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 1. Home
 2. Path Market News and Insights
 3. Path Stock Market News
 4. Path Market Compass video series

 1. Path Market Compass video series

Market news is everywhere — but what does it all mean for you, and how should
you react?

Market Compass helps keep you in the know but also looks ahead to what may be
down the road. In this video series, our investment strategists share their
thoughts on the latest market and economic developments, and offer investing
tips you can use as you work toward your long-term financial goals.

Check back each month for a new Market Compass. If you have any questions, reach
out to your financial advisor


MARKET LEADERSHIP: WHERE DO WE STAND?

Nearly three months into 2024, markets have certainly moved higher, but has
market leadership expanded beyond the Mag 7? And if so, what are the conditions
we'd need to see in place to see further broadening of leadership? We'll go
through this and more in our March Market Compass.




TRANSCRIPT: MARCH 2024: BROADENING OF MARKET LEADERSHIP: HAS IT BEGUN AND WHAT
WILL IT TAKE TO SUSTAIN IT?

Hello, everyone, and welcome to the March edition of Market Compass. In today's
episode, we'll discuss a theme that we had highlighted in our annual outlook,
the broadening of market leadership. Now, we know that stock market returns in
2023 were very narrow, led primarily by mega-cap technology, and a handful of
stocks affectionately now known as that Magnificent Seven. So today, nearly
three months into 2024, where do we stand? 

Now, markets have certainly moved higher with the S&P 500 up over 8% this year
as of mid-March, but has market leadership expanded beyond that Magnificent
Seven? And if so, what are the conditions we need to see in place to see further
broadening of leadership? We'll go through this and more in this episode. 

[MUSIC PLAYING]

So in 2023, we know that stock markets were led by a pretty narrow group of
stocks and sectors, primarily in that mega-cap technology space, and driven by
that growing enthusiasm around artificial intelligence and generative AI
broadly. However, this year we are seeing overall a broader group of sectors and
asset classes that are outperforming. Let's take a look first at the S&P 500
sector returns. 

Now last year, if you recall, sector returns were led by three sectors,
technology, communication services, and consumer discretionary, all of which
were up by over 40% for the year. Now, these are also the growth sectors of the
market that house all of large cap technology and the Magnificent Seven names as
well. So what are we seeing this year? 

Indeed, we are seeing broader sector leadership, areas like financials, energy,
industrials, and health care are all up over 6% thus far. And similarly, if we
look at asset-class performance more broadly, we see that while technology parts
of the market are continuing to lead in 2024. There is some notable catch up in
the broader S&P equal weight index, the high quality S&P dividend payers, as
well as parts of international markets. And although bond markets remain
slightly negative this year, in our view, we could see this asset class perform
better if interest rates move lower later this year. 

So what are the conditions in place that we would need to see for market
leadership to broaden. First, we would expect to see the Federal Reserve and
central banks around the globe to embark on a rate cutting cycle this year. Now,
the Federal Reserve has told us that it is getting closer to seeing the evidence
it needs to start those rate cuts in 2024. We do believe that around three rate
cuts are likely later this year, perhaps starting in the June or July time
frame. 

Now, this is largely because we see inflation continuing to moderate in the
months ahead, albeit not in a straight line lower, but driven by ongoing
moderation in the shelter and rent components of the inflation basket, and some
softening in services inflation. Now, keep in mind that as interest rates move
lower, stock market valuations historically have more scope to expand, which we
think is an important driver for better performance, especially outside of
technology. 

Next, we believe earnings growth should materialize this year across many
sectors in 2024. Again, last year, S&P earnings growth was modest, up about 1%
annually, and the biggest drivers were growth sectors, including communication
services and consumer discretionary. Now, this year we're seeing S&P 500
earnings growth in the 5% to 10% range, driven by a broader group of sectors.
Areas like health care, financials, industrials, even utilities are expected to
contribute to growth alongside technology and growth sectors. 

So a broadening and earnings growth in our view is also a driver for a
broadening of market leadership. And finally, while the economy may soften a
bit, we expect economic growth to remain positive and perhaps even re-accelerate
in the back half of the year. The US economy has been quite resilient in the
face of rising interest rates. In fact, the average annualized growth in 2023
was about 3.1%. That's well above trend growth rates of 1 1/2 to 2%. 

However, this year we would expect to see some softening in economic growth,
still positive, perhaps below recent levels. Now, this comes as consumer
spending and the labor market may moderate as well. However, as we head towards
the back half of the year, if inflation eases and the Fed begins rate cuts, we
could see a re-acceleration in growth as well. Now this is a backdrop, which we
believe favors a broadening of leadership, particularly in areas like cyclical
sectors and mid and small cap stocks. 

Now, overall, equity markets have held up nicely thus far in 2024, driven by a
broader set of stocks and sectors. However, like in any given year, we would
expect bouts of volatility to emerge. In fact, two to three pullbacks in the 5%
to 10% range are the norm historically. Nonetheless, we would view market
volatility as an opportunity for investors to add quality investments to
portfolios, as well as to think about diversifying portfolios for a potential
broadening of market leadership. 

Now, we believe growth in technology investments should be complemented with
cyclical and value style investments, as well as mid-cap stocks and investment
grade bonds, all of which we believe have the potential to play some catch up in
the year ahead. Now you can head to edwardjones.com for more insights, and
market commentary. And you can always reach out to your financial advisor, who
can help you tailor a portfolio that will put you on this path to meet or even
exceed your unique financial goals. So with that, I thank you. And we'll see you
right back here for the April Market Compass. 

[MUSIC PLAYING]

 


VIDEO & TRANSCRIPT: FEBRUARY: THE U.S. CONSUMER: TAPPED OUT OR TAKING A
BREATHER?

Hello. I'm Angelo Kourkafas. Welcome to the February edition of Market Compass.
Today, we'll focus on the state of the US consumer, which has been the strongest
cylinder of the US economic engine over the past 12 months. However, there are
plenty of headlines about record credit card debt, which raises questions about
whether the consumer is tapped out after a post-pandemic spending spree. In our
view, the US consumer is not running out of gas, but we do expect a modest
slowing ahead. 

Let's start with why the health of the consumer is very important. To begin
with, the US is mostly a service-based economy largely reliant on domestic
spending. Personal consumption accounts for 2/3 of US GDP. And as a result, the
consumer is really the backbone of the economy, therefore, the saying, as the
consumer goes, so goes the economy. 

And the consumer story has been a positive one so far. Despite high borrowing
costs and last year's spike in inflation, the consumer has kept spending at a
robust pace, helping keep the economy out of recession. But can that positive
momentum continue? According to the New York Fed, Americans have accumulated a
record-breaking $1 trillion in credit card debt. We actually crossed that
threshold late last year and have kept adding to it since, with credit card
balances having grown by 64% since 2003.

This record level of credit card debt no doubt is generating some headlines and
just by itself would imply that the consumer is getting tapped out. But
thankfully, we don't think that's the case. To use an analogy, the fact that a
tree might grow very tall doesn't necessarily imply that it is at a higher risk
of falling because it most likely has deeper roots supporting that height.

