Generated by All in One SEO Pro v4.9.10, this is an llms-full.txt file, used by LLMs to index the site. # Clear Wealth Planning Solutions Registered investment advisors providing financial planning services in Minnesota ## Posts ### [Back to Earth](https://clear-wealth.com/back-to-earth/) **Published:** July 16, 2026 **Author:** Clear Wealth Planning **Content:** > *“Every time we fall to pieces*, *we build something new out of the hurt”* *– Back to Earth, Steve Aoki, 2014* That didn’t take long. Despite all of the fanfare that accompanied the SpaceX IPO that included many investors working strenuously to get pre-IPO allocations, the rocket ship that soared as high as $225 per share in the days immediately post IPO has since come all the way back down to earth. Turns out just one month after the IPO and regular old investors in the public marketplace have the opportunity to buy SpaceX shares below their IPO price of $135 as recently as Wednesday. Does this mean the SpaceX trade is for naught along with the fortunes of Anthropic, OpenAI, and DeepSeek all slated to start gracing out public markets come fall? Not necessarily at all. Lest we forget the Meta Platforms (nee Facebook) IPO back in 2012 at $38 per share. Indeed, it dipped as low as $17.40 per share (down more than -50%) in the months that followed, but it is trading a smidge above its IPO price today fourteen years hence. But the SpaceX stock rocket ship returning to the launchpad is the latest reminder that the IPO game is a mixed bag over time. Of course, the same cannot be said of the broader stock market over the last few years. Is this Chief Market Strategist bearish about the technology stock outlook over the second half of the year? I do have my genuine concerns, particularly about those semiconductor stocks that have a real SpaceX circa June 18th look about them right now. But when looking at the headline S&P 500 Index, what is not to continue to love. ![Daily chart of the S&P 500 Large-Cap index with candlesticks from July 2025 to July 2026, showing volume, several colored moving averages (short-, mid-, long-term) and the RSI(14) plot beneath for trend and momentum.](https://clear-wealth.com/wp-content/uploads/image-5.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")Yes, the sustained economic growth, inflation pressures in check, earnings growth bursting at the seams fundamental narrative remains firmly in check (until it’s potentially not on that key last of three variables), but check the technicals in the chart above. Four bounces off its 50-day moving average (blue line) support over the past month, and once again we are driving toward new all-time highs north of 7600 on the headline index. Add the Relative Strength Index holding bullishly above the 50 line, and we have all the makings of a stock market that wants to continue higher through the second half of the summer. But it’s what’s driving the latest stock market bounce since right around the time of that SpaceX IPO that is perhaps even more notable. Consider the winners and losers. Winners? Financials are leading the charge at nearly +8% since June 12 with Industrials, Health Care, and Utilities joining in all north of +3%. Not your usual suspects at all. ![Line chart comparing intraday price performance of SPY and several major ETFs during mid-July 2026 (open/high/low/close).](https://clear-wealth.com/wp-content/uploads/image-7.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")Losers on the flip side? Technology and Energy (notable pairing) along with Materials and Consumer Staples (also notable pairing) trading negative since June 12th all. And leading to the downside among them all is the previously blue hot semiconductor industry within the tech sector at down more than -3%. ![Line chart of SPY and multiple ETFs performance from Jun 12 to Jul 15, 2026; SPY around +2%, others range -7% to +9%.](https://clear-wealth.com/wp-content/uploads/image-8.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")The good news from these contrasting winners and losers is that we’re no longer seeing the same old same old driving the market to the upside. New leaders taking the market charge gives time for the previous leaders to come back to earth and recharge for their own next move higher. This is the type of healthy rotation that can keep a market moving to the upside. One more positive on the current market before calling it a wrap. For those investors that have been yearning for greater market breadth over the last several years, I present to you the equal weighted S&P 500 Index (Mag 7 stocks and friends are weighted at 0.2% just like everyone else). Put simply, if you liked the resilience of the market cap weighted S&P 500 Index that is fighting its way back to previous highs in the chart above, you’ll love the look of the equal weighted S&P 500 Index shown in the chart above. We don’t need no stinkin’ upward sloping medium-term 50-day moving average support (blue line below) when you have the short-term 20-day moving average (dotted green line) to repeatedly bounce off of six times and counting since late April. This highlights the underlying breadth of performance that is supporting the market through the summer months. ![Daily S&P 500 chart with price candles and moving averages (MA50, MA200, MA400, MA20) across Jul 2025–Jul 2026; RSI shown below chart.](https://clear-wealth.com/wp-content/uploads/image-6.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")**Bottom line**. The U.S. stock market is not without its challenges and meaningful downside risks as we continue through the remainder of 2026, and we’ve already seen some much-ballyhooed highflyers recently fall back to earth. But as we continue through the summer months, the good news is that overall stock market conditions remain healthy, strong, and broadly based. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* **LPL Compliance Tracking #: 1131408** **Categories:** Insights --- ### [The Memory Squeeze](https://clear-wealth.com/the-memory-squeeze/) **Published:** July 8, 2026 **Author:** Clear Wealth Planning **Content:** The AI boom’s biggest supply constraint right now isn’t GPUs. It’s memory. Every AI server in every data center powering tools like ChatGPT and Claude is only as fast as the memory chip sitting next to its processor. That memory is now in short supply. Prices for the two main types, DRAM and NAND flash, jumped 58 to 63% and 70 to 75%, respectively, in the second quarter of 2026 alone, the sharpest increases the industry has seen in over a decade. This is not a typical cyclical shortage. It is a structural reallocation of global manufacturing capacity toward artificial intelligence, and it is becoming one of the clearest bottlenecks in the AI buildout. **Memory 101** Memory chips serve two different jobs inside any computer, whether it’s a smartphone or a server rack, the tall metal frame of stacked computers that data centers use to run everything from websites to AI models. DRAM is the working memory a processor uses to hold data it’s actively crunching. It’s fast but temporary, wiped clean when the device powers off. NAND flash is storage, where data sits permanently, the chips inside a laptop’s SSD or a phone’s internal storage. Every device with a processor needs both. HBM, or high bandwidth memory, is a specialized and far more expensive category of DRAM built for one purpose: feeding data to AI chips fast enough to keep them working. AI chips, most commonly Nvidia’s GPUs, are specialized processors built to run the enormous number of calculations behind training and operating AI models like ChatGPT, Claude, and Gemini. These tasks involve constantly moving huge volumes of data rather than the more modest data needs of a typical laptop chip. Instead of sitting on a separate module across the motherboard, HBM is built by stacking multiple DRAM layers directly on top of one another and wiring them together so data can move in and out at extraordinary speed, then placing that stack within a hair’s width of the processor itself. If that’s a lot to take in, here’s the simpler version. Think of an AI chip as a race car engine. Raw horsepower means nothing if the fuel line feeding the engine is too narrow. HBM is the wide fuel line that lets a chip like Nvidia’s GPU actually use the processing power it has. ![Bar chart titled HBM's growing bite out of DRAM production showing global DRAM wafer capacity share: 2023 ~1%, 2024 ~7%, 2026 ~22%.](https://clear-wealth.com/wp-content/uploads/image.