglas Blvd. Suite 200, Granite Bay, CA 95746
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of January 31, 2023.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance does not guarantee future results.
Asset allocation does not ensure a profit or protect against a loss.
For a list of descriptions of the indexes and economic terms referenced, please visit our website at lplresearch.com/definitions.
