“Although we work through financial markets, our goal is to help main street, not Wall Street”
- Janet Yellen
Valued Client,
We hope this message finds you well. It has been an eventful year and we should finish strong through year end. The stock market has continued to exhibit strength and resilience, with major indices continuing to show an upside bias.
The US economy is expected to grow by 4.9% in the 3rd quarter of 2023 and grow by 2% for the full year. The FED expects US GDP to grow by 1% in 2024. Atlanta Fed GDPNow.
Aligning with market expectations, the Federal Reserve (Fed) elected to skip raising the federal funds rate at its September 20, 2023, Federal Open Market Committee meeting, which keeps the federal funds rate at 5.25%-5.50% – the highest range in over 22 years.
It is the second time in four months the central bank has skipped raising interest rates after a 10-meeting stretch of rate hikes dating back to the onset of the tightening cycle in March 2022. The Fed’s cumulative total increase remains at 525 bps, with a total increase of 100 bps occurring in 2023.
The median federal funds rate in the Summary of Economic Projections (SEP) and dot plot still estimates that Fed officials are expected to increase the federal funds rate once more before the end of the year. Furthermore, the Fed median federal funds rate for 2024 went from an estimate of 4.6% in June to 5.1% for this new dot plot while the median for 2025 went from an estimate of 3.4% – 3.9%.
“The new projections show a still very hawkish Fed as they took away two rate decreases that had been in place during the release of the June SEP and corresponding dot plot,” said Raymond James Chief Economist Eugenio Alemán. “This is a clear signal to markets that it is committed, at least for now, to keeping interest rates higher for longer, as it has continued to convey in every meeting since it started to increase interest rates in this cycle.”
The new SEP forecast also showed that high interest rates are not expected to bring the economy into a recession next year, meaning that the Fed is now expecting a soft landing. No longer having a recession in its SEP forecast is consistent with the Fed’s mantra of higher interest rates for longer as it doesn’t see its 2% inflation target being achieved until 2026.
The Fed’s Q4 2023 year-over-year projection for GDP increased from 1.0% during its June SEP to 2.1% for this latest SEP. Meanwhile, headline PCE inflation was upped from a Q4 year-over-year rate of 3.2% in June to a rate of 3.3% in September while the core PCE inflation was lowered to 3.7% in the September SEP compared to a rate of 3.9% in June.
“This decision and expectations going forward are not going to give certainty to markets while, at the same time, the Fed is trying to continue to prevent markets from starting to price in lower interest rates in the near term,” said Alemán. “The fact that it is no longer forecasting a recession will help support its view of higher rates for longer.”
Earnings outlook- S&P 500 earnings are expected to grow by .5% for the third quarter of 2023. 8.2% in the 4th quarter of 2023. Factset expects earnings to grow by 8-12% in the first half of 2024 and 12.2% for the full year 2024. Factset Earnings Insight
We believe we are still in a Secular Bull Market with many years left in its path. If that changes, we will adjust. As we’ve emphasized in our prior conversations, stocks are in a long -term upward trend, and that upward trend is incorporated into your financial plan, but stocks don’t rise in a straight line. Be prepared for setbacks and use those as opportunities to add to equities when appropriate.
As always, We are honored and humbled that you have given us the opportunity to serve as your financial advisors. We’re here to assist you and to answer any questions you might have in regard to financial planning, the markets or walk through any issue that concerns you. As always, thank you for the relationship and trust.
Williamson Wealth Management-
Harry S. Williamson, WMS
First Vice President, Investments
Financial Advisor
Any opinions are those of Harry Williamson and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S .stock market.
Prior to making an investment decision, please consult with your financial advisor about your individual situation.
