LIFE Newsletter June 2024
Navigating Life’s Journey
The goal of our LIFE Newsletter is to bring you a blend of wisdom, financial insight, and philanthropy. Our commitment to enriching lives goes beyond financial advice – we extend our support to meaningful causes, with each featured organization receiving contributions from Abound Financial.
In this edition, as always, you’ll find thoughtful reflections, in-depth investment insights, our ‘Faith in Action’ spotlight on a charity close to our values, and an economic update to keep you informed and prepared.
Together, let’s embrace the path to financial abundance and compassionate action.
Life Lessons
”All who are prudent act with knowledge, but fools expose their folly.”
Proverbs 13:16 (NIV)
Investment Updates
Per LPL Research’s Global Portfolio Strategy Report – For complete copy of the report, click here.
INVESTMENT TAKEAWAYS:
-
Economic growth in the U.S. should outperform other developed markets. Despite a slow start and some headwinds to consumer spending, we expect solid business capital spending to support domestic growth overall albeit at below consensus levels.
-
The STAAC maintains its recommended neutral equities allocation amid a favorable economic and profit backdrop. Interest rates may need to fall for valuations to hold, so potential second half gains are more likely to be driven by earnings growth.
-
The Committee remains comfortable with a balanced approach to market cap. High-quality small cap stocks are attractively valued, but the earnings power among large cap companies, overall, has been very impressive.
-
The Committee maintains a slight preference towards large cap growth with economic growth poised to slow. Earnings dominance from growth companies as the artificial intelligence (AI) buildout accelerates and lower interest rates favor the growth style.
-
The STAAC’s regional preference remains U.S. over developed international and emerging markets (EM) due largely to superior earnings and economic growth in the U.S. and as political uncertainty ratchets higher in EM.
-
The STAAC continues to hold a strong overweight tilt in preferred securities as valuations remain attractive. However, the risk/reward for core bond sectors (U.S. Treasury, agency mortgage-backed securities (MBS), investment-grade corporates) is more attractive than plus sectors. In our view, adding duration isn’t attractive due to persistent (but subsiding) inflationary pressures, and the STAAC remains neutral relative to our benchmarks.
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
Empowering Transformation: The Sacramento Area Teen Challenge
The Sacramento Area Teen Challenge is a dedicated chapter of the nationwide Teen Challenge USA organization, committed to transforming lives and providing hope for individuals struggling with life-controlling issues such as addiction. Founded on the belief that a faith-based approach can lead to lasting recovery and personal growth, this chapter offers a range of comprehensive programs designed to support individuals on their journey to healing and restoration.
Through residential recovery programs, counseling, and vocational training, the Sacramento Area Teen Challenge equips participants with the tools they need to rebuild their lives and reintegrate into society as productive, healthy individuals. Emphasizing the importance of spiritual, emotional, and physical well-being, this chapter fosters a supportive community that empowers individuals to overcome their challenges and achieve their full potential.
With a compassionate team of staff and volunteers, the Sacramento Area Teen Challenge continues to make a significant impact in the local community, offering a beacon of hope for those in need.
If you would like more information or are feeling inclined to give to this cause you can find more information here:
Economic Update
April showers brought May flowers as markets placed greater importance on economic growth and corporate profits than the “higher for longer” interest rate messages from the Federal Reserve (Fed). In fact, the S&P 500 ended May above where it ended March. So, as you prepare for summer vacations, how much should you worry about your stock portfolios?
First, based on history, stocks tend to do just fine between Memorial Day and Labor Day, with the S&P 500 rising 1.8% on average between holidays with gains 70% of the time (source: Bespoke). Also consider stocks tend to do better the rest of the year when they rise in May, with an average June–December gain of 5.4% with positive returns 73% of the time. Seasonality is not particularly worrisome.
Investing involves much more than seasonality. Looking at the U.S. economy, slower growth in the first quarter of about 1.3% is expected to be followed by a slight pickup in the second quarter. Consumer spending did slow in April as inflation remains elevated and may slow further now that excess savings from the pandemic have generally been spent. However, business investment — particularly in artificial intelligence — is helping pick up the slack. The Fed’s preferred inflation measure held steady in April at 2.8% annually but is likely to come down further over the balance of the year as the economy slows and higher interest rates continue to impact big-ticket purchases.
Corporate America has done its part in keeping the stock market well-supported, even underneath elevated valuations. Earnings for S&P 500 companies in aggregate grew about 10% during the first quarter, excluding losses incurred by a Bristol Myers Squibb acquisition. Guidance was mostly upbeat. Some retailers, such as Walmart and Target, even announced price cuts, helping fight inflation.
Political uncertainty has ratcheted higher following former President Donald Trump’s conviction. The potential market impact of the election is extremely difficult to predict, but we do know the differentiation between Trump and President Biden is widest in foreign policy, immigration, regulation, taxes, and trade, so stocks tied to those issues could see big swings. We also know from history that volatility tends to pick up in the early fall before rallying after the results, and that the economy is usually the deciding factor, so watch inflation, employment, and consumer confidence closely.
We continue to follow global headlines. The possibility of China’s military aggression toward Taiwan remains perhaps the biggest potential geopolitical shock to the global economy, given Taiwan’s strategic importance to global semiconductor production. Tariff increases are likely no matter who wins in November. Finally, we cannot dismiss potential oil shocks as the war in the Middle East rages. These risks seem manageable for the diversified global economy and financial markets at this point.
As always, please reach out to me with 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 June 6, 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.
