October 20, 2023 • 19 mins
In this episode, we will recap the stock market performance in Q3 of 2023 and talk about the 3 key themes on the minds of investors as we head into Q4 2023 during our market intel report.
We will discuss...
👉 Why haven't higher rates caused the economy to slow more?
👉 What might come next for interest rates?
👉 Is now a good time to consider adding fixed income to portfolios?
For more episodes of our podcast, visit:
https://www.alisonwealth.com/podcast
To learn more about Alison Wealth Management, please visit our website at: https://alisonwealth.com
The information provided in this presentation is not intended to be individual investment advice or legal advice. The information provided is for informational and training purposes only.
Investment advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). For a detailed discussion of PCA and its investment advisory fees, see the firm’s Form ADV and Form CRS on file with the SEC at www.adviserinfo.sec.gov. The views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.
Advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). Views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.
All data provided, including any reference to specific securities or sectors, is provided for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation, or recommendation to purchase any security. Consider your investment objectives, risks, charges and expenses before investing. These views are as of the date of this publication and are subject to change. Past performance is no guarantee of future performance.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dave Alison (00:07):
Hey everyone, dave Allison with the Complete Wealth
Management podcast.
In today's episode, we're goingto be doing a quick recap on Q3
2023, what's happened in themarkets and, more importantly,
take a look at our Q4 MarketIntel report.
After surging the first half ofthe year the market surging the
first half of the year westarted to lose a little bit of
(00:28):
ground in Q3.
Investors started to snap outof their optimism and some of
the worries about the economybegan Again.
These big questions is arecession coming?
Is this bull market out ofreach?
I want to start off with just aquick recap.
If we look at the major indicesout there the S&P 500, which is
really the broader US marketit's the 500 largest companies
(00:51):
in the United States they lost acumulative 3.7%.
The tech-heavy NASDAQ indexlost about 4.1%, while the Dow
Jones those bigger blue chipcompanies in the US was down
about 2.6% in Q3 2023.
What we have to remember is themarket ripped in the first half
(01:12):
of the year.
We saw all three of thoseindexes post fantastic gains.
This type of volatility issomewhat normal, specifically
with all the headwinds likeinterest rates, public data,
recession indicators, what'sgoing on in US politics and some
of the geopolitical risks thatare out there.
I want to just touch on some ofthe key takeaways from that
(01:37):
third quarter.
First off, I will start bysaying this isn't all bad.
Progress is not linear when itcomes to the stock market.
It has its ups and downs.
This pullback is not out of thenormal.
There is still plenty to beoptimistic about.
The economy is still chuggingalong.
The labor markets continue toshow some strength.
(01:59):
You'll get to listen to me talkabout that a little bit in our
Q4 market intel report.
We still have that majorchallenge ahead that the Fed
must maintain that delicatebalance between keeping interest
rates high enough to fullydouse inflation while not
triggering a recession.
The bottom line is there's alot of data Everybody is very
(02:20):
focused on microanalyzing aroundinterest rates, around jobs,
around consumer spending, arounddebt, around how these higher
interest rates are going toimpact the economy.
The key with all of this isstaying flexible, looking for
opportunities, sticking withyour plan.
Again, while Q3 was a slightpullback from what we saw in the
(02:44):
first half of the year, stillplenty to be optimistic about.
What I'm going to do now is I'mactually going to, in this
podcast episode, turn it over toour Q4 market intel report
where I share with all of ourclients just a little bit of the
key themes on the minds ofinvestors today.
Let's jump on over to thepodcast and to that report.
(03:07):
Hello everyone, dave Allison,founder and CEO of Allison
Wealth Management, and I'mexcited to join you today to
talk about our fourth quartermarket Intel report, and I am
(03:31):
happy to be with you here todaytalking about our fourth quarter
market Intel report.
Certainly a lot going on inmarkets.
We just came off of what Iwould call a little bit of a
spooky September.
We had our first pullback afterthe markets really ripped
through the first half of theyear.
(03:53):
But there's a lot going on, andwhat we're going to talk about
in this video are really thethree key themes that are on the
minds of investors today,things that we're hearing about
frequently.
The first being why hasn't thishigher interest rate cycle
caused the economy to slow downmore?
Then we'll spend a little bitof time talking about what might
(04:17):
come next for interest ratesand then, third, last but not
least, we'll talk about is it agood time to consider adding
fixed income to your portfolio?
So this first key theme thatwe're going to talk about today.
The big question out there whyhasn't higher interest rates
(04:38):
caused the economy to slow downmore?
We've seen a historic FederalReserve interest rate increase,
trying to combat and fightinflation.
One of the tools that they useto do that is increasing
interest rates, which shouldencourage people to save more,
spend less, cool down companyearnings, cool down prices out
(05:03):
there.
But we really, although we'veseen inflation come down, we
really haven't seen the economycool too much.
Part of the reason for that isif we look at some of this data.
I've mentioned in some of ourprevious videos that the one
positive that we had of keepingthe economy hot is that
corporate balance sheets arevery healthy.
(05:26):
The amount of cash and the debtthat they have is not leading
us to believe, at least for thebiggest companies in the United
States, that there's a lot toworry about.
Part of this was some of thedecisions that were made
throughout the pandemic.
So, for example, on thecorporate side, down at the
(05:47):
bottom on this chart, you cansee that over 50% of the S&P 500
companies these are the 500largest companies in the United
States had done a good jobmanaging and refinancing their
debt when we had historicallylow interest rates during the
(06:08):
pandemic and in fact, 50% of thetotal debt of all of those
companies is not going to maturetill after 2023.
So this means their interestpayment and their debt servicing
is going to stay fairly low, atleast for the next six years.
If we flip over to the retailside, the consumer side, we saw
(06:33):
the same thing in the housingmarket.
You see, these higher interestrates, although they certainly
would impact a new borrowertoday looking to go buy a home,
they're not really impacting inreal time those of us who locked
in a very low interest rateduring the pandemic when we saw
(06:55):
historic lows.
And in fact we see in the data,61% of outstanding mortgages
have an interest rate below 4%and so again, that's keeping the
borrowing costs down, which isallowing people to have more
discretionary spending to stillgo out there and buy things.
(07:16):
Power the economy, drivecompany earnings.
Now again, some things to keepan eye on is, of course, real
estate prices I mentionedearlier.
For those of us that are in ourhomes already and we've got
these low mortgage rates lockedin, it doesn't really impact us,
but somebody purchasing a newhouse certainly has a harder
(07:37):
time financing and taking out amortgage, and this is why you
start to hear a lot about thefact that real estate prices
will have to come down at somepoint as long as interest rates
stay high.
The other thing to take intoaccount here is any balloon
payments or adjustable ratemortgages, and what happens to
(07:59):
those payments when thosemortgages come out of their low
fixed interest rate and mightadjust to a higher rate.
So again, the big question onwhy haven't higher rates caused
the economy to slow?
Is the majority of the debt outthere isn't being subject to
these new higher rates, both onthe corporate side and the
(08:23):
consumer side?
Now some things that we'rekeeping a close eye on, as well
as the labor market.
We've spoke about this in othervideos, and overall the labor
market continues to remain quitestrong, but we are starting to
see some job growth is slowing.
(08:43):
In fact, over the last couplemonths, a couple of the reports
that came out actually showedmonthly change in US non-farming
payroll jobs actually fellbelow the long-term average, or
at least the pre-pandemicaverage, for the first time
(09:04):
since we came out of the globalpandemic, and so at this point
it's nothing to really ring analarm about, but it's definitely
a statistic or a data pointwe'll want to keep an eye on
because, again, I've shared inmany of these videos as long as
we have a strong labor market,we should have a sustainable
(09:26):
economy, but when that labormarket starts to teeter right,
when people start to lose theirjob, we certainly know that's a
leading indicator of apotentially challenging economic
environment ahead.
The other thing that we'rekeeping a close eye on is credit
card delinquencies, and so whatwe're starting to see and you
(09:48):
can see it in the bottom part ofthis chart here is we're
starting to see credit carddelinquencies tick up since the
pre-pandemic levels.
