Recession Fears Ebb As We Enter Bull Market; I Guess We Can Smile Now

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June 4, 2023

WE OFFICIALLY ENTER A BULL MARKET DURING A QUIET TRADING WEEK: Trading was rather quiet this past week. Investors are waiting to see what happens next week with a new round of inflation data and another Federal Reserve interest-rate decision. But stocks ended the week positive once again. The S&P 500 rose for the fourth week in a row, and the NASDAQ composite index rose for the seventh consecutive week. The S&P 500 is now up over 20% from the low it hit in October. That makes this an official bull market.

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

U.S. FAR DOWN THE LIST: According to the Organization for Economic Cooperation and Development (OECD), the global economy is going to grow by 2.7% this year, and 2.9% next year. The OECD is not optimistic regarding the U.S., predicting 1.6% this year and 1.0% next year. Where does it project the best growth rates this year and next? As you can see, India is number one, followed by China, Indonesia, Turkey, Saudi Arabia and Mexico, all emerging markets. Germany, Russia and Argentina are the only countries on their list that are projected to go into recessions. Meanwhile, the World Bank is still predicting that the U.S. will end up with 2.1% growth this year, recently lifting its earlier 1.7% prediction. It predicts 2.4% growth for next year.

ACCORDING TO GOLDMAN SACHS, THE ODDS OF A U.S. RECESSION HAVE DECREASED: Just affter the collapse of Silicon Valley Bank, Goldman Sachs stated that the odds of a U.S. recession within the coming year was 35%. They have now reduced this to 25%. It cites reduced risk in the banking sector and resolution of the debt ceiling issue along with a sizable boost from a recovery in real disposable income and stabilization in the housing market,

BANKRUPTCIES: I have two clients who are corporate bankruptcy attorneys, so this will be good news for them. Corporate bankruptcy filings in the U.S. are being made at the fastest pace in over a decade. In May, 54 companies filed for bankruptcy including eight that have more than $500 million in liabilities. Over the first five months of 2023, 286 corporate bankruptcies have been filed, the highest first-five-month total since 2010.

CONVERTING COLLEGE SAVINGS TO ROTH IRA DOLLARS: Under the SECURE Act 2.0, dollars in a 529 college savings account can now be converted to a Roth IRA. 529 plans are a tax-efficient way to save for, and pay for, higher education expenses. It allows earnings to grow tax-deferred, and amounts used to cover qualified expenses are tax free. What if you overfund a 529 plan? The earnings portion would be subject to ordinary income tax and a 10% additional tax. Under SECURE 2.0, you can move as much as $35,000 out of a 529 plan and convert it to a Roth IRA. The 529 plan that is being converted must have been maintained for at least 15 years. All dollars in the fund must be at least 5 years old (no newer contributions). Conversions in a given year cannot exceed the annual Roth IRA contribution limit. There are more rules surrounding this new provision, so seek professional help if you have overfunded a 529 account and you are considering taking advantage of this new provision.

BE WARY OF TRYING TO TIME THE MARKET: Bank of America reports that its private clients have been net sellers of U.S. stocks for ten straight weeks. Last week (think debt ceiling drama) individual investors were selling at a rapid rate, including the largest outflow from tech stocks all year. Institutional investors and hedge funds have been net buyers over this same period. Remember, every time you sell, there is a buyer thinking the price and timing of your sale is creating an advantageous time to buy. Who is right now, the institutional investors or the individual investors? Of course, we don’t know, but historically, when individual investors are selling this decisively and for this length of time, positive returns for stocks come next. I am not predicting that (I don’t predict), but I hope it helps to illustrate the perils and complications of trying to time the market.

BIG JUMP IN HOUSHOLD NET WORTH: Total U.S. household net worth increased by more than $3 trillion in the first quarter of 2023. This was the largest increase since the fourth quarter of 2021. The total value of household equity holdings increased by $2.4 trillion, which more than offset a $617 billion drop in real estate values. Consumer credit rose at the slowest pace in about two years.

ALAS, POOR YORICK: Last weekend Deb and I flew back and forth to California to visit my daughter, son-in-law and granddaughter. So I spent a lot of time in planes. It allowed me to re-read Hamlet. I highly recommend it.

SO MUCH MORE ENERGY: These are two cropped pictures. We were at an outdoor restaurant with some family, and my wife stood up to take a picture of all of us. The one on the left was the first picture. Deb took a look, and then said, “For goodness sakes, can’t you smile?!” I have to tell you, smiling takes so much more energy. I think the first one was fine. That’s me smiling on the inside.

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

“We’ll call you when you’re six years old
And drag you to the factory
To train your brain for eighteen years
With promises of security
But when you’re free
And forty years you waste to chase the dollar sign
So you may die in Florida
At the pleasant age of sixty nine”

Steppenwolf, The Ostrich

“So then, banish anxiety from your heart and cast off the troubles of your body.” Ecclesiastes 11:10



(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

    June 12, 2023


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