This weekly update celebrates three full years since I started to write this letter. What a ride it has been! I think it’s safe to say that we have certainly had some highs and some lows along the way. Through it all, I hope that all of us have gained more knowledge not only about our financial markets but also about ourselves and what is truly important in each of our daily lives. This story we have been weaving has many, many more chapters ahead and my goal remains to keep you as informed about what is going on as possible while also maintaining some sanity and financial preparedness. The heavy lifting continues in a good and positive way. The ironic part of this personal milestone is that the WHO (World Health Organization) declared an end to the Covid global health emergency as of this morning. Suffice it to say, I always believe some good comes with the bad. On to the weekly chatter.
Corporate earnings keep rolling along and the pattern of the last few weeks has stayed in place. Strong, well-run companies are outperforming and managing well through this uncertainty while bloated, outdated others struggle. The adage of quality over quantity is certainly true in today’s environment. As more companies struggle with the idea of rightsizing and making the tough choices when it comes to overhead and costs, those who are executing and pushing forward are being rewarded from a bottom-line standpoint. Even Federal Reserve Chairman, Jerome Powell, mentioned in his post meeting question and answer session that unemployment, while holding steady, is expected to move higher. The cumulative effect of the interest rate increases is finally having some level of measured impact across the financial and economic spectrum. While many economists have maintained that this latest rate increase was not needed, the Fed held true to their word and stayed the course. Interestingly enough, the Fed left the door open to further rate increases if needed. While inflation continues to recede, it appears the pace of the decline is not occurring quickly enough. As has been the case recently, more time and data are needed.
Regional banking entities grabbed more headlines this week as more of the regional players came under pressure. Depositors continue to pull funds from certain banks in the regional and smaller banking arena. The question being asked is why and where are these funds going? While some may still be concerned with their money being protected, I believe there is a simpler answer to these questions. Like any previous period in history, where economic uncertainty pervades, investors will seek out the best and safest yield available. In this case, traditional banks are behind the yield/interest game when it comes to rewarding their depositors. Why keep my cash parked in the bank earning 2.5%, when a money market yield in another financial institution (equally insured and protected) will pay me 4%- 5% in some cases. Banks have traditionally been slow to catch up in times like this, and investors wanted to be paid accordingly. Even Chairman Powell alluded to this as a reason for deposits being pulled across the traditional, regional banking sector. For clarity, our view is that it is always important to keep a reasonable amount of cash and emergency funds on hand and available. That prudent, financial “pillar” has not changed in our minds. I just wanted to point out a reason as to why some of these current financial anomalies are occurring in this environment. As the interest rate increases stop and even reverse in time, these money market rates will also reverse. We view this as a near-term event, and one that will normalize moving forward.
Have a wonderful weekend!
https://www.kestraim.com/market-insights/050223-mwm-corporate-earnings
https://www.cnbc.com/2023/05/05/jobs-report-april-2023-job-growth-totals-25300-in-april.html
https://www.cnbc.com/2023/05/05/who-declares-end-to-covid-global-public-health-emergency.html
https://www.cnbc.com/2023/05/04/apple-aapl-earnings-report-q2-2023.html
Christopher E. Wasson, CFP®
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.