Now, what we saw is all thegovernment stimulus that got
passed out during the pandemicelevated people's savings rates.
They had a bunch of cash onhand.
(10:09):
They were out there spending it, they were paying off their
credit cards as they wereracking up credit card expenses.
But we're starting to see now,for the first time since
post-pandemic, that individualsavings rates is declining.
A lot of that stimulus ispretty much depleted, and now
(10:31):
we're starting to see a tickupward in credit card
delinquencies, and so that'sanother thing to keep an eye on
because, again, if consumersaren't out there aggressively
spending, it might create aslowdown in economic growth.
On top of that, we're alsostarting to see things like
student loan repayment resumingthis month, and so these are all
(10:55):
things that essentially takeaway from the US consumer's
ability to go spend more money,because if part of their
paycheck is going to pay offstudent loan debt or pay a
higher interest rate on theircredit card debt or pay a higher
interest rate on their mortgage, that's less that they can go
spend on some of the goods andservices that drive corporate
(11:19):
earnings.
Now, when we look at kind ofwhere things are headed and
tying into this second key theme, we know that, or at least we
have a reasonable belief tothink that the interest rate
hikes are behind us for the mostpart.
The market and the Fed are kindof debating back and forth on
(11:42):
potentially one more interestrate hike.
We've seen it anywhere from 25basis points to 50 basis points,
and really it just depends onhow we continue to see the
numbers and the data come outabout inflation and job growth,
because although we want tocontinue to battle inflation,
(12:05):
the Fed has marching orders totry to not tail spin us into a
recession and so far theprogress on inflation supports
the Federal Reserve pausinginterest rate hikes, and so what
we've seen in some of thenumbers is headline.
Inflation is now around 3.7%.
(12:29):
We had a slight tip upward froma year ago to today, but most
of that high, high inflationthat we experienced during the
pandemic has come down.
A couple of the key componentsis shelter.
Shelter tends to be a verysticky component of inflation
and when I say sticky I mean ittends to take a long time to
(12:53):
bring shelter down because youknow, think about rent out there
.
Most people rent an apartmentwithin a one year agreement and
so most landlords aren't goingto lower rent within the
agreement that they have.
But when that agreement expiresand they need to sign a new
lease agreement, they might needto lower rent to be more
(13:16):
competitive based on the reducedlevels of inflation.
We're also seeing core CPI data, which is really kind of the
Fed's target, continue to comedown and in the latest readings
we're seeing positive movementin that.
But for the most part, I think,while most of us think that the
(13:37):
rate hikes are mostly behind us,the market has an expectation
that interest rates are gonnaremain elevated for an extended
period of time.
We're starting to see some ofthe consensus is that the Fed
might start cutting ratestowards the end of 2024, but the
(14:00):
reality of it is, if theeconomy continues to remain
resilient, the Fed is not gonnabe in any hurry to lower
interest rates, and so, again,this is just something to keep
an eye on on how these higherrates for longer might impact
(14:21):
the overall economy.
I mentioned earlier.
The biggest of the companies,the very high quality companies,
at least in the US, seem tohave the balance sheets to be
able to weather.
They have record amounts ofcash.
They refinanced a lot of theirdebt.
They're not gonna have to goout and take out new loans or
issue new bonds at these higherrates.
(14:42):
But it will be interesting tosee how this impacts smaller
companies, companies that maybedidn't have the capital
structure or the advantage torefinance in low rates, or
smaller companies who need toget new funding at these higher
interest rates to continue togrow.
And so we're gonna continue tokeep our eye on different parts
(15:05):
of the stock market and how itimpacts different companies.
And, last but not least, as weland the airplane on our Q4
Market Intel Report, I wannatalk about the addition of fixed
income into a portfolio,because some of you might be
looking at adding more stabilityto your portfolio and, in a
(15:27):
traditional market, fixed incomeprovides that ballast, or that
part of stability, as opposed to, for example, equities.
