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Mosaic Weekly Article 04.21.2023

April 21, 2023

Earnings season kicked off in a meaningful way this past week as we are now truly getting a real “glimpse” into the direction our economy is headed. A host of companies have reported a mixed bag of results so far and are providing muted outlooks into the next few quarters. The most common theme we have seen so far is that a slowdown in spending is occurring. We have been hearing indications of this but now the altering spending patterns are being seen in black and white. This shouldn’t come as a shock given the hurdles the economy has been and is facing. One industry I like to monitor closely for economic trends is the transportation sector, specifically trucking and railroad operators. Those segments of the economy are the backbone of our U.S. infrastructure. Moving goods through the country is an excellent bellwether to monitor the health and wealth of the U.S. J.B. Hunt’s President, Shelley Simpson stated in her post earnings conference call that the company is in a “challenging freight environment where there is deflationary price pressure for an industry that continues to face inflationary cost pressures.” She also used the words “freight recession”, which caught the eye of many. In my opinion, this all means that we are now at an inflection point where the actions of the Federal Reserve have now quickly caught up to where the consumer and spending patterns are leveling out. In other words, the job is getting done but at what “costs” in the near-term? That is what we will be watching to see as we head into summer.

The economic data points and subsequent headlines will slow a bit over the next 2 weeks as we await the next Federal Reserve meeting on May 2nd and 3rd. As of now, the expectations remain for one more 0.25% increase in interest rates. It is also highly anticipated that there will be post meeting “language” around taking a pause for the foreseeable future. So far, the Fed has held true to its word and has telegraphed most of the moves so far. At this point, it would be surprising to see them stray from this path. In the meantime, Capitol Hill is swirling with debt ceiling discussions. It seems that neither side is willing to budge much and that should be expected given the great divide and power structures now in place. I suspect little will change for now considering the current debt-ceiling timetable has been pushed to late summer. Sadly enough, we will have to endure this nonsense through most of the summer. I suggest you put on plenty of sunscreen to protect yourself from the HEAT that is coming! 

Over the last year or so we have written about I Bonds (inflation protected government issued bonds) as an attractive way to protect cash sitting in your savings account against the rising inflationary environment. Now that inflation is showing more signs of cooling, the rates these bonds are paying are expected to come down. These types of bonds “reprice” every 6-months in line with prevailing inflationary expectations. The next repricing event will occur on May 1st with the new rates expected to be much lower and possibly below 4%. Recall that you are allowed to purchase up to $10k per person, per calendar year, so there is still time to purchase them before May 1st if you have not done so this year. These instruments have been a great alternative over the last 2 years, but many other conservative cash like investments (money market savings, treasuries, etc.) have caught up and become equally attractive. We always expected the I Bond investment to be a short-lived opportunity during this period of resetting, but it has certainly paid off. We are not suggesting you go out and sell these now, but we did want to make you aware of what is expected to likely occur going forward as inflation levels normalize.

Have a wonderful weekend!

https://www.usatoday.com/story/money/taxes/2023/04/18/i-bonds-rate-drops-may-2023/11687408002/

https://www.marketwatch.com/story/its-simple-j-b-hunt-president-says-were-in-a-freight-recession-9cb99087

https://www.cnbc.com/2023/04/21/a-recession-is-coming-and-equity-markets-may-incur-some-pain-strategist-says.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

https://www.cnbc.com/2023/04/19/mccarthy-unveils-debt-ceiling.html´╗┐

Christopher E. WassonCFP®

President

 Mosaic Asset Partners, LLC

                 1122 Kenilworth Drive, Suite 310

                 Towson, MD  21204

                 410.821.0089         fax 410.821.5993

                 MosaicAssetPartners.com  

                 

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.