BY SUZANNE HAZLETT, MBA, CIMA®, CFP®
U.S. Economy
The economy has powered through many obstacles, including weak global growth, a sharp housing downturn, and higher interest rates over the last few years that could have derailed growth and tipped it into a recession. While plenty of risks are on the horizon, such as rising credit card balances, falling savings, and slowing job growth, the consumer — representing 70% of the economy — has remained healthy. And that’s mainly because the job market has not collapsed. Indeed, there has been a marked slowdown in job gains, but the economy has avoided the massive layoffs that typically lead to a recession. While we expect growth to slow from its current pace, an outright recession will likely be avoided, for now.
Investors Continue to Capitalize on Elevated Bond Yields
Yields across virtually all fixed-income market sectors remain above their 15-year averages. However, as growth slows from its current pace and disinflationary trends continue, investors can look forward to positive bond performance in price appreciation, as interest rates should move lower once the Fed begins to cut rates. That said, with cash still yielding north of 5% and rates expected to remain volatile in the near term, given the economy’s robustness, any uptick in yields presents a bonus opportunity for investors to lock in attractive rates.
U.S. Equity Markets
The S&P 500 Stock Index climbed over 10% in the first quarter. The lasting strength in the economy and improving earnings outlook have been vital reasons behind the market’s upward momentum. While a near-term pullback may be on the horizon (the market typically has three to four 5% pullbacks each year), longer-term optimism remains intact.
Favored sectors include Info Technology, Industrials, and Health Care. A broadening in performance and improving macro backdrop should benefit small caps, which trade at attractive valuations.
Select Opportunities in International Equities
U.S. equities continue to be favored over developed-Europe. While Europe has attractive valuations, the U.S. outperforms in terms of economic growth, earnings trends, and favored sector weightings. It’s true Japanese equities have soared over the last year, yet they still have room to run powered by a weak yen, corporate reforms, and share-holder-friendly behavior such as share buybacks. Emerging market equities, with steep valuation discounts, robust earnings growth, and tailwinds from manufacturing trends diverting from China to more business-friendly nations warrant inclusion in a diversified portfolio.
Suzanne Hazlett, MBA, CIMA®, CFP®, is a Certified Investment Management Analyst® and CERTIFIED FINANCIAL PLANNERTM professional. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC. HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. 675 Sun Valley Road, Suite J1 + J2, Ketchum, Idaho, 83340 208.726.0605 HazlettWealthManagement.com