Similarly, if we look at what's supporting consumer spending, it is not just
credit card debt. On the graph, we see household net worth, assets minus
liabilities, which has grown 223% since 2003. So the fact that credit card debt
is at an all-time high shouldn't be such a surprise.

Another way to assess how stretched households are is to look at whether
consumers can pay for all of this debt. Debt payments as a percent of disposable
income, or what we call the debt service ratio, it is at the low end of its
40-year range. In simple terms, rising incomes are helping support the high
levels of debt that we see.

But that's not to say that there are no cracks, small cracks, starting to
appear. Delinquency rates are on the rise, but from very low levels, as you can
see. So for now, we can describe that as normalization, a return to the
pre-pandemic conditions. In our view, these are small signs of fatigue, which
suggest that spending will slow, most likely, over the course of the year. But
the consumer remains in decent shape.

Wage gains are supporting incomes and spending. Inflation pressures are
receding. And assets like real estate and stocks are appreciating. And all that
is contributing to the rise in consumer confidence. On top of that, the labor
market remains healthy with still more job openings than before the pandemic and
more openings than the number of people seeking work.

With that as a backdrop, let's talk about the economic and market implications.
We think the economic expansion will continue even as a downshift in consumer
spending will likely produce more muted growth in the next couple of quarters.
But as the consumer slows, areas that have been in decline since last year, like
housing and manufacturing, are starting to stabilize and will likely
re-accelerate as the Fed pivots to rate cuts in the summer.

With the economy likely continuing to chug along and interest rates lower, we
see opportunities for investors to rebalance and reinvest some of the cash and
sitting money in both equities and bonds. Also, we think that segments of the
market that have been left behind, like mid and small cap stocks as well as
value-style investments, will start to catch up and leadership will broaden.

Despite the really magnificent returns of the Magnificent Seven mega-cap tech
companies, we think that diversification is still important. And proper balance
has the potential to enhance returns in 2024. For more information on some of
the action steps that we discussed in this month's episode, please reach out to
your financial advisor. Thank you all for joining us.


VIDEO & TRANSCRIPT: JANUARY: MARKET INERTIA: WILL 2024 CONTINUE WHERE 2023 LEFT
OFF

So in our January edition of Market Compass, we take a look at the handoff from
2023 to 2024. And more specifically, let's talk inertia, which we'll all
remember from science class, is the principle that objects in motion tend to
stay in motion until acted upon by another force. So with last year finishing on
a strong upswing, the question is, will 2024 continue where 2023 left off? And
what are the forces that are going to influence that direction? Here's our take.

Let's start with our view on the economy, which we think will lose some momentum
in 2024 but won't come to a halt. So if we think about the handoff from '23, the
economy was exceptionally strong as we mentioned defying gravity in 2023.
Particularly because consumer spending remained quite robust. Now as we look
forward to '24, we think some of that momentum can continue, but we do think
we're going to see some softness emerge.

The Fed put the brakes on last year and consumer tailwinds like wages and
accumulated savings are now starting to fade. But both should start to show up a
little bit more acutely this year. But we do think that there's still gas left
in the tank for the economy. In particular, unemployment is still low, just a
shade above a 50-year low on the unemployment rate. And is only likely to rise
moderately this year in our opinion.

And importantly, parts of the economy like manufacturing and housing
construction and investment are now starting to show some signs of turning
higher after contracting last year. So all told, we think that conditions will
start to soften in the economy, but then begin to reaccelerate in the latter
part of 2024. The Fed has been a key influence on the markets for the past
several years, that's not likely to change in 2024.

We think that the Fed will stay on hold for a while longer, but eventually start
to cut rates later in 2024. Now let's quickly reference back to the handoff
because as we came through the tail end of '23 and into '24, the Fed was on the
sidelines holding rates steady coming into the year. We think that will persist
in the first half of 2024 before the Fed eventually begins to start cutting
rates in the second half. Now more broadly, 2024 will be a year in which
monetary policy settings get less restrictive.

And importantly, that tends to be quite favorable for the stock market, the bond
market, and the economy. Interestingly though, we do think some misaligned
expectations between what the market is anticipating and what the Fed is likely
to do can produce some volatility. And more specifically, markets are expecting
the Feds to start cutting rates early in '24 and steadily throughout the year.
We think that the commencement of those rate cuts is probably to start a little
bit later.

The broader takeaway, however, is that heading up to the first rate cut and in
the period after the first rate cut, we do tend to see the stock market perform
quite well. Now if we look at a broader picture of interest rates beyond just
the short-term policy rate, what we'll see is, since 1960, we have seen rates
rise but then declined steadily for almost 40 years since the early '80s.

More recently, we've seen rates rise off of those lows over the past couple of
years, that's what drove market performance in '22 and in '23. So as we head
into 2024, we don't think that sharp decline in rates at the tail end of '23
will continue into this year. And in fact, we think rates could probably
moderate over the course of this year before ultimately migrating slightly lower
as we move through the year.

So let's talk about the stock market. We think the bull market in equities will
continue in 2024, but we doubt it will match the vigor of 2023. And importantly,
if we think about that handoff from last year, stocks rallied sharply in the
final two months of the year to ultimately cap off what was a very, very strong
year for the US stock market. We think volatility could probably be the same as
we saw in '23.

Meaning we saw a few episodes in March and again throughout the fall where
stocks pulled back, but broadly produced overall gains for the year. We think
we'll build on those gains in 2024. But importantly, we think the complexion and
the leadership of the market can start to rotate. So let's take a look at a
graphic and we'll bring this to life a little bit more. This is what we refer to
as our jelly bean chart.

And really what it captures is the performance of different-- what we would call
asset classes or investment areas throughout each year, in this case over the
last 10 years. If we just focus in for a second on the box titled US large cap
stocks, I think about that as the S&P 500 or the US stock market for large
companies. You'll see it doesn't consistently live at the top or the best
performer or at the bottom or the worst performer, and instead can bounce
around.

If we focus in on 2023, we saw there were strong gains for the US stock market.
As I mentioned, we think those can continue as we move through 2024. But the
leadership is going to rotate. And I'll point out, importantly, we think we're
going to see a broadening out of stock market gains in 2024. Looking back in
'23, the gains were primarily led by large technology companies.

And in fact, so-called Magnificent Seven, so the seven largest tech companies in
the US, accounted for about 90% of the stock market's gains in 2023, which is
remarkable. As we move into '24, we think that leadership in those gains can
broaden out across the stock market, and importantly, across other asset classes
which really speaks to the importance of having a well-diversified,
well-balanced portfolio as we move through this year.

The performance of the stock and bond markets have obviously been in focus in
recent years. But interestingly, it's CDs that have returned to the spotlight
more recently. Now importantly, as we look into 2024 as strong and as high as CD
and cash yields have been more recently, we think they're going to be outshined
moving forward. Let me explain what I mean.

While cash and CD yields rose to their highest levels in decades more recently,
and interestingly what we saw was, as stocks and bonds pulled back in 2022, cash
was one of the better performers in a diversified portfolio. That switched in
2023 with stocks and bonds outperforming and cash trailing. Now as we head into
'24, that handoff means that we're probably going to see, in our opinion,
stronger returns from stocks and bonds in the coming year with some lagging
returns in cash.

