I am at the Advisor Circle Future Proof conference in Huntington Beach, California. Attending is over 1500 investment advisors with a lineup of seasoned speakers from national and international financial companies. Over these past three days, I have attended sessions on topics about nearly every asset class, from cryptocurrency and ESG (environment, social, government conscience funds) to cash. Nyle Bayer was the moderator for a one-on-one interview on the main stage with Samir Vasavada (huge shout-out to Nyle). Samir, a 22-year-old CEO and co-founder of Vise, developed software portfolio management tools for advisors. Vise recently completed a $100M capital raise, and the company is a unicorn, valued at over $1B.
INFLATION. On inflation, they concurred that price increases in many asset classes are slowing, and the target CPI (consumer price index) growth rate goal defined by the Federal Reserve should be met by Q1 2023. Due to supply chain disruptions, the imbalance caused by the pandemic, and the surprisingly quick recovery of the US economy and subsequent demand, big drivers of rising prices. New housing projects in the suburbs, for example, experienced significant supply imbalances in 2021 as consumers with strong buying power along with ultra-low mortgage interest rates moved from metropolitan areas to the suburbs. The 100% increase in mortgage rates this year has crushed the refinance market and significantly slowed the new and existing home markets. Businesses are resuming their in-office work policies and now creating new imbalances in metropolitan areas as employees are now moving back to the downtown areas. They predict these supply and demand imbalances to level out in 2023, along with the CPI.
FEDERAL RESERVE. Their consensus was the Federal Reserve would increase the discount rate next week by 0.75% and 0.25% at the November 2, 2022, Federal Open Market Committee (FOMC) meeting. Going forward, they project no further rate increases in 2023. They expect inflationary reports to continue to indicate a slowing of prices in most key asset classes, including energy, housing, and commodities, over the next several quarters. This year’s increase in interest rates in mortgages and corporate lending will be the new baseline for rates and will probably not see declines back to rates of earlier this year.
ECONOMY. They all agreed the US economy is performing well with near full employment. The project continued stability or growth in corporate earnings. They all concurred that the fundamentals of the US economy are strong, especially in comparison to the world economies. They expressed concerns about the continued war on Ukraine and whether China should invade Taiwan as outliers for the stock market. They noted that the world's disapproval of Russia’s attack on Ukraine might deter China’s decision to do the same in Taiwan.
US STOCK MARKET. They believe the stock market has priced in 2022 Federal Reserve rate increases and project the S&P 500 to rise 4% in Q4 2022 4400 (currently 4100 at the start of today). Michael cited data that the average declines of the S&P 500 during Fed rate hike cycles are 19%, followed by an equal bounce-back rally in the subsequent 12-month periods from the date the Feds cease their rate increase policy. They all agreed the Price Earnings (P/E) ratio of the S&P 500 at 16 is below the historic high range, and stock price increases with earnings growth may prompt a solid rally in 2023. Longer term, they remained optimistic about the continued growth of the economy and stock market.
What Does This Mean to Me?
The bullish comments from Barry Ritholz’s session were consistent with most other speakers. I did not hear any forecasts of recession leading to greater economic declines. Many were unclear on the future of cryptocurrency pricing, but all agreed that the currency is here to stay and will have some key functionality in the world markets. Most agreed the cryptocurrency market remains very speculative as an investment class and risky for the casual investor. There were several sessions on social and environmental investing suggesting the importance for investors to look to these areas as opportunities to improve human and environmental conditions but not necessarily for profits.
I was encouraged by the overall positive theme from most of the speakers about the future of the US economy and stock market. Today the stock market opened with a sharp decline due to the release of the August CPI report indicating a 0.1% increase vs. expectations of a 0.3% decline. Investors are reacting negatively to this report in fear the Federal Reserve may extend its rate increase policy into 2023. Our view is the stock market may continue to be volatile in 2022, but we concur with many analysts that the US economy is favorable and values remain in the stock market for investing. During one session, the speakers referred to 2008 and the huge buying opportunities that resulted from the selloff. Investors that bought into the stock market in 2009 reaped terrific returns over the next 13 years and saw this market cycle as another buying opportunity.
Let us know your thoughts on this Weekly Brief. Also, we welcome the opportunity to assist with your financial and investment planning.