Now we know, and we've seenover the last two years, that as
interest rates rise, your fixedincome can fall.
In fact, in 2022, it was one ofthe worst years for the fixed
(15:50):
income or the bond market, andso far this year, because we've
seen interest rates rise alittle bit more.
This year we've seen bondvalues fall, but at some point,
if we believe we're nearing thetop of this interest rate cycle,
it could actually bode to afavorable outlook for bonds,
(16:12):
because if we do see interestrates start to fall, that could
equate out to capitalappreciation or gains in bonds,
because, again, as interestrates fall, bond values increase
, and so for those of you whomight have money in cash or
might want to reduce overallexposure or volatility to stocks
(16:37):
, bonds could have a veryfavorable outlook in your
portfolio right now.
Not only do you get a high cashflow via the yields that bonds
are paying right now, but youalso have that double kicker of
capital appreciation If we dostart to see the economy get
(16:57):
dicey and the Federal Reservedecides to start lowering
interest rates to prop up orsupport the economy.
That could equal a positiveprice increase for bonds, and
this chart just shows what thatimpact could be.
So, for example, if we saw a 1%decrease in interest rates,
(17:22):
that would equate out to about a10 and a half to an 11 and a
half percent return for bonds,for example, with the US
aggregate bond index.
If we see the Federal Reservedecrease interest rates by 1%,
that could mean capitalappreciation of about 11% in US
(17:46):
aggregate bonds.
You could see the next columnover investment grade corporate
bonds.
A 1% decrease in interest ratesmean about an 11.87% capital
appreciation on top of theincome that you're generating,
and then US Treasuries a littlebit less risk than, of course,
the aggregate index or corporatebonds.
(18:08):
A 1% decrease means almost a10% increase in capital
appreciation.
And so, although there's alwaysuncertainty in the economy,
there's always an outlook toalign your investments with your
risk tolerance, your volatility, your income and cash flow
needs and your overall financialplan.
(18:30):
So again, we've got a close eyeon these three key themes.
If you have any questions atall, please don't hesitate.
Reach out to our team, reachout to your advisor.
We're here to help.
Speaker 2 (18:44):
Thanks a lot and we'll see you next quarter
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(19:06):
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invest or send money.
Hey everyone, dave Allison with the Complete Wealth
Management podcast.
In today's episode, we're goingto be doing a quick recap on Q3
2023, what's happened in themarkets and, more importantly,
take a look at our Q4 MarketIntel report.
After surging the first half ofthe year the market surging the
first half of the year westarted to lose a little bit of
(00:28):
ground in Q3.
Investors started to snap outof their optimism and some of
the worries about the economybegan Again.
These big questions is arecession coming?
Is this bull market out ofreach?
I want to start off with just aquick recap.
If we look at the major indicesout there the S&P 500, which is
really the broader US marketit's the 500 largest companies
(00:51):
in the United States they lost acumulative 3.7%.
The tech-heavy NASDAQ indexlost about 4.1%, while the Dow
Jones those bigger blue chipcompanies in the US was down
about 2.6% in Q3 2023.
What we have to remember is themarket ripped in the first half
(01:12):
of the year.
We saw all three of thoseindexes post fantastic gains.
This type of volatility issomewhat normal, specifically
with all the headwinds likeinterest rates, public data,
recession indicators, what'sgoing on in US politics and some
of the geopolitical risks thatare out there.
I want to just touch on some ofthe key takeaways from that
(01:37):
third quarter.
First off, I will start bysaying this isn't all bad.
Progress is not linear when itcomes to the stock market.
It has its ups and downs.
This pullback is not out of thenormal.
There is still plenty to beoptimistic about.
The economy is still chuggingalong.
The labor markets continue toshow some strength.
(01:59):
You'll get to listen to me talkabout that a little bit in our
Q4 market intel report.
We still have that majorchallenge ahead that the Fed
must maintain that delicatebalance between keeping interest
rates high enough to fullydouse inflation while not
triggering a recession.