Now, importantly, those higher yields for CDs and cash might feel risk free, but
those strong gains in stocks and the sharp drop in interest rates toward the
tail end of '23 highlight two things. One, the opportunity cost of hiding out in
cash. And two, the reinvestment risk of CDs meaning that as CDs mature and that
money comes due, it has to be reinvested and potentially at lower yields.

So let's dive deeper. If we look back over the last 40 years, equities or stocks
on average have delivered healthy returns following the peak in CD yields. And
importantly, we do think that CD yields have peaked more recently. And so the
moments when CD yields looked particularly alluring were actually more
compelling opportunities to diversify into things like stocks and bonds.

Now importantly, this is not to suggest that there isn't a place for cash or CDs
in a well diversified strategy. But based on our outlook, we think now's a good
time to ensure you're not overweight to those areas. To us, this looks like a
good time to systematically redeploy maturing CDs or your excess cash to help
you keep your entire portfolio aligned to your longer-term needs.

So as we lean back and look out over the entirety of 2024, we think that the
bull market for stocks as well as the rebound in bonds can remain headed in a
positive direction. That inertia, so to speak, that we built coming out of 2023.
But unlike the sharp and steady rally in the months leading into this year, we
do expect a bumpier path higher as we advance.

We think the shape of 2023's gain creates a compelling opportunity to rebalance
portfolios back to intended targets across an array of asset classes and sectors
within your portfolio. Kicking off 2024 with an appropriate portfolio balance
and alignment with your long-term goals can help position you to navigate the
year ahead. As always, you can access all of our views and market content at
edwardjones.com, and by connecting with your Edward Jones financial advisor.


VIDEO & TRANSCRIPT: DECEMBER: OUTLOOK FOR 2024: THE ECONOMY, FED, INFLATION AND
PORTFOLIO POSITIONING

Hello, everyone, and welcome to the December Market Compass. Now, as we head
into year end, perhaps to enjoy some well-deserved holiday cheer, we’re all
hopefully reflecting on a successful 2023, and looking forward to 2024. 

Now, in this edition of Market Compass, we’ll focus on our outlook for 2024,
what we see happening in the economy with the Fed, with inflation, and of
course, how do we think about portfolio positioning as we enter the new year.
You can go to edwardjones.com to watch the full episode.

What happens with economic growth? The U.S. economy was quite resilient in 2023.
Economic growth was at or above trend levels of 2%. Now, in 2024, we expect the
US economic growth to remain positive, but soften in the first half of 2024.
Growth rates will likely fall to below 1.5% annualized.

Now, we do believe that somewhat weaker consumption, lower government spending,
and a cooler labor market will translate to slower growth. The consumer faces
some challenges heading into 2024. Those include declining excess savings and
rising credit card debt. In addition, we believe some loosening in the labor
market may put downward pressure on wage gains. But on the positive side, a
slowdown in growth could potentially support lower inflation and less need for
further Federal Reserve tightening.

Now, as we look toward the second half of 2024, we do expect the economy to
gradually accelerate once again. We believe lower inflation rates, a Fed that is
possibly signaling rate cuts and better earnings growth will lead to improving
economic growth later in 2024. And remember, markets are forward-looking, they
can start moving higher even before economic growth stabilizes and improves.

Does the Federal Reserve cut rates in 2024? Now, at the core of our outlook for
the markets is the trajectory of Fed policy. We believe that after the most
aggressive tightening campaign in 40 years, the hiking cycle is now complete.

The Fed will likely proceed with caution, perhaps even signaling an extended
pause, and keeping that Fed funds rate at 5:00 and 1/4% to 5.5% early in the
year. But we believe that easing inflation pressures, a cooling labor market and
a slowdown in growth will likely pave the way for interest rate cuts in 2024.

In our view, the Fed will likely cut more than the two cuts it outlined at the
November FOMC meeting, but perhaps less than the 5 to 6 cuts that markets have
priced in.

We believe that if the Fed funds rate is at 5 and 1/4 to 5.5%, longer term
neutral rates are closer to 2 and 1/2 to 3%, and inflation is moderating, then
there’s less need for the Fed to remain this restrictive. All this to say, we
see a Fed rate cutting cycle emerging in 2024.

Can inflation continue to moderate? The trajectory of inflation is another key
driver of our outlook in 2024. Now, we’ve seen progress in 2023 thus far.
Headline CPI inflation in the US has fallen from a high of 9.1% in June of 2022,
all the way down to 3.2% at the November reading. Core inflation also moved
lower from 6.6% to 4%.

Now, while the last mile down to the Fed’s 2% target may be gradual, and even a
bit bumpy, we do see core inflation heading towards 2.5% in 2024. Now, there are
a couple of reasons for this.

First, the shelter and rent components of inflation, which make up nearly 40% of
the basket, have softened in real time, and typically show up with a lag in the
CPI figures. So we believe this will put downward pressure on inflation in the
months ahead. And secondly, we believe wage gains will continue to moderate.
That will help cool services inflation as well. So overall, we see the downward
trend in inflation that began in 2023 continuing in 2024.

What does this mean for your portfolio in 2024? So after solid returns in 2023,
we do see opportunities in both equities and bonds for 2024. Now, keep in mind,
bear markets, like the one we saw in 2022, are historically followed by positive
returns. In fact, often, these periods can last for several years.

So how do we think about portfolio positioning as we head into the new year? For
stocks, if a key theme in 2023 was narrow leadership with large cap technology,
or the so-called Magnificent Seven driving much of the gains, then perhaps we
would view 2024 as the year when laggards play some catch up.

So we recommend complimenting growth investing with some of these lagging
assets. That include cyclical and value sectors, as well as small cap stocks,
which could play some catch up in 2024.

Now, with artificial intelligence still in the early innings of multiyear
growth. We still view this space favorably. But we do see diversification beyond
technology more critical to portfolio returns in 2024, especially as valuations
are more favorable outside of these areas as well.

And in bonds, we do recommend complementing your cash-like investments,
including CDs, money market funds, with longer term investment grade bonds.
These bonds can help you lock in these historically high yields for a longer
period, and they may also appreciate as the Fed makes further progress towards
its 2% inflation, and over time, cuts rates as well.

Using volatility to your advantage. So as we look ahead to the next 12 months,
we do expect 2024 to be a positive year in markets. But like any other year, it
will have its share of volatility as well. We believe balance and
diversification in your stock portfolio and bond portfolio can help you position
to maximize return potential for the year. And this is also where your financial
advisor can come into play. They can help ensure you have exposure in your
stocks and bonds that is tailored to your specific financial goals and risk
tolerance.

At the end of the day, you can use market volatility to your advantage to
rebalance, diversify, and add quality investments at better prices, ultimately
to meet or exceed your long-term financial goals.

So if you are interested in our 2024 market outlook, head to edwardjones.com to
read the full report. And thank you again for your viewership. We wish you all a
very happy and healthy holiday season. And we’ll see you back here in the new
year for the January Market Compass.


