For our clients – Our advisory business (managed accounts) has grown dramatically in the past few years, and we are adding a new firm, Strategic Wealth Advisory Group (SWAG) / also known as Mariner Independent Advisor Network to assist us in compliance and operational support. Most of you are comfortable with email and DocuSign and you will soon see documents that require a signature of acknowledgement of this event. For our non-email clients – you will receive a hard copy. Other than signing this document, you will experience no changes in statements or interactions with us at Legacy. It is simply an internal event for us that you will acknowledge.
On to the economy…Key takeaways from recent Fed Symposium in Jackson Hole:
In recent months, most central banks were enacting rate hikes, like the U.S. Policy committees were focused on inflation and hiking rates to slow demand and thereby putting downward pressure on inflation. The U.S central bank increased rates by 525 basis points, the European Central Bank (ECB) increased its target rate by 425 basis points, and the Bank of England (BOE) followed suit by hiking rates 515 basis points. Canada’s and Australia’s central bankers followed the pattern. In contrast, the Bank of Japan (BOJ) is bucking trend and has stayed accommodative.
As investors prepare for the rest of this year and for 2024, markets need to adjust to the likelihood that central bankers will not be as coordinated in this period of transition. Europe has stickier inflation despite weakening economic growth, so we could expect a hawkish pause out of the ECB. Diverging policy has direct investment implications, especially for currency markets. If the Fed hikes and the ECB doesn’t, investors could expect the U.S. dollar to appreciate, making things difficult for U.S.-based multinational companies.
Fed Chair Powell warned that persistent above-trend growth and tighter labor conditions could warrant further tightening. But where the economy is today, investors can still expect no change in rates at the September meeting, but the Committee will be highly data-dependent at the November meeting.
Investors need to carefully watch increasing delinquencies and shrinking excess savings for leading indicators of the economy. In terms of investment implications, we may see the 10-year Treasury yield above what we deem as fair value in the near term despite cooling inflation, before eventually settling back down in the mid-to-high threes if our forecast is right. A Fed pause is increasingly likely in September, which should help send rates down and prop up core bond returns.
LPL Research continues to like high quality fixed income despite upward pressure on rates recently. We think core bond sectors (U.S. Treasuries, agency mortgage-backed securities (MBS), and short-maturity investment grade corporates) are currently more attractive than plus sectors (high-yield bonds and non-U.S. sectors) apart from preferred securities, which look attractive after having sold off due to stresses in the banking system.
On the equity side, even after the latest dip, LPL Research still believes stocks are a bit above what is justified by fundamentals in the short term. Overall, LPL’s STAAC recommends a neutral tactical allocation to equities, with a modest overweight to fixed income funded from cash.
Contact us if you want information regarding investing or the SWAG/Mariner letter coming soon.
– Mark and Elise
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. This research material has been prepared by LPL Financial LLC. Tracking #472926-1 (Exp. 8/24).
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