Mixed Economic Signals and Passionate Fans


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February 12, 2023

STOCKS PULL BACK:  Stocks could not keep going up at the pace they have been rising so far this year.  Thus, last week stocks gave back some of the gains in the worst week for the S&P 500 so far this year.  Fourth quarter corporate earnings reports continue to roll in, and fewer companies are beating expectations than is normal.  That combined with the strong jobs report from the prior week created just enough angst to cause the markets to pause and pull back a bit.  The best scenario for stocks is no recession, and the Fed lowering rates by the end of the year.  The latter prediction seems less and less likely as the jobs market stays resilient.  

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

A VALENTINE’S DAY SPEED BUMP?:  On February 14, the January Consumer Price Index report is set to be announced.  All along, I have been concerned that if that headline number increases, even by a little, during one of the winter months, it will cause a little panic and some retreat in stock prices.  The Fed closely watches the “Core” CPI number which excludes gasoline prices.  But the public watches that general CPI number very closely, and because gas prices rose in January, that headline CPI number might be disappointing.  The month-to-month inflation increases have been quite tame of late.  That month-to-month number will likely increase from close to zero to the 0.4% to 0.5% range.  That will still bring the 12-month number down, if those numbers come true, but it will still cause a bit of angst next week if that is the case.  If I am wrong, and inflation comes in tamer, expect a relief rally, but unfortunately, I don’t think I’m wrong.  

SHORT TERM BUMP FROM CHINESE RAPID RE-OPENING:  China has rapidly reopened its economy from its draconian COVID restrictions.  This will increase China’s domestic demand for consumer goods and services, giving its economy a lift.  It will increase international travel.  It will also increase demand for commodities.  This will help the economies of oil exporters such as Canada and some Latin American countries as oil prices will likely increase.  All told, it should be a net positive for the global economy, but it will put some pressure on already inflationary prices.

RECESSION WATCH:  About 65% of economists polled by the Wall Street Journal predict some sort of recession in 2023.  Goldman Sachs research just lowered their probability of recession this year to 25% (it had been 35%).

U.S. MANUFACTURING UNDER SOME STRESS:  According to the Institute for Supply Management, U.S. manufacturing contracted in January as higher interest rates made it harder to finance purchases.  This was the third straight month that the manufacturing sector has declined.  The Fed has also reported manufacturing declines in its reported data.  According to the Fed, U.S. manufacturing declined at an annualized rate of 2.5% in the fourth quarter of 2022.  So far, manufacturing firms in the U.S. have not been laying off workers as overall manufacturing jobs in the U.S. have increased by thousands over the past couple of months.

HEAVY TRUCK SALES:  Sales of heavy trucks (over 14,000 pounds in gross vehicle weight) generally decline sharply prior to a recession.  In January, heavy truck sales were solid, coming in at 466,000 sales.  This was down from 501,000 in December, but up 6.4% from January of one year ago.  Heavy truck sales hit an all time high in April 2019 (570,000) before falling to 308,000 during the pandemic (May 2020).

WHAT IS GOLDMAN SACHS TELLING US?:  We keep a sharp eye on the structured products market.  These are investment vehicles offered by banks that, in return for committing your capital for a period of time, offer some “structured” return parameters.  What the banks are willing to offer can provide insight as to what these banks are thinking.  Last week, we saw that Goldman Sachs is offering a three-year structured note that is tied to the S&P 500.  It offers a 30% “hard buffer” meaning that if the S&P 500 is down 31% over the three-year period, the investor will lose 1%.  On the upside, Goldman Sachs will pay 125% of whatever value increase the S&P 500 experiences.  It almost sounds too good to be true, but wait.  There is one more part of this note which indicates something about what Goldman Sachs thinks will happen.  This note is “callable” at the one year mark if the S&P 500 is up, and if Goldman Sachs calls the note, the investor will get 6.5%.  So what does this tell us?  Goldman Sachs will make money on this note if the market is up more than 6.5% in 12 months.  For example, if the S&P 500 is up 10%, note holders will get 6.5%, underperforming the overall market, and allowing Goldman to avoid paying the 125% at the end of year three.  Goldman Sachs is in the business of making money, so I’m guessing Goldman Sachs believes the S&P 500 will be up more than 6.5% 12 months from now.

STONECROP WEALTH ADVISORS CORPORATE VIRTUES:  Stonecrop Wealth Advisors has adopted the following five corporate virtues:

  • Servanthood,
  • Curiosity,
  • Calmness,
  • Courage, and
  • Humor.

Last week, I explained “servanthood.”  This week, “curiosity.”

Curiosity is defined generally as follows: “The inquisitive interest in the affairs of others or the operational details and functionality involved in the affairs of the universe.”  This virtue actually flows from Servanthood.  If we are serious about servanthood, about serving others as fiduciaries so that their needs are considered before our own, then it will naturally lead to this question:  “How can we serve clients better, more effectively?”  But it goes further than that.  We believe that the best financial planning principles spring out of timeless truths, and as such, these truths are worth pursuing and learning about.  This curiosity leads to learning that ultimately and constantly leads to ways in which we, in a service industry, can serve better with the resources we have.

ROLLER COASTER OF EMOTION:  Many of you who read this weekly email live or are from the greater Philadelphia area.  As such, by the time many of you read this, you are either on an emotional high, or in an emotional funk.  Philadelphia fans are very passionate, which I like.  When you are passionate about something, you are taking an emotional risk.  In this case, if your team loses, you will experience some heartache, and probably a sleepless night. But if your team wins, your joy is profound.  I have to write this email before I know the outcome.  I know this is dangerous, but here is my prediction:  Eagles 34, Chiefs 32, and lots and lots of drama.

Have a great week!

Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®
Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax
(610) 628 4545

“There is only one way to succeed in anything, and that is to give it everything.”  Vince Lombardi

“Look!  An eagle will soar and swoop down.”  Jeremiah 49:22 (NIV)

“And the house came down on the chiefs…”  Judges 16:30 (BBE)

SHORT TERM BUMP FROM CHINESE RAPID RE-OPENING: goldmansachs.com/insights/pages/chinas-reopening-is-poised-to-boost-global-growth.html
RECESSION WATCH: gspublishing.com/content/research/en/reports/2023/02/06/048ebde0-b431-4591-b073-b335333d9f54.html
A VALENTINE’S DAY SPEED BUMP?: seekingalpha.com/article/4577589-january-cpi-report-shock-market
HEAVY TRUCK SALES: calculatedriskblog.com/2023/02/heavy-truck-sales-up-6-year-over-year.html
U.S. MANUFACTURING INDEX UNDER SOME STRESS: reuters.com/markets/us/us-manufacturing-sector-sinks-further-january-ism-2023-02-01/

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets. 

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission. 



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    Doug MacGray

  • DATE

    February 13, 2023


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