VIDEO & TRANSCRIPT: NOVEMBER: THE UPSIDE OF A DOWN BOND MARKET

Hello, and welcome to the November edition of Market Compass. Today we'll focus
on performance and the outlook for fixed income. Specifically, we'll talk about
first how the rise in yields differs in 2023 versus the rise we saw last year.
Second, we're going to talk about some reasons why the November rebound might be
the start of a sustainable recovery in bonds and, finally, how to position fixed
income portfolios to take advantage of the potential inflection point that we
see ahead.

Let's start with performance. After a disappointing year for investors last
year, balanced portfolios are on track to end this year on a positive note. But
US mega-cap tech stocks have largely driven the gains while bonds remain under
pressure. Though they have started to recover recently, up until the end of
October, US investment-grade bonds were on track for their longest stretch of
losses.

Since the start of the US Aggregate Bond index in 1976, there has never been two
or more back-to-back negative years. Last year, long-term rates surged as
inflation spiked to a four-decade high. And the Federal Reserve responded with
aggressive rate hikes. This year, however, inflation is declining. And the Fed
is most likely done with rate hikes.

So why the lackluster performance? We would attribute the move higher in rates
for most of the year to first the stronger-than-expected economy, which implies
the Fed might keep rates elevated for longer, second, higher Treasury issuance
to fund the fiscal deficit, and third, technical factors, such as negative
investor sentiment. In our view, we've seen the perfect storm for bonds. But
conditions now seem ripe for a rebound.

In November, the 10-year Treasury yield fell from a 16-year high of 5% to around
4.5%, providing much needed relief. The November gains could be the first step
in a sustainable recovery that could materialize in 2024 and beyond.

Here are four reasons to be optimistic despite the disappointing performance of
bonds over the past three years. First, inflation remains on a downward path.
The last two readings of the Fed's preferred measure of inflation have fallen
below 4% for the first time in two years.

At 3.7%, core inflation is still a long way from the Fed's 2% target. But we
think the downside pressures will persist. Wage growth is decelerating. Housing
inflation is cooling. And oil prices are back into their recent range of around
$75, which is 20% below their late September high.

Second, growth will downshift in the quarters ahead. The economy proved to be
surprisingly resilient in 2023, supported by a strong consumer and a tight labor
market. We don't expect growth to fall off a cliff. But we think pressure is
building on the consumer as the labor market is gradually cooling, and lending
standards are tight. The silver lining is that the expected slowdown, modest
slowdown, will also keep inflation in check.

This brings me to the third and very important reason why we believe bonds are
likely to perform better next year. The Fed might not hike further given the
slowdown in inflation and a cooling labor market. We think the Fed will likely
stay on pause as it evaluates the impact of prior rate hikes before cutting
rates likely in the second half of 2024.

This graph shows that over the past 40 years, bond returns were muted and in
some cases negative before the Fed hiked rates for the last time in a cycle. But
yields have always fallen after the Fed's last hike with bonds achieving
above-average returns six months later. This highlights that the end of
tightening can be a positive catalyst for bonds with yields potentially having
already reached the peak level for this cycle.

And, finally, valuations are attractive. Historically, one of the best
predictors of forward bond returns is current yields. Here you can see that
returns for investment-grade bonds over a five-year period have tended to match
their starting yield. For example, yields were around 5.6% in 2007, a similar
level to today. And bonds returned a little over 6% on average per year in the
five-year period between 2007 and 2012.

We believe the high starting yield in 2023 could produce high returns, setting
the stage for a bond market comeback in 2024. At a minimum, the larger income
component can better offset price declines, making a repeat of last year's
losses less likely.

With bonds potentially representing a more compelling opportunity than they have
in years, how should investors position fixed income portfolios? It might be
tempting to gravitate towards CDs and cash like investments which yield more
than 5% with little or no price risk.

However, bonds with longer maturities and higher interest rate sensitivity can
offer the opportunity to lock in the historically high yields for a longer
period. They may also appreciate in price if growth softens, and the Fed starts
cutting rates possibly in the second half of 2024. We recommend investors build
a bond ladder with an appropriate exposure to intermediate and long-term bonds,
which can complement their cash positions.

We think the bond allocation of the US Aggregate Index provides a good starting
point for diversification. If CDs represent an oversized part of your fixed
income portfolio, consider reducing your allocation to cash or reinvesting the
maturing principal into longer-duration bonds.

To sum up, while this is hard to pinpoint within yields might have already
reached a cyclical peak. As economic growth slows, the Fed pivots to rate cuts
in 2024. And inflation gets closer to the Fed's 2% target.

Volatility in bonds will probably stay elevated for a while longer. But we
expect a rebound in prices, especially for those bonds with longer maturities
that have been hit the worst. With that, thank you for joining us. We hope to
see you again next month for another Market Compass.


VIDEO & TRANSCRIPT: OCTOBER: 3 KEY QUESTIONS AS THE MARKET REBOUND TURNS 1

Thanks for joining us on the October Market Compass video. Halloween is upon us,
which means we're coming down the home stretch for 2023.

It's been an eventful year to say the least, including four distinct phases
through which the markets have navigated. First, stocks rose to start the year
continuing the rebound that started last October as inflation finally peaked.
Then markets pulled back in February and March amid the banking crisis and
worries that inflation wouldn't come down as quickly as hoped.

That then gave way to a powerful summer rally in which equities rallied nearly
20% on the growing view that the economy would avoid recession. And then most
recently we've re-entered a phase of rising rates driven by the prospects of the
Fed keeping rates high for longer, which has prompted a dip in stock prices.
This point in October also means the stock market rebound has turned one.

The last 12 months have clearly been more favorable than the preceding year when
stocks fell into a bear market under the weight of spiking inflation and Fed
interest rate hikes. Given the path I just described so far in 2023 and the list
of risks that presently occupy the headlines, it may not feel like we're in the
midst of a sustainable recovery. The coast is far from clear. It rarely is, but
we think there are reasons to be optimistic.

Here's our take on three key questions as we head into year end and into year
two of the recovery. First, interest rates have moved sharply higher. Are they
going to keep rising? Our short answer to that would be we believe rates are
actually quite close to peaking. 10 year rates, a common benchmark for yields
and for borrowing costs, have seen a renewed surge recently rising in early
October to levels that we haven't seen since 2007.

It's this recent jump in rates that, interestingly, gives us some confidence
that we may be near an exhaustion point. In fact, we've seen some evidence of
this in mid-October as yields have retrenched from those highs. In 2022, if we
reflect back for a second, long-term yields surged among the powerful and
sustained push from four decade high inflation and historically aggressive Fed
policy rate hikes. It's not as if those influences are completely gone, but the
backdrop is much different now.

Today, inflation is declining, and the Fed is at the tail end of its rate hiking
cycle. Yet interest rates have lagged higher. Why? Well, there's a few forces at
play. One, the combination of the Fed's high policy rates for longer message
that it emphasized at its last policy meeting and, two, the market's recognition
that a significant amount of treasury bond supply is likely needed to fund the
bloated federal budget deficit.