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")imageThis is precisely why memory has become an AI bottleneck in its own right. A single AI server can require eight to ten times the DRAM of a traditional server, and manufacturing HBM consumes three to five times the wafer capacity of standard DRAM for the same output. Building more AI compute capacity does not just require more chips. It requires an outsized amount of a specialized memory type that is difficult and expensive to produce at scale. **Why This Cycle Is Different** Memory has always been a boom and bust business. Shortages in 2017 and 2018 and again in 2021 pushed prices sharply higher, then resolved as manufacturers ramped up production to meet demand, the normal rhythm of a cyclical industry. This time is different. Samsung, SK Hynix, and Micron, the three companies that together control 95% of global DRAM production, have deliberately shifted manufacturing capacity away from standard memory chips and toward HBM. This is because HBM commands far higher profit margins. That reallocation does not reverse just because prices for standard DRAM and NAND rise. Manufacturers have little incentive to redirect capacity back to lower margin products while AI demand for HBM remains this strong. The usual price signal that resolves a shortage, higher prices attracting more supply, isn’t working the way it normally would. ![Donut chart of DRAM market share: Samsung 38.6%, SK Hynix 28.8%, Micron 22.4%, Others 10.2%.](https://clear-wealth.com/wp-content/uploads/image-1.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")image**When Does This Actually End** New capacity is coming, just not soon. SK Hynix’s M15X fab in Cheongju, South Korea began ramping production in 2026. Micron’s Idaho fab is targeted to come online in 2027. Samsung’s P5 fab in Pyeongtaek is aiming for volume production in the second half of 2028, and Micron’s planned New York fab isn’t expected until 2029 or 2030. Even once these facilities are running, priority goes to HBM and other high margin products first, which means relief for standard DRAM and NAND, the memory in ordinary laptops and phones, lags further behind. Based on this, the realistic window for meaningful supply relief is 2027 at the earliest, with a return to something resembling normal pricing more likely in 2028 or later, assuming AI demand growth doesn’t accelerate further and push that timeline out again. ![Timeline of memory fabs ramping up: 2026 SK Hynix M15X, 2027 Micron Idaho online, 2H2028 Samsung P5 volume, 2029–30 Micron NY online; priority to HBM/enterprise.](https://clear-wealth.com/wp-content/uploads/image-2.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")image**Winners and Losers** The reallocation of memory capacity toward AI is creating a clear divide across the tech sector. On one side, the memory manufacturers themselves, Samsung, SK Hynix, and Micron, are seeing sharply higher margins as prices for their highest value products surge. Equipment makers that supply the tools needed to build HBM, along with companies that handle the complex packaging and testing steps HBM requires, are benefiting, as well. TSMC, for example, runs its own advanced packaging process that physically bonds memory to AI chips like Nvidia’s, and demand for that service now outpaces what even TSMC alone can supply. On the other side, companies that depend on standard DRAM and NAND without long term supply agreements are facing rising costs and tighter availability. Elon Musk described Tesla’s predicament in stark terms in January, framing it as a choice between hitting a “chip wall” or building its own fab, a sign that even a company with Tesla’s resources is running into allocation limits. Apple, by contrast, has struck a more measured tone with investors, describing only a modest impact so far though it has signaled the shortage could affect production more broadly as the year continues. For consumer electronics makers generally, memory now represents a rising share of total cost of building a phone or laptop, a cost that ultimately gets passed to buyers. ![Bar chart shows memory share of PC bill of materials rising from about 15% in the previous quarter to about 35% in the latest quarter.](https://clear-wealth.com/wp-content/uploads/image-3.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")image**The Investment Angle** Memory has become of the clearer ways to think about AI infrastructure demand beyond the mega cap compute names most investors already know. Companies tied to advanced chip packaging, the step that physically bonds memory to AI processors, sit at a key pinch point in the buildout. That said, this theme is worth approaching with some caution rather than chasing. Memory stocks have already rallied sharply as this shortage has played out, and a meaningful amount of the good news, including higher prices and sold-out capacity through the end of 2026, appears to be priced in. The more durable way to participate in the AI buildout theme is likely through businesses broad enough to benefit across multiple fronts, rather than a concentrated bet on memory pricing holding at today’s elevated levels indefinitely. ![Bar chart: HBM market revenue rises from about B in 2025 to 0B in 2028 (projected).](https://clear-wealth.com/wp-content/uploads/image-4.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")image**The Bigger Picture** Memory has spent most of the AI era as a footnote to the story, overshadowed by GPUs, data centers, and the enormous sums hyperscalers pour into compute. That’s changing. The same dynamics reshaping the chip industry, surging demand colliding with a supply chain that can’t pivot quickly, are now playing out in a corner of the market most investors have never had reason to watch closely. Whether the memory shortage eases as new capacity comes online in 2027 and beyond, or persists longer as AI demand keeps outrunning supply, it’s now one of the clearest signals of how much the physical infrastructure underneath the artificial intelligence still has to catch up to the ambitions being built on top of it. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1119679. **Categories:** Insights --- ### [Market Momentum](https://clear-wealth.com/market-momentum/) **Published:** June 26, 2026 **Author:** Clear Wealth Planning **Content:** In this week’s GVA Market Insights, our Asset Management team explores: - Equity markets have surged over 10% since April 1st amid strong earnings, though mega-cap concentration — particularly in semiconductors — remains a growing concern. - The Fed held rates steady at its latest meeting, but a hawkish shift is emerging as inflation reaccelerates and rate hike expectations build for year-end. - The IPO market is experiencing a historic resurgence, headlined by SpaceX’s record-breaking offering, with several high-profile listings anticipated in the months ahead. ![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")###### [Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Advisors associated with Great Valley Advisor Group may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Great Valley Advisor Group; or (2) solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial. Eric Parnell, Eric Hough and Evan Coffey are solely an investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by Eric Parnell, Eric Hough or Evan Coffey are their own and are not those of LPL Financial. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #: 1131408** **Categories:** Insights --- ### [The Bounce](https://clear-wealth.com/the-bounce/) **Published:** June 12, 2026 **Author:** Clear Wealth Planning **Excerpt:** The wild ride for the U.S. stock market continues in 2026.  **Content:** > *Point out the bounce* *And show you how to get this dough in* *Large amounts ’til it’s hard to count”* *—* ***The Bounce, Jay-Z, 2002*** The wild ride for the U.S. stock market continues in 2026. Following a two-month pullback in February and March amid geopolitical tensions in the Middle East, the S&P 500 skyrocketed beyond all comprehension in April and May. In the process, the U.S. stock market went from being deeply oversold to vastly overbought. By the start of June, the market had become so ridiculously ahead of itself that basically someone needed to sneeze on the floor of the New York Stock Exchange (or the Bureau of Labor Statistics needed to release a better than expected jobs report last week) and stocks would pullback. And since last Friday, the S&P 500 has already shed over -5% peak to trough. Now that the overdue pullback is underway, when and where should we expect the bounce. ![S&P 500 daily chart with a blue trend line, multiple moving averages (green, blue, red, pink), and an RSI chart below. Upward price move into June 2026.](https://clear-wealth.com/wp-content/uploads/1.png "1 | Great Valley Advisor Group - Clear Wealth Planning Solutions")It’s important to note that the underlying market fundamentals justify an eventual bounce. Forecasts for economic growth remain strong, the 5-year breakeven inflation rate has descended back below 2.5%, and corporate earnings are projected to grow at a double-digit rate over the next year. So while these conditions may eventually break as soon as later this year, they continue to hold enough to justify stocks finding their footing and making a renewed push to the upside in the short-term. Referring to the above chart, we can see the logical thresholds where the S&P 500 is likely to bounce. The first is at its 50-day moving average (blue curvy line), which is currently at 7215 and rising. Thus, we could see a bounce on the S&P 500 in the coming days at levels ranging between 7250 and 7300 as this support line continues to ascend. If this support breaks, the next level would be the upward sloping trendline dating back to last October (blue straight line). This level served as resistance for the market from late October through mid-April before the resounding early spring break out the upside. What was once resistance has now become support, and it is more than reasonable to expect that stocks would bounce at this trendline currently just over 7100 and gradually rising. Now, if things start to become more calamitous, the next major support level would be at the S&P 500’s 200-day moving average (red line), currently at 6872 and also steadily rising. But even if stocks pulled all the way back to this level, they would still not have entered full-fledged correction territory at down -10% from previous peaks. This is how strong the current market remains despite the recent bout of weakness. Looking deeper beneath the surface, it is also important to note the internal dynamics currently playing out in the market. For just as the market gains in April and May were highly concentrated in a single industry (semiconductors) in a single sector (technology), so too have the subsequent losses since June 3. Where the S&P 500 has fallen by -5% peak to trough, the information technology sector has dropped by nearly -13% peak to trough over the same time period. ![Stock chart comparing SPY (black) and XLK (blue) from June 3–10, 2026; SPY steadier, XLK declines more sharply; header shows Open 733.39, High 737.50, Low 731.50, Last 737.21; volume 8.1M.](https://clear-wealth.com/wp-content/uploads/2.png "2 | Great Valley Advisor Group - Clear Wealth Planning Solutions")These concentrated losses are obscuring all that is continuing to steadily chug along to the upside within the current stock market. This includes the consumer staples, health care, financials, and real estate sectors, each of which are higher by +4%, +6%, +2%, and +4%, respectively, since June 3. ![Multi-line stock performance chart comparing SPY and several sector ETFs from June 3 to June 10, 2026, showing SPY dipping while other sectors rise. The y-axis shows percentage change and the x-axis dates, with a sharp SPY decline around June 9–10 and other lines trending positive.](https://clear-wealth.com/wp-content/uploads/3.png "3 | Great Valley Advisor Group - Clear Wealth Planning Solutions")Bottom line. The U.S. stock market as measured by the S&P 500 was long overdue for some sort of pullback as the month of June got underway, so the recent decline comes as no surprise. Even though the headline index is pulling back, it is important to dissect the recent decline for context. For while technology stocks are taking the brunt of the pullback in recent days, many other sectors within the market are continuing to perform well. And just as we were overdue for a pullback heading into the month, we are now approaching levels where we are setting up for a fundamentally supported bounce. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1123626.* **Categories:** Insights --- ### [Avoiding the Fate of the Dinosaurs](https://clear-wealth.com/avoiding-the-fate-of-the-dinosaurs/) **Published:** June 4, 2026 **Author:** Clear Wealth Planning **Content:** For the first time in years, the IPO market is generating legitimate buzz rather than cautious optimism. The second half of 2026 is shaping up to be the most consequential listing window since the peak IPO years of the last decade when Facebook, Twitter, Alibaba, Uber, and Snowflake all made their public market debuts. The biggest difference this time around is that the companies coming to market are the defining assets of the AI era and the most iconic private company in the world. Three names sit at the center of this narrative: SpaceX, OpenAI, and Anthropic. Together, they represent a combined implied valuation north of $3 trillion. The capital demands alone could reshape public market dynamics for the next 12 to 18 months. Here is where each one stands. **SpaceX: First Out of the Gate** SpaceX is the most advanced of the group by a considerable margin. The company filed its S-1 with the SEC on May 20, 2026, with Goldman Sachs and Morgan Stanley serving as the lead underwriters on a 23-bank syndicate. The roadshow kicked off June 4th, with pricing scheduled for June 11th and a Nasdaq debut under ticker SPCX targeted for June 12th. At a $1.75 trillion target valuation and a $75 billion fundraising goal, this would be the largest IPO in history. SpaceX’s financial story is straightforward on the surface. The company generated $18.5 billion in revenue in 2025, though the bottom line tells a different story. A $4.94 billion net loss, as Starship development costs, xAI integration, and infrastructure buildout weighed on GAAP earnings. The bull case rests almost entirely on Starlink, its satellite internet division, which accounts for roughly 61 percent of revenue and is the only consistently profitable segment. Starlink crossed 10 million subscribers in early 2026, with projected revenue of approximately $15.9 billion and adjusted EBITDA approaching $11 billion. ![Chart of adjusted EBITDA by segment from 2023 to 2025. Connectivity (Starlink) rises to about B in 2025; Space remains around alt=](https://clear-wealth.com/wp-content/uploads/image-1024x493.