Now that Elise is an integral part of Legacy Wealth Planning, we have chosen to alter our monthly letter to an email rather than a physical letter. We must keep up with the times and as Elise points out to me, the manpower and the environment (paper, envelopes, etc.) is better served by this change. If by chance, you prefer the old mail method, tell us and we will happily keep you on a hard copy list. Look in your email for our May letter!

Equity markets are weak today, as interest rates, after rising these last few months, are currently stable. The Dow Jones Industrial Average is trading at 33,544 and the 10-year U.S. Treasury note sits at 2.76%. Clearly, the stock market is concerned about whether the economy will continue to grow. The backdrop of higher inflation, rising gas prices and war in Ukraine, have the investment community concerned. The question is, will these negative pressures slow the obvious growth that our economy is still experiencing and possibly cause a recession?

What is a recession?

Recessions are sometimes difficult to describe, let alone predict. Definitions vary widely. To make matters worse, some coin their mixed forecasts as a “growth recession.” Some simply describe a recession as two consecutive quarters of negative economic growth, which is clearly not true because the 2001 recession was shorter: growth in the first quarter of 2001 declined by 1.3% annualized but between strong quarters both grew above 2%. The National Bureau of Economic Research (NBER) is the official arbiter of recessions, and their definition is not much better. “A recession is a significant decline in economic activity spread across the economy and that lasts more than a few months.” The NBER specifically looks at economic indicators such as production and employment. Because the definitions can be elusive and ambiguous, LPL thinks it behooves investors to focus on the overall trajectory and economic environment for both businesses and households. LPL Research’s base case is the domestic economy will weather through this current storm of elevated prices, geopolitical risks, and clogged supply chains.

They also think that inflation numbers will become tamed as we move forward. In LPL’s view, financial conditions remain favorable and corporate earnings may continue to surprise to the upside, and economic data in many corners of the economy remain favorable. LPL Research even considers the possibility that current skepticism is potentially healthy, and it helps LPL’s forecast that the upswing in the business cycle has a way to go.

Here is some good news: The American consumer has deleveraged their debt significantly since the 2006 – 2009 crisis – Current checking account deposits are $3 trillion above normal levels – Employment is almost back to normal trend – Recent purchasing power manager survey shows expansion, not contraction.

Lastly, investor sentiment surveys show the average investor is very negative or bearish, an indicator that is “contrarian”. As the great John Templeton said, “Bull markets are born on pessimism” and that is a condition that could be the case today. Call with any account/investment questions – Mark and Elise

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Market Commentary dated 4/25/2022, tracking #1-05265226. LPL Approved Tracking #1-05273089.