While we think these factors are behind the latest move higher in rates, we
think there's a case to be made that this may be a bit of an overshoot.
Moreover, the rise in yields may actually prove to be a catalyst for lower
rates, insofar, that high rates exacerbate restrictive financial conditions
curbing economic activity, which would actually warrant lower rates. In other
words, the cure for rising rates may be the rise in rates.

There's certainly the potential for bond yields to continue their uptrend for a
bit longer, but we think that falling inflation, slower economic growth, and the
end of the Fed's rate hiking campaign will ultimately prove to be more powerful
influence. Over the last 50 years, there have been several instances when core
inflation rose above 10 year rates. This was the case most recently.

The inflation rate as measured by the core consumer price index peaked on
average a bit more than a year before the peak in interest rates. So if we apply
that to the current phase, core inflation peaked in September of 2022, which
suggests to us that the peak in rates might not be that far off. Of note in
those previous experiences, when rates peaked the 10 year yield declined by an
average of 1.9% over the following 12 months.

OK, question number two, between skyrocketing government debt and war in the
Middle East, are these risks threatening a renewed sell off in the markets?
Well, as we noted before, the investment landscape is rarely devoid of risks.
That said, we recognize that political and geopolitical risks are credible and
can impact near-term moves in the market.

First, let me note the human element and tragedy of the conflict overseas
shouldn't be dismissed or downplayed. But if for the sake of this discussion we
evaluate the implications for the investment landscape, history shows that
geopolitical uncertainties and events tend not to have a lasting influence on
market performance.

In the near run, the most acute impacts are likely to be seen in oil prices as
we've witnessed so far here in October. And we could see a slightly more
cautious stance in the broader financial markets. Interestingly, to the extent
that a flight to safety response plays out in the financial markets as it has in
the initial response to the conflict, this would, in our view, actually push
treasury yields down, which could serve as a catalyst to support equity markets.

There are additional uncertainties we're watching as well, including the federal
debt. So US federal debt is near $33 trillion, and it's growing. Rising rates
have put additional pressure on the growing budget deficit with annual interest
payments now approaching the $1 trillion mark. The near-term impact may show up
in a temporary government shutdown if a budget agreement can't be reached by
mid-November.

While high government debt is not an overarching threat to the near-term
performance of the economy or markets, we do view this as a longer term risk
that will eventually require tough budget choices, including potentially
adjustments to taxes, spending, and even entitlement programs like Medicare,
Medicaid, and Social Security. Fortunately, the US economy is flexible, it's
dynamic, and it's resilient, which provides an important advantage in addressing
government debt. But higher interest rates are shining a brighter light on the
budget issues for now.

OK so third question, the stock market has lost some steam lately. Where does it
head from here? Well, the stock market definitely hit a soft patch coming out of
the summer with the S&P 500 pulling back more than 8% between that late July
high and early October. We don't importantly, however, think that this marks the
beginning of a new broader downtrend in equities. Though it does serve as a
reminder that spates of volatility are normal.

This is the second such pullback just this year. The other one was in February
and March, and we view this as a breather for the markets after the summer's
steady sprint higher. Importantly, we think there are a few fundamental factors
that can serve as a positive catalyst from here.

Most notably, we think a peak in interest rates can serve as a spark for stock
prices. There were episodes of surging 10 year yields in the spring and fall of
2022, as well as the earlier in 2023-- all of which weighed on the equity
markets. As the rise in yields abated, stocks found some footing, including an
average return for the S&P 500 of better than 6% just in the three months
following those instances.

More broadly, as we mentioned earlier, over the last 50 years, there have been
several instances when inflation peaked followed by a peak in the 10 year
interest rate. As rates fell from those peaks, the S&P 500 rose by an average of
20% over the following 12 months.

Now there are no guarantees that those returns are going to be mirrored this
time around, but we do think this serves as a good guide. Rates have been
governing equity markets lately. So some relief on the rising rate front should
in our opinion be supportive of market returns. In addition, we think the
broader term guide will be the path for the economy ahead.

GDP and corporate profit growth have been incredibly resilient this year, and we
expect the economy to soften as we round out the year and head into 2024. But
our view is that much of that outcome was already priced into the bear market
decline. Evidence of slower economic growth will probably drive some episodes of
caution in the markets, but we believe corporate profit growth over the course
of 2024 will really be a positive influence on financial markets.

Also we may have time and the calendar on our side. In terms of the former,
stock market was down in the third quarter-- the first such quarterly decline in
a year. And if history is any guide, then the market story gets better from here
as weak third quarters have often been followed by a strong encore.

Since 1990 in the 11 years when the stock market fell in the third quarter, the
S&P 500 rebounded with a gain in the subsequent fourth quarter nine of those
times averaging an impressive 10.6% return in those final three months of the
year. Now, if you're curious, the two years that we missed were 2000 and in
2008, where stocks fell on both the third and the fourth quarters.

While Q4 returns have been notably healthy following third quarter declines, the
fourth quarter just in general is traditionally a solid period for stocks with
an overall average quarterly gain of 5% going all the way back to 1990. Since
2019, so more recently, the average Q4 gain was 9.5% in the stock market.

And as we mentioned before, stocks just passed the one year anniversary of the
2022 bear market bottom. We've maintained our view that we held coming into 2023
that last October's low would ultimately prove to be the starting point of a new
bull market. There's no guarantee that a market recovery in motion continues in
motion uninterrupted, but we do think some of that momentum can be sustained.

When prior bear market recoveries reach that one year mark from those cyclical
lows, stocks did not in any of those instances since 1974 go back and revisit
those prior lows. Now inertia alone is not a saving grace. But we believe
investors should find some comfort in the fact that as the pendulum of market
sentiment has swum firmly back into pessimistic territory more recently, the
response from equities has been rather orderly and a normal pullback has
transpired from the summer highs, not a severe sell off.

There's no assurance that the current market mood will turn immediately, but we
think this spate of volatility is creating a compelling buying opportunity both
in stocks and bonds. And it's the combination of the economy, corporate
earnings, and interest rates, not the calendar, that will be the determining
driver of market performance ahead.

For what it's worth, I'll point out that October has a knack for putting in a
floor in market bottoms. Looking back to the last eight bear market bottoms over
the last 50 years, half of them-- so that'd be 1974, 1990, 2002, and 2022 all
came in October. So to us, here's the bottom line. While the path has been far
from smooth, the stock market is holding on to a double digit gain so far for
2023 highlighting the importance of a disciplined investment strategy and a
well-diversified portfolio.

While the recent rise in rates has weighed on both the stock and bond markets
and the list of headline risks may have you feeling like hiding out in CDs is a
more attractive approach, we think there are several reasons to be optimistic
about the path ahead. As we head into year end, use the calendar and market
volatility as an opportunity to pursue proactive rebalancing in your portfolio
where appropriate, as well as review your plan with your financial advisor to
take advantage of timely planning and tax strategies.

This in combination with disciplined and opportunistic portfolio decisions can
help keep you on track as we round out the year and turn the calendar to 2024.
So for more information on those timely planning strategies, Here's Scott Thoma
who leads our planning strategies team.