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")The bear case for SpaceX is the governance structure. Elon Musk and insiders retain dominant voting control, with public shareholders being structurally minority voices. The S-1 also disclosed that SpaceX is leasing approximately 325,000 Nvidia GPUs to Anthropic through its Colossus facilities in Memphis, with the arrangement potentially expiring after six months, making it material but temporary compute revenue. And then there’s the compensation structure. Musk’s pay package, which includes 1 billion performance-based restricted shares, vesting in 15 tranches, requires two conditions to unlock. First, a specified market-cap milestone of $7.5 trillion and second, the establishment of a permanent colony on Mars with at least one million inhabitants. Simple right. The prospectus reads, in plain terms, **“We do not want humans to have the same fate as dinosaurs.”** Public investors are being asked to fund a company whose CEO’s full compensation is legitimately contingent on colonizing another planet. To me, that’s either the most ambitious incentive structure ever written into a securities filing, or a governance red flag dressed up as a mission statement. **OpenAI: The Name Everyone Wants** OpenAI has filed confidentially for an IPO, with CEO Sam Altman targeting public debut by September or Q4 of this year. The headline valuation figure being discussed is approximately $1 trillion, which if achieved, would rank among the largest market caps of any company ever at the time of listing. The revenue trajectory for OpenAI is astounding. OpenAI went from roughly $2 billion in annualized revenue in 2023 to over $20 billion by the end of 2025. ChatGPT surpassed 900 million weekly active users as of early 2026. These are not incremental numbers. Nonetheless, the financials cut both ways. For full-year 2025, OpenAI generated $13.1 billion in revenue while burning through approximately $22 billion – a net loss of roughly $9 billion. Internal projections point to a $14 billion operating loss in 2026, with profitability not expected until approximately 2029 or 2030. OpenAI faces a significant funding gap with the company committing hundreds of billions in compute infrastructure over the next several years that its current revenue base cannot cover. The IPO, by most readings, is less a victory lap than a capital necessity. Public markets are the only pool deep enough to fund the compute infrastructure commitments OpenAI has already made. Continuing the trend, governance adds a layer of complexity for OpenAI as well. Altman’s equity stake remains listed as “TBD” in the filing. This is an unusual disclosure for the CEO of a company targeting a $1 trillion valuation. The nonprofit-to-public-benefit-corporation restructuring completed in late 2025 resolved one overhang, and the dismissal of Elon Musk’s lawsuit cleared another. Even so, investors are being asked to price a loss-making entity at a 65x P/S multiple, with limited historical financial transparency. **Anthropic: The Quiet Frontrunner** Anthropic filed its S-1 confidentially on June 1, 2026. The target listing window is October of this year, with Goldman Sachs and JPMorgan expected as the lead underwriters. Its most recently confirmed post-money valuation was $380 billion, set at the $30 billion Series G that closed in February 2026, though a series H funding round closing May 28 reportedly pushed the implied valuation to approximately $965 billion in some secondary market estimates. What distinguishes Anthropic from OpenAI is the profitability picture. Revenue has compounded at a rate few software companies have ever sustained. At the end of 2025 the estimated annual revenue figure was $9 billion. This estimate became $44 billion by May of this year. More strikingly, the company is reportedly on track to post its first operating profit at approximately $559 million in Q2 2026. Claude Code alone is generating $2.5 billion in annualized billings. Eight of the Fortune 10 are reportedly Claude customers. ![Line chart of annualized run-rate (in $B) from end-2023 to May-2026 comparing OpenAI (blue) vs. Anthrophic (green dashed). OpenAI rises from near alt=](https://greatvalleyadvisors.com/wp-content/uploads/2026/06/image-1.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")The ownership structure of Anthropic adds a layer of complexity that deserves more than just a footnote. Google and Amazon, two of the largest tech companies in the world and direct competitors in the AI space, are the two largest outside backers. Both carry meaningful antitrust exposure as Anthropic transitions to public markets. Public investors would be buying into a company where the two biggest shareholders have their own competing agendas. The valuation and revenue figures along with the profitability claims have never faced the scrutiny of a public filing. Whether the numbers hold up come October is the real question. **The Bigger Picture** SpaceX, OpenAI, and Anthropic are the headliners, but they are far from alone. The broader 2026 IPO pipeline is the most loaded in quite some time. Anduril, the AI-powered defense company founded by Palmer Lucky, closed a $5 billion Series H in May at $61 billion valuation and confirmed a public listing roadmap. Databricks, the data and AI platform growing revenue north of 65% year over year at a $134 billion valuation, has signaled a 2026 listing is possible. Klarna and Shein are also in the queue, representing fintech and e-commerce, respectively. Taken together, the combined fundraising across this wave of listings could approach or exceed $200 billion, a level of supply that public markets have never been asked to absorb in a single offering cycle. For investors, the central question is not whether these are great companies. Most of them are and likely will continue on a positive trajectory. The question is what valuation leaves room for public market investors to generate returns or whether the private market captured the majority of the upside years ago. These listings will test appetite for loss-making businesses at historic multiples, governance structures that favor insiders and CEOs, and revenue figures that have yet to face the scrutiny of audited public financials. The second half of 2026 will tell us a great deal about where the market draws the line in this new era of IPOs. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1119679. **Categories:** Insights --- ### [The Power](https://clear-wealth.com/the-power/) **Published:** May 28, 2026 **Author:** Clear Wealth Planning **Content:** > *“It’s gettin’, it’s gettin’, it’s gettin’ kinda heavy”* – *The Power, Snap, 1990* The U.S. stock market is getting way ahead of itself. For as constructive on the markets as I was back in February and March when the S&P 500 was careening into correction territory despite the fact that economic growth remained strong and corporate profit growth projections were being revised higher, I am becoming increasingly dubious about the path forward from here following what has been a furious and relentless rally in the past two months since the late March lows. It would not be shocking to see the S&P 500 surpass 8000, but maybe reasonably sometime in the first half of 2027 if all goes well, not by the end of this June as is being implied by the current pace of the market. Way too far, way too fast. ![Daily S&P 500 Large Cap Index chart with moving averages; latest close about 7,519 as of May 26, 2026.](https://clear-wealth.com/wp-content/uploads/image-12.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")So what in particular is bugging this Chief Market Strategist of Great Valley Advisor Group that had been up until recently decidedly bullish on the U.S. stock market outlook? After all, the latest projections for U.S. economic growth are well north of +4% according to the latest Atlanta Fed GDPNow forecast, and corporate earnings growth projections keep getting revised higher into the high teens on a year-over-year basis. What more could you want? First, we’ve suddenly reverted back to the same highly concentrated markets that have defined the last couple of years. For example, only 38% of stocks in the S&P 500 are outperforming the benchmark index in 2026. This is down from over 60% just a few months ago. Why does this concentration matter today? After all, it worked out just fine in 2024 and 2025? Because the percentage of stocks within the currently skyrocketing S&P 500 continues to fade from as much as 75% before the outbreak of the Iran conflict to recent peaks near 57% today. In short, fewer and fewer stocks are being relied upon to surge the market higher. Why does this matter? Because if this shrinking group of market leaders falters, there are fewer stocks to pick up the slack. ![Chart of S&P 500 stocks above the 50-day moving average from May 2025 to May 2026, with a blue downward trendline.](https://clear-wealth.com/wp-content/uploads/image-11.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")But wait a minute. You’ve said in the past that a growing number of stocks being left out of the rally was actually a glass-half-full good thing, as it meant there was more room to the upside for those being left behind to catch up to the upside. Indeed. But this premise relied not only on the strong economic and corporate earnings backdrop but also the idea that the already overflowing liquidity in capital markets was going to be further supplemented by additional interest rate cuts from the U.S. Federal Reserve. This was a true expectation for financial markets in 2024 and 2025 regardless of whether I agreed with the notion that the Fed should be cutting rates (I did not). But in 2026 with oil prices surging over $100 per barrel and inflation pressures starting to accumulate as the year progresses, expectations have now turned to the U.S. Federal Reserve potentially raising interest rates by a few quarter point hikes over the next year. This is liquidity coming out of the market on net, which historically has been a crack of the whip snap attack against stock prices. Another thing that’s bugging me even more is the extraordinary froth that has suddenly descended onto the semiconductor industry within the technology sector of the stock market. Check it. ![Phased stock chart of SOX Semiconductor Index with moving averages and a blue trend line showing upward trajectory toward 2026; RSI shown below.](https://clear-wealth.com/wp-content/uploads/image-13.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")Don’t get me wrong, I totally get the narrative. AI is going to change the world, and we need boundless semiconductors of all shapes and sizes to power the compute infrastructure to make it all happen. Bang the bass turn up the treble. But here’s the thing. I remember hearing the exact same stories three decades ago when the Internet was changing the world. Did it deliver? Absolutely. But it didn’t mean that stock prices continued to the moon (more on this topic literally in a few weeks – teaser alert) for the indefinite future. And if any sustained stumble, economic or otherwise (liquidity drain) afflicts the markets, investors must be ready for the market wielding the other side of the risk sword. Here is the thing to remember about semiconductor stocks amid the relentless awesomeness. They are notoriously volatile and can be just as unforgiving on the downside as they are rewarding on the upside. They trade with a price volatility that is more than double that of the S&P 500 Index, and they have experienced ten distinctly different extended bouts of falling by as much as -40% to -70% or more over the past three and half decades. **Bottom line**. While these chip stocks may continue to run to the upside, it cannot be ignored that the semiconductor industry as a whole has rallied more than +80% in the last two months. I’m not one to throw the “bubble” term around often, but that’s some bubbly kinda stuff right there. And with a rising 10-Year U.S. Treasury yield (until the last couple of days) and the cryptocurrency implied price of stocks signaling a mean reverting -20% correction in tech stocks could take place at any time, it is important if nothing else to be careful out there in capital markets as we head into the summer months following what has been a tremendous but concentrated stock rally. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1115507. **Categories:** Insights --- ### [Private Market Noise](https://clear-wealth.com/private-market-noise/) **Published:** May 22, 2026 **Author:** Clear Wealth Planning **Content:** In this week’s GVA Market Insights, our Asset Management team explores: - **Private Markets Noise vs. Reality:** Redemption headlines at BlackRock and Blue Owl are alarming on the surface, but the 5% quarterly liquidity cap is a structural safeguard, and comparisons to 2008 miss the mark. - **Stagflation Warning Signs:** CPI at 3.8%, gas above $4.50, a 10-year at a 52-week high, and zero cuts priced in for 2026 paint a 1970s-style backdrop for incoming Fed Chair Kevin Warsh. - **Infrastructure is the AI Bottleneck:** With hyperscalers spending $700B+ in 2026, the constraint isn’t capital — it’s power and grid capacity, creating a growing role for private market investment globally. ![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")###### [Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Advisors associated with Great Valley Advisor Group may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Great Valley Advisor Group; or (2) solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial. Eric Parnell, Eric Hough and Evan Coffey are solely an investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by Eric Parnell, Eric Hough or Evan Coffey are their own and are not those of LPL Financial. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Bond yields are subject to change. Certain call or special redemption features may exist which could impact yield. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #: 1113162** **Categories:** Insights --- ### [The Great Mismatch](https://clear-wealth.com/the-great-mismatch/) **Published:** May 15, 2026 **Author:** Clear Wealth Planning **Content:** ## **Why Digital CAPEX Is Colliding with Physical Infrastructure Reality** What happens when the tortoise and the hare must finish the race at the same time? The market narrative today is dominated by the scale of capital being deployed into AI, data centers, and next-generation compute. Hundreds of billions of dollars are being committed, sometimes circularly, with the expectation that infrastructure will scale accordingly. It won’t and can’t without a fundamental reallocation of capital and a change in how infrastructure itself is financed and built. While capital is abundant for data centers (the hare), current infrastructure can’t accommodate (the tortoise). We are now seeing clear signs of strain. A significant share of planned U.S. data center capacity, as much as 30% of projects, targeting 2026 delivery are being delayed or canceled due to constraints that have little to do with financing. The issue is physical with constraints in power availability, grid interconnection timelines, equipment shortages, permitting bottlenecks, and neighborhood pushbacks. The U.S. faces a $3.7 trillion infrastructure funding gap through 2033, spanning energy, transport, and utilities. This is the core contradiction of the current cycle. Technology companies are deploying capital at software-type speed while Infrastructure is being delivered, at best, at regulatory and industrial speed. The limiting factor for digital growth is no longer computing; it is power and physical infrastructure. Historically, infrastructure development in the U.S. has relied on a combination of public funding, state-level execution, permitting, and procurement processes. Institutional capital, pension capital and now infrastructure funds, are well suited for development investments. These assets are long duration, inflation aligned/protected, increasing global demand and high yielding. However, there needs to be a change in delivery mechanism of capital that has been impeded by government interaction. An example could be reforming current laws around tax-exempt debt of public/private partnerships that hinders capital formation and transaction flexibility. In addition, expand private/public partnerships, like the rest of the developed world, to allow institutional investors to co-own and operate infrastructure. Or, have government entities recycling brownfield/contaminated industrial properties to investors to repurpose pipelines. There are many ideas and none of them are easy, but something must be done to facilitate. At this point, you’re probably thinking I am heavily invested in semi-conductors, data centers, robots and large language models. I am not. The basis of my thoughts is directly around my monthly electricity bills! In southeastern PA, we rely on the PJM Interconnection. It is the largest operator of the US power grid spanning 13 states. Capacity Pricing in 2023/2024/2025 had a low baseline of about $29 per Megawatt a day. That price for the 2027/2028 was estimated to be over $500 MW a day before the governor stepped into to cap the price at $333 MW per day! The trend is clear and something needs to change. At the current trajectory, massive technology CAPEX without corresponding infrastructure investment, is unsustainable. Infrastructure investment in the U.S. needs to reform; accelerate public from private investors, become more structured, and integrate with digital deployment….OR else there will be more town halls of citizens revolting over electricity prices. As an investment, for portfolios that are under allocated to utilities and real assets, infrastructure may be a good place to research. It is an attractive investment because it provides essential services that generate stable, long-term cash flows, often with inflation protection and lower sensitivity to economic downturns. It also benefits from powerful secular trends such as AI-driven data center demand, energy transition investments, and the modernization of aging global infrastructure. Lastly, you will be doing your part in helping seniors keep more of their social security checks from going to the electric companies. Remember, the tortoise always won the race. Keep that same mindset in portfolio construction… slow and steady! *Disclosure: I/we have no stock, option, or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #*1110007 **Categories:** Insights --- ### [The 700 Billion Audit](https://clear-wealth.com/the-700-billion-audit/) **Published:** May 8, 2026 **Author:** Clear Wealth Planning **Excerpt:** Last week five of the biggest names in technology released their latest quarterly earnings results and while all beat top and bottom line estimates comfortably, Wall Street is becoming increasingly concerned about one recurring theme within the earnings calls. **Content:** **Understanding the Scale** Last week five of the biggest names in technology released their latest quarterly earnings results and while all beat top and bottom line estimates comfortably, Wall Street is becoming increasingly concerned about one recurring theme within the earnings calls. **Capital Expenditures** Before I get into why this is becoming progressively challenging to ignore, let’s identify what exactly capital expenditures, or capex for short, actually are. According to Investopedia, capital expenditures are funds used to acquire, upgrade, or maintain physical assets like buildings, technology, or equipment, with the goal of increasing operational scope or future economic benefits. In layman’s terms, it’s the money used to do something like build a data center or purchase a fleet of delivery trucks. So why does this matter? Some may simply be appeased by the idea that companies have to spend money to make money, and this is true. The alarming piece of this puzzle for much of Wall Street though, is the sheer growth in spending. In 2022, Amazon, Alphabet, Meta, and Microsoft spent roughly $160 billion combined. In 2024, the number grew to $250 billion. Now we are staring down estimates of a trillion dollars in 2027 according to Bank of America and Evercore. The trajectory is stark. From 2022 to 2025 alone, the four companies more than doubled their combined spend in three years, then 2026 guidance represents another near doubling on top of that. Along with this outsized growth, big tech’s capex as a share of revenue has risen to its highest level in over a decade, a notable departure from the asset-light models that supported premium valuations for much of the past decade. The other staggering reality is that the line in the sand keeps getting redrawn. Coming into 2026, Wall Street was estimating that the big five hyperscalers, which includes Oracle, would spend roughly $600 billion, a 36% increase from 2025. And yet here we are a quarter in and that projection has hit approximately $725 billion, excluding Oracle. ![Stacked bar chart of top 5 hyperscalers’ capex (2012-2026); Oracle B, Meta 0B, Microsoft 0B, Alphabet 5B, Amazon 5B.](https://clear-wealth.com/wp-content/uploads/image-8.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")What makes this spending cycle particularly notable is how it is being financed. Much of the buildout is being funded through operating cash flow, but the sheer magnitude of the outlays has pushed these companies increasingly into debt markets to bridge the gap. In 2025, the five major hyperscalers issued roughly $121 billion in new debt, compared to $40 billion in 2020. In 2026 that figure is expected to more than double with Morgan Stanley estimating the group will need to issue upward of $400 billion in new bonds. Meta made the dynamic explicit when it completed a $25 billion bond sale on the same day it raised its capex ceiling, a signal that infrastructure spending is expected to outpace operating cash generation for the foreseeable future. Alphabet went further still, issuing a 100-year bond in February. When companies are borrowing against the next century to fund today’s data centers, the question of return on investment takes on a different dimension entirely. ![Pie chart of 2025 US Big Tech AI bond issuance totaling over 0B, showing Meta at B as the largest slice, with Broadcom B, Oracle B, Alphabet B, Amazon B, and others.](https://clear-wealth.com/wp-content/uploads/image-9.