Despite widespread calls for an impending recession in 2023, one was averted because traditional leading economic indicators did not properly forecast the post-COVID-19 economy.

The COVID-19 pandemic bore no relation to a traditional business cycle but instead mimicked a wartime economy due to significant fiscal spending, massive supply chain disruptions, labor market dislocations, and excess supply and demand characteristics that plagued the global economy for the last few years.

Inflation numbers are starting to decline, but the headline numbers haven’t caught up. The main reason for that is because much of the data used in those inflation calculations is lagged. Specifically, the shelter component can often be months, if not quarters, behind in conveying what is happening in real-time. Using more frequent housing data from Zillow to replace the shelter component of Core CPI shows that inflation would be back within the Fed’s target range.

The Fed has been adamant that the labor market must begin to soften before the Feds would be comfortable cutting rates. While the labor market is starting to thaw, it is essential to point out that it is by no means soft.

Rate cut expectations have doubled since October, as the market expectation of 4 to 5 rate cuts over the next two years to the market expecting approximately nine rate cuts in that same period. The rationale is that if inflation is falling and the Fed isn’t cutting rates, that is the equivalent of tightening the monetary policy. In essence, the Fed cutting rates as fast as it’s being communicated is because they are trying to keep real rates in line with where they were when inflation was 5%.

In a portfolio management group meeting I attended last month, several analysts from very well-respected firms mentioned their concern for the short-term equity markets. We are currently at or above their market return analysis FOR THE YEAR.

Considering the market returns so far this year, it would not surprise me to see some volatility in the market in the next several months, which is all very healthy for growth assets.  During these accelerated bull markets, there are some strategies to employ:

  1. Contributing your charitable donations to your Donor Advised Fund now, vs. the end of the year, taking advantage of the outsourced growth.
  2. Paying off margin balances if you carry one in the long term.
  3. Liquidate to pay off tax liabilities or revolving credit (if discussed previously).

Also, as you may have noticed, we have been strategically rebalancing the portfolios.  Rebalancing when the market has ripped (industry term) means taking  profits from highly profitable holdings (high growth) and buying at more of a discount the more defensive items that we haven’t seen the same appreciation.  This trade typically gets a portfolio more aligned with long-term allocation strategies and may take some of the pain out of quick market corrections.


What I’m Watching:

  1. NHL Playoffs coming up
  2. Earnings from Banks and Financial Institutions. This may be a barometer of a strong market, as it will show whether they can increase revenue while interest rates continue to be elevated.
  3. New Housing starts: Have we gotten comfortable with 7% mortgage rates?
  4. Military conflict in Europe and the Middle East may be a precursor to the US entering a more advanced position.
  5. I’m not ready to talk about the election yet.

As always, if I can help in any way, please feel free to call or email my office.

Philip Clark, CPWA®, CFP®, CLU®| Director/Portfolio Manager – Wealth Management
Direct: 626.788.3947 |


This information should not be construed as tax advice, nor should it be taken as financial planning advice. Please consult your tax professional. These opinions are based on observations and research and are not intended to predict or depict the performance of any investment. These views are as of the close of business on 04/17/2023 and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Past performance does not guarantee future results.