The bottom line is there's alot of data Everybody is very
(02:20):
focused on microanalyzing aroundinterest rates, around jobs,
around consumer spending, arounddebt, around how these higher
interest rates are going toimpact the economy.
The key with all of this isstaying flexible, looking for
opportunities, sticking withyour plan.
Again, while Q3 was a slightpullback from what we saw in the
(02:44):
first half of the year, stillplenty to be optimistic about.
What I'm going to do now is I'mactually going to, in this
podcast episode, turn it over toour Q4 market intel report
where I share with all of ourclients just a little bit of the
key themes on the minds ofinvestors today.
Let's jump on over to thepodcast and to that report.
(03:07):
Hello everyone, dave Allison,founder and CEO of Allison
Wealth Management, and I'mexcited to join you today to
talk about our fourth quartermarket Intel report, and I am
(03:31):
happy to be with you here todaytalking about our fourth quarter
market Intel report.
Certainly a lot going on inmarkets.
We just came off of what Iwould call a little bit of a
spooky September.
We had our first pullback afterthe markets really ripped
through the first half of theyear.
(03:53):
But there's a lot going on, andwhat we're going to talk about
in this video are really thethree key themes that are on the
minds of investors today,things that we're hearing about
frequently.
The first being why hasn't thishigher interest rate cycle
caused the economy to slow downmore?
Then we'll spend a little bitof time talking about what might
(04:17):
come next for interest ratesand then, third, last but not
least, we'll talk about is it agood time to consider adding
fixed income to your portfolio?
So this first key theme thatwe're going to talk about today.
The big question out there whyhasn't higher interest rates
(04:38):
caused the economy to slow downmore?
We've seen a historic FederalReserve interest rate increase,
trying to combat and fightinflation.
One of the tools that they useto do that is increasing
interest rates, which shouldencourage people to save more,
spend less, cool down companyearnings, cool down prices out
(05:03):
there.
But we really, although we'veseen inflation come down, we
really haven't seen the economycool too much.
Part of the reason for that isif we look at some of this data.
I've mentioned in some of ourprevious videos that the one
positive that we had of keepingthe economy hot is that
corporate balance sheets arevery healthy.
(05:26):
The amount of cash and the debtthat they have is not leading
us to believe, at least for thebiggest companies in the United
States, that there's a lot toworry about.
Part of this was some of thedecisions that were made
throughout the pandemic.
So, for example, on thecorporate side, down at the
(05:47):
bottom on this chart, you cansee that over 50% of the S&P 500
companies these are the 500largest companies in the United
States had done a good jobmanaging and refinancing their
debt when we had historicallylow interest rates during the
(06:08):
pandemic and in fact, 50% of thetotal debt of all of those
companies is not going to maturetill after 2023.
So this means their interestpayment and their debt servicing
is going to stay fairly low, atleast for the next six years.
If we flip over to the retailside, the consumer side, we saw
(06:33):
the same thing in the housingmarket.
You see, these higher interestrates, although they certainly
would impact a new borrowertoday looking to go buy a home,
they're not really impacting inreal time those of us who locked
in a very low interest rateduring the pandemic when we saw
(06:55):
historic lows.
And in fact we see in the data,61% of outstanding mortgages
have an interest rate below 4%and so again, that's keeping the
borrowing costs down, which isallowing people to have more
discretionary spending to stillgo out there and buy things.
(07:16):
Power the economy, drivecompany earnings.
Now again, some things to keepan eye on is, of course, real
estate prices I mentionedearlier.
For those of us that are in ourhomes already and we've got
these low mortgage rates lockedin, it doesn't really impact us,
but somebody purchasing a newhouse certainly has a harder
(07:37):
time financing and taking out amortgage, and this is why you
start to hear a lot about thefact that real estate prices
will have to come down at somepoint as long as interest rates
stay high.
The other thing to take intoaccount here is any balloon
payments or adjustable ratemortgages, and what happens to
(07:59):
those payments when thosemortgages come out of their low
fixed interest rate and mightadjust to a higher rate.
So again, the big question onwhy haven't higher rates caused
the economy to slow?
