Commentary

The month of April overall seemed calm, especially compared to the first quarter. Returns were mixed with safer securities (consumer staple stocks, bonds) increasing in value.

True to the 2023 theme…Fed watches economy…investors watch Fed.

The Federal Reserve heads into its latest interest rate policy meeting on Tuesday with strong expectations in the market it will raise by another quarter of a percentage point, pushing rates to their highest levels since 2007, amid signs the economy is cooling.

Paraphrasing Barron’s…its work gets trickier after that. Tighter credit conditions after March’s bank failures, plus the looming federal debt limit fight on Capitol Hill, might encourage an end to rate increases. Some 79% of futures traders expect a rate increase on Wednesday and nearly 64% expect a pause in June.

Already, the economy’s growth slowed more than expected in the first quarter, but the Fed’s preferred inflation gauge is still more than double its 2% target. Unemployment claims are 45% higher than a September low and factory activity has slowed for five straight months.

We are in the midst of companies reporting their 2023 Q1 earnings. Consumer demand seems to be waning for goods (computers, etc.) while remaining strong for services (travel, entertainment, etc.). The net result is a second consecutive quarter of negative earnings growth (sometimes referred to as an earnings recession). The stock market, however, remains resilient, perhaps looking forward to better reports by the end of the year.

So, through the first four months of 2023…the Fed, the bond market, and many companies are expecting a recession…complete with lower consumer demand, increased unemployment, lower corporate earnings and lower stock prices. The stock market, on-the-other-hand, believes the consumer will continue to spend and if the U.S. succumbs to a recession, it will be shallow and brief, with the Fed lowering rates to avoid a serious downturn.

Of course, what will actually happen is unknowable and will surely punish those who try to “trade” it. At Centric our focus is on the long term which means staying strong and staying invested, even when the markets are divided on the future of the economy and the direction of the Fed.

Risk Numbers

The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them. The following graphic shows the risk of various asset classes as measured on a scale of 1-99 (1 being the most conservative and 99 being the most aggressive) as of the date above.

CENTRIC’S Approach

We start with a Risk Number, a measurable way to pinpoint how much risk you want, need, and already have. Then, your wealth advisor will optimally allocate our investments to help you reach your financial goals. Along the way, you will receive transparency of information, seamless proactive service and the trust and accountability you need to stay on track. All of this will lead to your personal comprehensive investment strategy that is powerful, disciplined, responsive. 

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Sources:

Centric’s Market Assumption Disclosures: This information is not intended as a recommendation to invest in any particular asset class or strategy or product or as a promise of future performance. Note that these asset class assumptions are passive, and do not consider the impact of active management. All estimates in this document are in US dollar terms unless noted otherwise. Given the complex risk-reward trade-offs involved, we advise clients to rely on their own judgment as well as quantitative optimization approaches in setting strategic allocations to all the asset classes and strategies. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. If the reader chooses to rely on the information, it is at its own risk. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. The outputs of the assumptions are provided for illustration purposes only and are subject to significant limitations. “Expected” return estimates are subject to uncertainty and error. Expected returns for each asset class can be conditional on economic scenarios; in the event a particular scenario comes to pass, actual returns could be significantly higher or lower than forecasted. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making an investment decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact future returns. Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss.

Index Disclosures: Index returns are for illustrative purposes only and do not represent any actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.

Riskalyze Disclosure: The Risk Number® is a proprietary scaled index developed by Riskalyze to reflect risk for both advisors and their clients. The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them.

Shaped like a speed limit sign, the Risk Number gives advisors and investors a common language to use when setting expectations, recognizing risk and making portfolio selections. Just like driving faster increases hazards, a higher Risk Number equates with higher levels of risk.

General disclosure:  This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks.