When consumers are feeling good, they are typically spending money. Further, when consumers transition from feeling quite cautious to feeling better, what often follows is the start of a new economic growth cycle. Last July, we saw record-low levels of consumer sentiment as measured by the University of Michigan’s Index of Consumer Sentiment. Since then, improving sentiment, we believe, may be a major tailwind for economic growth.
The economy and corporate profits tend to grow at approximately the same rate of the long-run – so the idea of a new period of economic growth sounds rewarding.
Of course, there are many concerns related to higher interest rates imposed by the Federal Reserve (the “Fed”) and inflation. The Fed’s rate hiking cycle is indeed intended to stabilize prices, but the impact of higher rates is generally understood to slow both inflation and economic growth. As inflation is declining, it seems the Fed Funds rate is now higher than many measures of inflation – including the broad Consumer Prices Index (CPI).
Historically speaking, the Fed Funds rates is typically higher than inflation. As a result, we believe the Fed is quite close to pausing rate hikes. Further, economic growth may well be intact given the rather robust labor market and improving sentiment. This is also the consensus among Wall Street economists (https://www.cnbc.com/rapid-update/).
While our view is generally positive for earnings and overall growth, we remain cautious in one area primarily. As short-term rates are higher, bank costs effectively rise making it more difficult to create loans. An overall shrinking of loans and other forms of debt (collectively “credit”) tends to be an economic headwind. Currently, bank credit growth is indeed at rather low levels.
Regardless, we believe this headwind will not create a recession at this time. Further, stock valuations and bond yields seem reasonable overall – leading us to believe investors should stay the course and maintain their long-term asset allocation.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past investment performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. The S&P 500 is the Standard & Poor’s index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Any index performance data directly or indirectly referenced in this report is based on data from the respective copyright holders, trademark holders, or publication/distribution right owners of each index. The indexes do not reflect the deduction of transaction fees, custodial charges, or management fees, which would decrease historical performance results. Indexes are unmanaged, and investors cannot invest directly in an index. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.
Investment Commentary: August 2023
When consumers are feeling good, they are typically spending money. Further, when consumers transition from feeling quite cautious to feeling better, what often follows is the start of a new economic growth cycle. Last July, we saw record-low levels of consumer sentiment as measured by the University of Michigan’s Index of Consumer Sentiment. Since then, improving sentiment, we believe, may be a major tailwind for economic growth.
The economy and corporate profits tend to grow at approximately the same rate of the long-run – so the idea of a new period of economic growth sounds rewarding.
Of course, there are many concerns related to higher interest rates imposed by the Federal Reserve (the “Fed”) and inflation. The Fed’s rate hiking cycle is indeed intended to stabilize prices, but the impact of higher rates is generally understood to slow both inflation and economic growth. As inflation is declining, it seems the Fed Funds rate is now higher than many measures of inflation – including the broad Consumer Prices Index (CPI).
Historically speaking, the Fed Funds rates is typically higher than inflation. As a result, we believe the Fed is quite close to pausing rate hikes. Further, economic growth may well be intact given the rather robust labor market and improving sentiment. This is also the consensus among Wall Street economists (https://www.cnbc.com/rapid-update/).
While our view is generally positive for earnings and overall growth, we remain cautious in one area primarily. As short-term rates are higher, bank costs effectively rise making it more difficult to create loans. An overall shrinking of loans and other forms of debt (collectively “credit”) tends to be an economic headwind. Currently, bank credit growth is indeed at rather low levels.
Regardless, we believe this headwind will not create a recession at this time. Further, stock valuations and bond yields seem reasonable overall – leading us to believe investors should stay the course and maintain their long-term asset allocation.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past investment performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. The S&P 500 is the Standard & Poor’s index calculated on a total return basis. Widely regarded as the benchmark gauge of the U.S. equities market, this index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Any index performance data directly or indirectly referenced in this report is based on data from the respective copyright holders, trademark holders, or publication/distribution right owners of each index. The indexes do not reflect the deduction of transaction fees, custodial charges, or management fees, which would decrease historical performance results. Indexes are unmanaged, and investors cannot invest directly in an index. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.
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