Is the majority of the debt outthere isn't being subject to
these new higher rates, both onthe corporate side and the
(08:23):
consumer side?
Now some things that we'rekeeping a close eye on, as well
as the labor market.
We've spoke about this in othervideos, and overall the labor
market continues to remain quitestrong, but we are starting to
see some job growth is slowing.
(08:43):
In fact, over the last couplemonths, a couple of the reports
that came out actually showedmonthly change in US non-farming
payroll jobs actually fellbelow the long-term average, or
at least the pre-pandemicaverage, for the first time
(09:04):
since we came out of the globalpandemic, and so at this point
it's nothing to really ring analarm about, but it's definitely
a statistic or a data pointwe'll want to keep an eye on
because, again, I've shared inmany of these videos as long as
we have a strong labor market,we should have a sustainable
(09:26):
economy, but when that labormarket starts to teeter right,
when people start to lose theirjob, we certainly know that's a
leading indicator of apotentially challenging economic
environment ahead.
The other thing that we'rekeeping a close eye on is credit
card delinquencies, and so whatwe're starting to see and you
(09:48):
can see it in the bottom part ofthis chart here is we're
starting to see credit carddelinquencies tick up since the
pre-pandemic levels.
Now, what we saw is all thegovernment stimulus that got
passed out during the pandemicelevated people's savings rates.
They had a bunch of cash onhand.
(10:09):
They were out there spending it, they were paying off their
credit cards as they wereracking up credit card expenses.
But we're starting to see now,for the first time since
post-pandemic, that individualsavings rates is declining.
A lot of that stimulus ispretty much depleted, and now
(10:31):
we're starting to see a tickupward in credit card
delinquencies, and so that'sanother thing to keep an eye on
because, again, if consumersaren't out there aggressively
spending, it might create aslowdown in economic growth.
On top of that, we're alsostarting to see things like
student loan repayment resumingthis month, and so these are all
(10:55):
things that essentially takeaway from the US consumer's
ability to go spend more money,because if part of their
paycheck is going to pay offstudent loan debt or pay a
higher interest rate on theircredit card debt or pay a higher
interest rate on their mortgage, that's less that they can go
spend on some of the goods andservices that drive corporate
(11:19):
earnings.
Now, when we look at kind ofwhere things are headed and
tying into this second key theme, we know that, or at least we
have a reasonable belief tothink that the interest rate
hikes are behind us for the mostpart.
The market and the Fed are kindof debating back and forth on
(11:42):
potentially one more interestrate hike.
We've seen it anywhere from 25basis points to 50 basis points,
and really it just depends onhow we continue to see the
numbers and the data come outabout inflation and job growth,
because although we want tocontinue to battle inflation,
(12:05):
the Fed has marching orders totry to not tail spin us into a
recession and so far theprogress on inflation supports
the Federal Reserve pausinginterest rate hikes, and so what
we've seen in some of thenumbers is headline.
Inflation is now around 3.7%.
(12:29):
We had a slight tip upward froma year ago to today, but most
of that high, high inflationthat we experienced during the
pandemic has come down.
A couple of the key componentsis shelter.
Shelter tends to be a verysticky component of inflation
and when I say sticky I mean ittends to take a long time to
(12:53):
bring shelter down because youknow, think about rent out there
.
Most people rent an apartmentwithin a one year agreement and
so most landlords aren't goingto lower rent within the
agreement that they have.
But when that agreement expiresand they need to sign a new
lease agreement, they might needto lower rent to be more
(13:16):
competitive based on the reducedlevels of inflation.
We're also seeing core CPI data, which is really kind of the
Fed's target, continue to comedown and in the latest readings
we're seeing positive movementin that.
But for the most part, I think,while most of us think that the
(13:37):
rate hikes are mostly behind us,the market has an expectation
that interest rates are gonnaremain elevated for an extended
period of time.
We're starting to see some ofthe consensus is that the Fed
might start cutting ratestowards the end of 2024, but the
(14:00):
reality of it is, if theeconomy continues to remain
resilient, the Fed is not gonnabe in any hurry to lower
interest rates, and so, again,this is just something to keep
an eye on on how these higherrates for longer might impact
(14:21):
the overall economy.