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")The numbers emerging from big tech’s first quarter earnings cycle are difficult to contextualize through any ordinary corporate finance lens. Microsoft and Alphabet each guided that current 2026 expectations land at approximately $190 billion, a figure that exceeds the annual economic output of New Zealand. The stated rationale for these figures remains consistent across all four companies: data center expansion, GPU procurement, and the infrastructure required to train and serve increasingly capable AI models. What is not consistent is the evidence that the spending is working. **Bifurcation** This earnings cycle has made it clear that the market is not punishing AI spending broadly. Q1 2026 earnings drew a sharp contrast between the companies that can demonstrate external revenue validation and those that cannot. Investor sentiment this quarter hinged on a single variable, whether AI revenue is scaling fast enough to justify the outlays. And the answer to that question depends almost entirely on the structure of the business doing the spending. The distinction is structural, not cosmetic. Alphabet, Amazon, and Microsoft operate cloud platforms that sell AI infrastructure and services to third parties, which means customer demand provides a continuous, observable proof mechanism for their capital outlays. Meta occupies a fundamentally different position. Its data centers serve only its own properties, and the return on investment flows internally through advertising efficiency and user engagement rather than through enterprise contracts and cloud revenue. That payback path is harder to verify from the outside, and the market reacted accordingly. **By the Numbers** The numbers from the quarter bear out that distinction. Microsoft reported annualized AI revenue of $37 billion, up 123% year over year, with Azure growing 40% and topping the company’s own guidance. Alphabet posted Google Cloud revenue of $20 billion for the quarter, a 63% year-over-year increase that beat Wall Steet estimates by nearly $2 billion. Amazon’s AWS division grew 28% year-over-year to $37.6 billion in quarterly revenue, its fastest pace in fifteen quarters, with management citing robust enterprise demand for AI workloads as the primary driver. All three companies raised their full-year capex guidance and Google and Amazon saw shares jump higher on earnings. Meta beat on revenue, reporting $56.3 billion for the quarter and 33% year-over-year growth, it’s fastest since 2021, but raised its 2026 capex guidance to a range of $125 to $145 billion. It also suspended share buybacks for the second quarter. Shares fell more than 8.5% following the report. Alphabet and Amazon were rewarded without reservation. Microsoft, despite posting the strongest cloud metrics in its history, was penalized for the sheer magnitude of capex guidance. Meta fared worst of all, with neither the cloud revenue to validate the spend nor the restraint to temper the bill. ![Line chart of after-hours price changes for Meta (purple), Microsoft (orange), Amazon (blue), and Alphabet (green): META -8.31%, MSFT -3.71%, AMZN 0.46%, GOOGL 10.13%](https://clear-wealth.com/wp-content/uploads/image-10.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")The market’s reaction to these results is being misread in some corners as a referendum on AI spending broadly. It is not. The hyperscalers that were rewarded this quarter are spending just as aggressively as Meta, and in some cases more. Alphabet raised its full-year capex guide to between $180 and $190 billion. Microsoft is guiding to $190 billion. Even Amazon has committed to roughly $200 billion for the year. The difference is not the magnitude of the investment but the legitimacy of the return. When enterprise customers are signing cloud contracts and those contracts are showing up in backlog figures and quarterly revenue, the market has a basis for valuing the spend. Alphabet’s Google Cloud backlog alone stood at $462 billion at the end of the quarter, with management indicating that just over half of that figure is expected to convert to revenue within the next 24 months. That is not a promise, it is a pipeline. What investors are demanding is not restraint. It is a validation mechanism that connects dollars deployed to dollars returned. Companies that can provide that connection are being valued accordingly. Companies that cannot are being asked to wait. **The New Baseline** What this earnings cycle establishes is once again a new baseline expectation. The era in which AI spending itself was taken as evidence of strategic seriousness is giving way to a more disciplined framework. Markets are now asking a simpler question. Where is the revenue and is it sustainable? For companies with external cloud platforms, the answer is visible and growing. For companies whose AI investments are self-contained, the answer requires a degree of trust that quarterly earnings calls are increasingly ill-suited to provide. With combined hyperscaler capex projected to exceed $1 trillion in 2027, the stakes of the question will only rise. Investors who understand the structural difference between these two categories of AI spend are better positioned to navigate what comes next, whether that is continued multiple expansion for the cloud monetizers, or a prolonged period of scrutiny for those still asking the market to take their word for it. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1103947* **Categories:** Insights --- ### [Long May You Run](https://clear-wealth.com/long-may-you-run/) **Published:** May 1, 2026 **Author:** Clear Wealth Planning **Excerpt:** What a difference a month makes. It was at this same time thirty days ago when the S&P 500 was embroiled in an eight week decline that had it on the brink of falling into correction territory down more than -10% from late January highs. **Content:** > *“Long may you run, long may you run*, *Although these changes have come*, *With your chrome heart shining in the sun*, *Long may you run”* *–Long May You Run, Neil Young, 1976* What a difference a month makes. It was at this same time thirty days ago when the S&P 500 was embroiled in an eight week decline that had it on the brink of falling into correction territory down more than -10% from late January highs. Fast forward just three weeks later, and this same S&P 500 blasted to new all-time highs following a furious +13% rally. What has been arguably even more impressive is what has happened in the trading days since. Regardless of what continues to unfold in Iran or anywhere else in the world for that matter, this is a market that has all the looks of wanting to go higher through the spring and into the summer. We have potentially entered the “Go Like Hell” phase of the S&P 500 at 7000+. ![](https://clear-wealth.com/wp-content/uploads/golikehell.jpeg "golikehell | Great Valley Advisor Group - Clear Wealth Planning Solutions")**Chrome heart shining in the sun**. In a theme that has run as long as Young’s 1948 Buick Roadmaster hearse (17 years and counting), “buy the dip” continues to reward investors in the post Great Financial Crisis period. Time and time again we have seen the S&P 500 enter into pullbacks (down less than -10%), corrections (down more than -10%), and even fleeting bear markets (down more than -20%) over periods typically lasting anywhere between four to twelve weeks, and US stocks find a bottom followed by a subsequent slingshot to new all-time highs. Arguably the biggest risk in the post financial crisis period has not been being allocated to downside risk, but instead has been not being allocated to upside risk. As the chart below shows once again, miss 13 trading days from March 31 to April 16, miss a lot. ![Daily S&P 500 index chart with price candles, blue upward trend line, multiple moving averages, and RSI(14) below.](https://clear-wealth.com/wp-content/uploads/image-1.