Thank you, Craig. Well, the signs of fall are all around us. And while some of
you type A's may have already finished your holiday shopping, which may strike
fear in the rest of us, we know the end of the year will be here before you know
it. Importantly, there are a number of planning opportunities that should be on
your shopping list, so to speak, that we recommend discussing with your
financial advisor.

First, I want to highlight actions some people have to do before the end of the
year. Anyone age 73 or older must take the required minimum distribution or RMD
from their IRA before 2023 ends to avoid a 25% penalty. In addition, if you have
a flex spending account, these are use it or lose it funds. So be sure to use
them before the year ends.

So there are your half to do items. But there are also a number of actions you
can consider this year to make progress towards your goals. First, we know
investors hold a lot of money in CDs given the rise in interest rates. While
holding cash is important, cash is not the solution for money that's intended
for long term goals like retirement.

So consider maximizing contributions to accounts, such as your IRA or health
savings account or contribute to a 529 plan, all of which can help put you in
better position to reach your important goals. In addition, if you're charitably
inclined, you could consider bunching two or three years worth of charitable
donations, which could enable you to itemize your deductions and maximize your
tax benefit. And for those of you who must take an RMD but don't need to spend
it, there are strategies to help you donate that money directly to charity,
which is called a qualified charitable distribution or QCD.

Now since we're on the subject of taxes, depending on your tax situation, there
are other actions you could consider. For example, with all the volatility in
the markets, it could be a good opportunity to consider tax loss harvesting
strategies to help offset any gains you might have or even consider a Roth IRA
conversion if you have room in your tax bracket this year.

Now I'll stop there since I've covered a lot. And if your hand is tired from
trying to write all this down, I have a solution for you. We have a new report
called year-end moves for your financial strategy that you can get from your
financial advisor, which covers all of these items and more. And by talking with
your financial advisor, together you can determine which moves might make the
most sense for your situation, as well as ensure you meet any deadlines to
better position yourself to achieve what matters most to you.


VIDEO & TRANSCRIPT: SEPTEMBER: 4 THEMES AS WE ENTER THE 4TH QUARTER

Hello, everyone, and welcome to the September Market Compass. You know, it's
hard to believe we're at the fourth quarter of 2023, but I guess time does fly
when you're having fun in this market. Now what I thought I'd do today is
highlight four themes for the fourth quarter. Probably the most pressing
questions we've been getting from investors. These themes include the Fed,
inflation, the US consumer, and finally, where are the opportunities for
investors in this backdrop, especially given that yields remain elevated, cash
like instruments can still offer over 5%?

Now let's dive right in. First on the Federal Reserve and its path going
forward. We in fact heard from Jerome Powell and the Fed on September 20th.
Overall, the message did seem to be rates will be higher for longer. Inflation
is still above the Fed's 2% target. And notably, headline inflation has been
driven higher recently with the rise in oil and gasoline prices. Issues like the
recent United Auto Workers strike could impact inflation as well.

However, when we look at the Fed's own updated set of projections, we can
highlight a few quick takeaways. Firstly, the Fed still does see the terminal
Fed funds rate at 5.6%. Now that does imply potentially one more rate hike
ahead. And they still expect to cut rates in 2024. But these estimates now
indicate two potential cuts instead of the four that were penciled in June.

They also see inflation gradually moderating but not reaching the 2% goal until
2026. And the unemployment rate doesn't rise as much in these new projections,
peaking at 4.1% versus the 4.5% in the June forecast. Now notably they have
upgraded their outlook for economic growth this year given the resilient
consumer and jobs market, but they do see it cooling somewhat in 2024.

Now in our view, the Fed will likely remain on this extended pause until 2024.
We don't believe they'll signal any rate cuts until inflation. And especially,
core inflation is more meaningfully towards that 2% target. But the outlook on
growth and unemployment could be downgraded if we see a more meaningful slowdown
in consumption ahead.

So this brings us to theme two, the inflation outlook. Speaking of inflation,
what is our outlook going forward? Well, inflation really has been a tale of two
price indexes. Headline inflation, which has come down as low as 3% on CPI
inflation, has in the last couple of months ticked higher to 3.7%. This has been
driven by higher oil and commodity prices, as well as the easier comparisons
after June of last year.

Now while oil prices could stay elevated, it's known to be a volatile series,
over time, prices could moderate as demand cools and offsets the recent
decreases in supply. Now on the other hand, core inflation has continued to
ease. We see here that core CPI inflation has gone from 6.6% to 4.3% in August,
very gradually and steadily moving in the right direction.

The Fed has historically preferred to look at core inflation as it does take out
some of the more volatile components of food and energy prices. So this trend
lower is certainly welcome news for the Fed. And we believe core inflation
should continue to moderate. Why is that? Well, we see the shelter and rent
components of inflation, which have come down in real time, starting to impact
that CPI basket on a live basis.

We also see wage gains, which have kept core services inflation elevated,
continuing to ease as well, especially after the job market has shown some early
signs of cooling. And so that brings us to our third theme for the fourth
quarter, which is consumer, and specifically, consumer fatigue. Now the
consumer, which as we know, is the backbone of the economy, has remained quite
resilient this year thus far. And consumers have been enjoying support by a
strong jobs market and higher levels of excess savings coming out of the
pandemic.

But as I noted earlier, we're seeing early signs that the job market may be
cooling, including lower job openings and lower voluntary quits rates, as well
as some workers returning to the workforce after a hiatus. Now in addition to a
cooling job market, we know consumers have worked down the excess savings that
were built during the pandemic, and credit card debt has also climbed higher.

Now as this summer travel season ends, the US consumer is faced with still
elevated interest rates, a slightly softer jobs market, lower savings, and
higher debt levels overall. Now consumption has remained quite resilient
already. We wouldn't expect it to fall dramatically, but we do think a period of
slower consumption growth could be a credible scenario ahead.

And finally, our fourth theme. Where are the opportunities in this backdrop?
Overall, markets have performed fairly well this year. The S&P 500 is up nearly
16%, and bond markets, while returns are flat, have offered better yields. Short
duration CDs and money market funds are offering 5% in many cases, and investors
may be wondering if they should park their money here, particularly if
consumption and growth are set to slow.

Now while having some cash-like exposure, depending on your profile, is
appropriate, we would caution against being too overweight these cash-like
instruments. And there are three main reasons for this. First, the opportunity
cost is certainly there in holding cash. As we've seen this year with the S&P
500 up 16%, the tech-heavy NASDAQ up about 30%, being too weighted in cash means
investors may miss better potential returns elsewhere.

Secondly, there is some reinvestment risk. As we noted, the Fed may pivot to
rate cuts in the months ahead. And interest rates overall may trend lower. So
investors that are looking to reinvest their CD money may have to do it at lower
rates in the future.

And finally, and probably most importantly, there are interesting opportunities
forming in both stocks and bonds. In the stock market over time, especially as
we re-emerge from any slowdown in the economy, we may see a broadening of market
participation. This could include areas like cyclical sectors, small cap stocks,
in addition to technology and AI.

