Stock rally raises the bar for earnings

Stocks offered cold comfort to investors last year, but equity markets have begun to thaw as inflation pressures slowly subside and the Fed inches closer to the end of its rate-hiking cycle.

Despite Fed’s best punch, U.S. economy still standing

The U.S. Federal Reserve has come a long way since its chairman, Jerome Powell, dismissed inflation as “transitory” nearly three years ago. To their credit, Powell and the Fed governors eventually confronted that massive miscalculation and have spent the last 12 months aggressively raising interest rates in their battle against inflation.

Value stocks still valuable after strong year

It was a long time coming for value stocks. The Russell 1000 Value index fell 10% in 2022 compared to a 19.4% drop for the S&P 500 and a 30% loss for the Russell 1000 Growth index. Yes, it was still a “down year” for value stocks, but it was also a banner year in relative terms. A peek at the updated Periodic Table of Investment Returns (also known as the Callan chart) reveals U.S. Large-Cap Value as the best performing equity category last year (trailing only commodities, cash, and gold). U.S. Large-Cap Growth, on the other hand, finished dead last among equities.

Believe it or not, inflation has a bright side

None of us need to be reminded of high inflation or the laundry list of challenges that come with it. While the latest Consumer Price Index (CPI) has fallen to 7.1%, the cost-of-living for Americans is still increasing at the fastest pace since the early 1980s. Inflation and high interest rates are undoubtedly real problems, but they do have some silver linings.

Bond funds have never looked so bad

Imagine the following scenario: A husband and wife sit down with their financial adviser for a regular review meeting. The discussion includes a summary of recent performance, during which the adviser informs the couple that they have lost nearly 15% year-to-date. Gritting their teeth, the clients then ask, “What about the performance of our bonds?” To which their adviser replies, “That is the performance of your bonds.”

History suggests stocks approaching a bottom

We can’t tell you exactly when the stock market will hit bottom. We can, however, offer several reasons why you should feel confident equities are further along in the bottoming process than many would lead you to believe. Before we do, some quick reminders for every investor (and adviser) trying to make sense of where the market goes from here

The battle against inflation rages on, but it’s worthwhile despite the pain

The battle against inflation is taking casualties. Inflation eats into every family’s discretionary income. It is an obvious hurdle for the stock market. It is also an inevitable part of longer-term economic cycles. So, while it’s OK to grit your teeth when ordering an $11 bowl of soup, paying $5 per gallon of gas or buying a house with a 6% interest rate on your mortgage, remember that inflation will not remain this high and neither will the financial pain that comes with it.

Stocks reach a fork in the road to recovery

As ugly a year as it has been for equity investors, conditions have improved in the last two months. The S&P 500 rallied 15% from its June 16 low and in doing so recaptured half its year-to-date losses. That leaves the U.S. stock market at a virtual crossroads, midway between its all-time high and its 2022 bottom. Given how much negativity was priced into equities earlier this summer, it was only a matter of time before the momentum reversed course. That said, there is very little consensus about where the market goes from here.