I mentioned earlier.
The biggest of the companies,the very high quality companies,
at least in the US, seem tohave the balance sheets to be
able to weather.
They have record amounts ofcash.
They refinanced a lot of theirdebt.
They're not gonna have to goout and take out new loans or
issue new bonds at these higherrates.
(14:42):
But it will be interesting tosee how this impacts smaller
companies, companies that maybedidn't have the capital
structure or the advantage torefinance in low rates, or
smaller companies who need toget new funding at these higher
interest rates to continue togrow.
And so we're gonna continue tokeep our eye on different parts
(15:05):
of the stock market and how itimpacts different companies.
And, last but not least, as weland the airplane on our Q4
Market Intel Report, I wannatalk about the addition of fixed
income into a portfolio,because some of you might be
looking at adding more stabilityto your portfolio and, in a
(15:27):
traditional market, fixed incomeprovides that ballast, or that
part of stability, as opposed to, for example, equities.
Now we know, and we've seenover the last two years, that as
interest rates rise, your fixedincome can fall.
In fact, in 2022, it was one ofthe worst years for the fixed
(15:50):
income or the bond market, andso far this year, because we've
seen interest rates rise alittle bit more.
This year we've seen bondvalues fall, but at some point,
if we believe we're nearing thetop of this interest rate cycle,
it could actually bode to afavorable outlook for bonds,
(16:12):
because if we do see interestrates start to fall, that could
equate out to capitalappreciation or gains in bonds,
because, again, as interestrates fall, bond values increase
, and so for those of you whomight have money in cash or
might want to reduce overallexposure or volatility to stocks
(16:37):
, bonds could have a veryfavorable outlook in your
portfolio right now.
Not only do you get a high cashflow via the yields that bonds
are paying right now, but youalso have that double kicker of
capital appreciation If we dostart to see the economy get
(16:57):
dicey and the Federal Reservedecides to start lowering
interest rates to prop up orsupport the economy.
That could equal a positiveprice increase for bonds, and
this chart just shows what thatimpact could be.
So, for example, if we saw a 1%decrease in interest rates,
(17:22):
that would equate out to about a10 and a half to an 11 and a
half percent return for bonds,for example, with the US
aggregate bond index.
If we see the Federal Reservedecrease interest rates by 1%,
that could mean capitalappreciation of about 11% in US
(17:46):
aggregate bonds.
You could see the next columnover investment grade corporate
bonds.
A 1% decrease in interest ratesmean about an 11.87% capital
appreciation on top of theincome that you're generating,
and then US Treasuries a littlebit less risk than, of course,
the aggregate index or corporatebonds.
(18:08):
A 1% decrease means almost a10% increase in capital
appreciation.
And so, although there's alwaysuncertainty in the economy,
there's always an outlook toalign your investments with your
risk tolerance, your volatility, your income and cash flow
needs and your overall financialplan.
(18:30):
So again, we've got a close eyeon these three key themes.
If you have any questions atall, please don't hesitate.
Reach out to our team, reachout to your advisor.
We're here to help.
Speaker 2 (18:44):
Thanks a lot and we'll see you next quarter
Financial planning and advisoryservices are offered through
Presparity Capital Advisor, pca,an SEC registered investment
advisor with its principal placeof business in the state of
Ohio.
Allyson wealth management andPCA are separate, non-affiliated
entities.
Pca does not provide tax orlegal advice.
Insurance and tax servicesoffered to Allyson wealth
(19:06):
management are not affiliatedwith PCA.
Information received from thisvideo should not be viewed as
individual investment advice.
Content may have been createdby a third party and was not
written or created by a PCAaffiliated advisor and does not
represent the views and opinionsof PCA or its subsidiary.
For information pertaining tothe registration status of PCA,
please contact the firm or referto the Investment Advisor
(19:29):
Public Disclosure website.
For additional informationabout PCA, including fees and
services, send for ourdisclosure statement as set
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