And in bonds, we have seen an attractive opportunity now forming in longer
duration bonds in particular, especially those that are investment grade. This
comes as the Fed not only holds interest rates steady but over time, moves them
lower. Now with that, I thank you for joining me to discuss the four themes for
the fourth quarter, and we certainly hope to see you back here next month for
another Market Compass.


VIDEO & TRANSCRIPT: AUGUST: TOO MUCH OF A GOOD THING? 3 OPPORTUNITIES IN TODAY’S
MARKET

Hello, everyone, and welcome to the August edition of Market Compass. We are
more than halfway through the year. And the one word that seems to capture the
economic and market activity is resilience. Despite strong headwinds of high
borrowing costs, still elevated inflation, and geopolitical uncertainty, the US
economy has fared much better than expected. The same goes for corporate profits
and equity markets, which we're not going to complain about.

Even though major indices have been more volatile recently, large cap stocks are
up more than 20% from last year's lows and are not far from their all-time
highs. So what justifies the move higher in stocks? We think the improvement in
inflation, a strong labor market, and expectations for an end to the Federal
Reserve's rate hiking cycle have moved us away from any worst case scenarios.
But hefty gains taken together with flat earnings growth for the S&P 500 this
year mean that valuations have increased, and investors need to be more
selective going forward.

Historically, August and September have been less favorable for stocks, with
volatility tending to pick up. However, this shouldn't be a reason to stop
working towards your long-term goals. With that in mind, here are three
opportunities we see in today's markets based on the macroeconomic conditions we
expect for the rest of the year. The first, diversify into lagging segments of
the equity market that carry lower valuations.

Until recently, market leadership has been very narrow, with just a handful of
mega-cap technology stocks accounting for the majority of this year's gains.
Beyond the largest seven S&P 500 companies by market cap, gains have been more
modest not only within the S&P 500 itself, but across other indices and asset
classes. These include value-style investments, small caps, and international
equities, which trade at a larger than average discount.

From a sector perspective, so far this year, only 3 of the 11 sectors have been
able to outperform the S&P 500 index, while some defensive sectors have posted
losses year to date. We think participation could broaden, and therefore
recommend investors rebalance as appropriate. The second opportunity we see is
the dollar cost average to take advantage of the potential for higher
volatility. We think the path has widened for the economy to avoid a recession,
but some downside risks to growth remain.

Historically, a strong first half of the year has been associated with further
gains for the remainder of the year, but with deeper pullbacks. To avoid trying
to time the market and also take advantage of the potential for volatility, we
recommend investors dollar cost average by investing systematically at regular
intervals. Dollar cost averaging can spread out your purchases and help you buy
more shares when prices pull back.

The third opportunity is to complement, in our view, CDs and other cash-like
investments with longer term bonds. Yields are historically attractive across
the curve, providing great opportunities for investors to generate income in
certificates of deposit, as well as longer term bonds. We think this is a good
time for investors to complement their CDs and short-term bonds with longer
duration bonds that have higher interest rate sensitivity.

These bonds offer the opportunity to lock in historically high yields for a
longer period. They also may appreciate if yields start to move lower as
economic growth softens and the Fed starts cutting rates possibly in 2024.

To highlight this exact point, let's look at some historical data going back to
1980. Over the past seven rate hiking cycles, 10-year yields have declined by 1%
on average six months after the Fed's last rate hike. This highlights that the
end of tightening can be a positive catalyst for government bonds, which
experienced a historic decline last year.

To sum up, we think that the evolution of growth and inflation provides a solid
foundation for stocks to remain in a sustainable uptrend, but with higher
volatility in the months ahead. Yet, market gains over the past several months
should not be a reason to stay on the sidelines as we still see opportunities in
parts of the equity market, including the defensive sectors. And within fixed
income, we see an opportunity to position for potentially lower yields next
year. With that, thank you for joining us. We hope to see you again next month.


VIDEO & TRANSCRIPT: JULY: ASSESSING A POTENTIAL RECESSION

There's an old saying that markets climb a wall of worry, which would be an
appropriate characterization a performance so far this year. Those worries have
been centered on a potential recession, and that climb has taken the form of an
18% year-to-date rally in the S&P 500.

So we came into 2023 expecting a mild brief recession to emerge, and the good
news is that hasn't happened. As the strength of the consumer has kept a
contraction at bay that does not however mean a recession is canceled. As our
evaluation of underlying economic trends and signals suggest to us that a
slowdown is still a likely outcome.

With the economy setting the foundation upon which market performance is built
and with markets likely to remain focused on the recession or no recession
debate, here's our take on four key questions. First question, given the calls
for recession, why isn't one materialized?

Second, is the timetable simply pushed back, or can we avoid a recession
altogether? Third, what would a recession look like if one were to materialize?
And four, what are the implications for the financial markets and investors?

So let's circle back. Question one. Given the calls for recession, why hasn't
one materialized so far this year? Well, it really starts with consumer
spending. Consumer spending accounts for 70% of GDP in the US, and that area has
been particularly resilient. In fact, in the first quarter of this year while
the economy was growing at a little bit better than 2%, consumer spending was
growing at better than 4%.

So this has been supported by a very tight, very healthy labor market that's
remained significantly stronger than we had anticipated in the first half of
2023. And this includes a half century low in the unemployment rate, as well as
elevated wage growth. Of note, services spending has been the standout as
consumers have returned to more normal spending habits following the pandemic.
Keep in mind after the pandemic, a lot of the spending was oriented on goods
we're now seeing that shift back to more normal spending on services.

So the second question, is the timetable simply push back, or can we avoid a
recession altogether? The resiliency of the economy is most certainly welcome,
nobody's going to complain about a recession not emerging. But a look under the
economic hood, signals to us that a slowdown is still a likely outcome. The
strength in consumer spending has to a degree masked weakness in other areas of
the economy, most notably manufacturing, business spending, and housing.

We think the economy will slow as we move through the back half of the year
driven principally by slower consumer spending. Key employment indicators, like
initial jobless claims have shown some deterioration, monthly payroll growth has
also slowed, and wage gains are moderating. In addition to that, accumulated
household savings, so the amount of savings we have on top of our income, which
topped more than $2 trillion following the pandemic has been drawn down more
recently. A little less dry powder for consumers to spend.

We don't think consumers will have to go into full hibernation. But as the labor
market conditions soften, we think the source of strength for the economy so far
in 2023 will lose a bit of steam. We're mindful that the Fed has embarked on
historically aggressive tightening campaign in the last year raising its policy
rate by more than 5% in an effort to quell high inflation.

Monetary policy tightening traditionally acts with a lag taking some time to
fully filter its way through the economy. And we think the full effects of the
Fed's rate hikes are still working their way through the system and will
ultimately result in a slower economy ahead.

So to be clear, a recession is not inevitable. And the path toward a soft
landing for the economy, in which the Fed brings inflation down without
clobbering the economy completely is still a very viable path. But we're careful
not to dismiss underlying signals that have traditionally heralded a slowdown.

So then three, what would a recession look like? Well, this is where the news
gets much better. Our view coming into the year was that any recession that did
emerge was going to be mild and short based in part on our view that the health
of the labor market, and the consumer heading into this phase would be helpful.
In part because there were no major economic bubbles or systemic imbalances that
would produce a more severe outcome.

Good examples of these two would be 2008-2009 where the housing bubble popped
caused a lot of consumer deleveraging that drove a more severe downturn. Whereas
in 2000-2001, consumers were a bit more resilient through that phase and we saw
a more shallow downturn in the economy.

So in our view, the slowdown will take the form of what we would call a rolling
recession. Meaning that various areas of the economy will slow and recover at
different times. We've already seen a meaningful downturn in manufacturing, and
housing market activity, and in business investment. And in fact, we're seeing
early signs that production is stabilizing, and the latest reads on the housing
market are indicating a bit of a rebound.

As input and labor costs moderate, we expect to see some resiliency in business
spending as well. This could transpire at a time that consumer spending is
softening. Meaning that the overall GDP levels may not fall dramatically, even
though underlying components of the economy are experiencing recessionary
conditions.

Question four then. So what are the implications for financial markets and for
investors? There are reasons for investors to be optimistic about the markets
even as the economy is slowing. It's critical to remember that markets are
forward looking, historically stocks on average have declined around 30% during
recessionary bear markets.

We think last year's 26% decline between January and October already anticipated
some of this mild recession that we think could take shape. Looking back at Bear
Markets since 1948, each started before a recession occurred. And markets began
their recovery before the economy rebounded.

To be clear, we don't think markets will ignore emerging evidence of a slowdown,
but we don't believe that will drive a return back to the lows and the stock
market of last October. We think greater volatility and a mild pullback could
emerge as we progress through the back half of this year. But we think that
should be viewed as an opportunity by investors, not a warning sign of a more
prolonged or severe sell off.

Interestingly, we think the slowdown in the economy can actually have a silver
lining for the markets. As consumer spending softens, that should help the
downward path for inflation, and in turn, allow the Fed to back away from
restrictive interest rate policy. Thus, we think a market pullback spurred by
signs of economic weakness can be mitigated by the prospects of less aggressive
Fed tightening and potentially lower interest rates next year.

Looking at the comparison between earnings yield on stocks and the yield on
bonds or higher interest rates, we've seen that relationship has trended toward
levels very similar to prior stock market recoveries that began in 2009 and in
2018. This there's no guarantee that the coast is clear, but we believe that
despite the risks of recession, investors can have confidence that a durable
bull market will ultimately take shape.


VIDEO & TRANSCRIPT: JUNE: THE SECOND HALF OUTLOOK

Hello, everyone, and welcome to the June Market Compass. It's hard to believe
we're now squarely in the middle of 2023, looking out to the second half of the
year. Now what I thought I'd do first is recap some of the themes that have
played out in markets so far. And then I'll talk about three themes for the back
half of the year, including, number one, a cooling in economic growth and
inflation, number two, the Federal Reserve potentially stepping to the sidelines
on rate hikes, and number three, the opportunities we see forming in both
equities and bonds.

So first, two trends to highlight in equity and bond markets this year. Number
one, while equity markets have moved higher, leadership has been narrow. As you
can see from this chart, while the S&P 500 overall is up over 13% this year,
only three sectors-- technology, communication services, and consumer
discretionary-- have outperformed the broader index.

Now, these three sectors are up over 25% year to date, while the remaining eight
sectors are up modestly, flat, or even down for the year. Now while it's
certainly welcome to see positive returns this year, in our view, broader
leadership is a healthier sign for markets. And we would actually expect this to
occur as we head into the back half of 2023.

Now second, unlike stock market returns, bond market returns have been somewhat
more muted thus far. Rates continue to move higher, pushing bond prices lower.

In fact, the Barclays us Aggregate Bond index is up just about 2% this year. As
you can see from this chart, two year and 10 year US Treasury yields have moved
higher in the past few months, as expectations for Federal Reserve rate hikes
continue to climb as well.

Now this has put some pressure on bond returns near term. But we would expect
yields to be peaking in the months ahead. We'll discuss this more in our themes
for the second half.

So given this backdrop in equity and bond markets, what are the key themes we
see for the back half of 2023? We'll highlight three.

First, we continue to see signs that the US economy may continue to soften, and
potentially a mild recession may emerge in the back half of the year. However,
we still do not expect any downturn to be deep or prolonged. And in fact, we may
ultimately see this downturn manifest as a slowing in growth to below trend
levels of about 1 and 1/2% here in the US.

Now we also believe that inflation will continue to moderate as the year
progresses. Keep in mind, both the consumer price index and producer price index
inflation metrics for the month of May have come in lower than expectations,
especially on a headline basis. And we've seen now the 11th consecutive lower
reading since inflation peaked back in June of 2022.

Now our view is that inflation should continue to moderate, likely heading
towards about 3% on a headline basis by year end. And what factors do we look at
that support this view?

Well, here are a few forward looking indicators to highlight. First, ISM prices
paid indexes for both manufacturing and services have moved lower. Next, global
supply chain pressure indexes have eased and actually are now back to
pre-pandemic levels. Home and rental price appreciation has moderated, which
tends to show up with a lag in the inflation metrics.

And finally, labor markets have been solid. But some early signs of cooling have
emerged, including rising jobless claims and a lower total number of job
openings.

Now the second theme for the back half of this year is that the Federal Reserve
will likely pause its interest rate hiking cycle. As you can see from this
chart, the Fed's estimate of its terminal or peak Fed funds rate has climbed
higher since early March of 2022.

The latest set of estimates by the Fed indicate that the peak Fed funds rate may
now be close to 5.6%, which implies about two more rate hikes from here.
However, we believe the Fed will be data dependent. They will pay close
attention to the incoming economic and inflation data.

And if those data don't warrant two additional rate hikes, they may not
implement these. But more broadly, we do believe that overall the Fed is nearing
the end of its tightening campaign.

Now while rate cuts are not likely this year, a pause in rate hikes will be
welcomed by markets, especially if this is because inflation has moved closer to
that 2% target range.

Finally, the third theme for the second half of 2023, the opportunities we see
forming in both stocks and bonds. Now in equities, we would look for broader
participation in leadership, particularly as investors look towards 2024.

We think that could bring lower inflation, lower interest rates, and better
earning trends overall. Leadership could include small cap stocks, cyclical
sectors, such as industrials, materials, consumer discretionary, alongside the
AI and technology themes.

Now in bonds, we see an opportunity to complement some of the short duration
bonds and cash like instruments with longer duration bonds, particularly in the
investment grade space. Now keep in mind that the peak in treasury yields
typically occurs one to two months prior to the peak in the Fed funds rate.

This could imply that peak yields are likely, perhaps in the weeks ahead. This
would present an opportunity for longer duration assets, as investors can not
only capture better yields, but also have the potential for price appreciation
as the Fed pauses and ultimately pivots lower.

So with that, hopefully, we've given you some good food for thought on the
themes and opportunities for the second half of 2023. And we'll see you back
here for the July market compass.


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