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")But what is even more impressive than the latest slingshot rally is how the market has performed since breaking out to new all-time highs. In the process of the rally, the S&P 500 also broke decisively above upward sloping trendline resistance (straight blue line on chart) that has been in place since Halloween. One would reasonably expect from a technical perspective that a stock market that has rallied by more than +10% over a two week period to surge from oversold (Relative Strength Index (RSI) below 30, due for a bounce) to overbought (RSI above 70, due for a pullback) would find it’s way back to the downside for a spell as traders take some money off the table (those that may have wanted to sell at 7000 in late January getting a fresh chance to get out of the market). Instead, the S&P 500 has held it’s ground and if anything has continued to grind to the upside for nine trading days and counting. This is a market that is refueling and reloading on the run. In short, this is a market that wants to continue going higher. The obvious next question – are recent gains and the determination by stocks to continue higher justified? The answer is yes from a fundamental standpoint. As frequently stated in these pages, current and forecasted economic growth remains positive, inflation expectations remain in check, and the corporate earnings outlook is still phenomenal with high teens profit growth on the S&P 500 projected through next year. What about stock valuations? Yes, the trailing 12-month P/E ratio on the S&P 500 at just over 28x is well over the 5-year and 10-year historical averages in the 24x neighborhood based on FactSet data (enjoy your retirement S&P Global’s Howard Silverblatt – it was great using your publicly available S&P data for the last 25 years). And yes, the forward 12-month P/E at 21x is also higher, albeit less so, than the 5-year average at 20x and 10-year average at just below 19x. But we are far from extreme valuations in the current market environment, and history has shown us that premium stock valuations typically do not matter until they matter a lot. When does this happen? When the economy falls into recession (see above). All good here for now. Putting this all together, these are good times once again for the US stock market. But capital markets are not without risks. Thus, it is worthwhile to dig deeper under the surface to identify what we should be watching as school years come to an end and the summer vacation season begins. **Long may you run**. The headline market cap S&P 500 Index continues to be a stellar performer, but how broad based is this latest rally. For the answer, let’s look at the equal weighted S&P 500 that looks past the fact that just 9 stocks out of 503 (1.8% of all stocks in the index) make up 40% of the total weight and instead weights every stock evenly at roughly 0.2% each. ![Daily chart of the S&P 500 Equal Weighted Index with multiple moving averages and an RSI panel below, showing price movement from mid-2024 to April 2026 and recent fluctuations around 8,100–8,200.](https://clear-wealth.com/wp-content/uploads/image-5.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")Now this is more what we would expect to see. Stocks rallied to new all-time highs through April 17, but then the traders who wished they had sold back at the end of February descended. We’ve given back -2.5% on an equal weighted basis in the trading days since. Notable, but not necessarily a problem. In fact, it’s reassuring, as you want a market that is behaving normally over time. This includes the symmetry of the correction and the subsequent rally (almost a perfect V) and the give back from the previous high. With all of this being said, we need to watch the various moving average support levels in the coming weeks for confirmation that the ongoing uptrend remains intact. Moreover, the 7600 level on the index should also remain on the radar screen. While a lot of downside work would be required, a definitive breach of this neckline level would potentially complete a bearish double-top technical formation. A long way to go on this one, but worth mentioning. On a reassuring note, it’s worth mentioning that the mid-cap S&P 400 Index, which is highly correlated with the equal weighted S&P 500 Index, did manage to set new highs and is showing more sustained upside strength. Nonetheless, 3560 on this index will be worth watching in the coming days for a potential bounce. ![Daily chart of the S&P 400 MidCap Index with candlesticks, multiple moving averages (MA20, MA50, MA100, MA200) overlaid, and an RSI subplot below. Shows price trend from mid-2025 to Apr-2026.](https://clear-wealth.com/wp-content/uploads/image-7.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")As for small caps, arguably the most supportive underneath the headline surface, for despite all of their relative struggles since the GFC, they are looking most market cap weighted S&P 500ish in the current episode. ![Daily chart of the S&P 600 Small Cap Index with candlesticks, multiple moving averages, and RSI(14) below the chart.](https://clear-wealth.com/wp-content/uploads/image-4.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")Let’s look beyond stocks to additional signals to watch. On the bullish side are CCC & Lower US High Yield spreads, which historically have been a leading risk indicator for broader markets. This was a point of concern a few weeks ago, as steadily rising spreads had crested back above 10% for the only the fourth time since the inflation outbreak of 2022 (the additional yield premium investors were requiring to take on the risk of owning the lowest quality bonds in the high yield universe – wider spreads, greater investor risk aversion and vice versa). But no sooner did the calendar flip to April and spreads collapsed back toward 9% and to average post 2022 levels. ![Line chart of the ICE BofA CCC & Lower US High Yield Index Option-Adjusted Spread from mid-2023 to Apr 2026, showing 6–11% range with a 2025 spike.](https://clear-wealth.com/wp-content/uploads/image-6-1024x361.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")On the flip side, a few arguably more bearish readings merit monitoring. One is U.S. Treasury yields, which have turned back higher recently and have been steadily on the rise dating back to last October. While they remain well below recent January 2025 peaks, a continued rise in yields will put increasing pressure on stock valuations. ![Daily line chart of the 10-Year U.S. Treasury Yield (UST10Y) from mid-2024 through Apr 2026, with a blue trend line showing an upward slope from around 3.9% to about 4.35%, illustrating fluctuations and overall rising trend.](https://clear-wealth.com/wp-content/uploads/image-2.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")Another is the ongoing relationship between the NASDAQ 100 where many of the leading tech and tech related stocks reside and cryptocurrencies, which if nothing else are a reading of speculative appetite among investors. These two readings have diverged for short-term periods of time over the last decade before eventually reconverging. What is notable of late is that the cryptocurrency implied price for the NASDAQ 100 is now meaningfully lower from current levels. Thus, we will want to watch to see if cryptocurrencies catch a bid to the upside to help resolve this gap instead. ![Comparison chart: Nasdaq-100 index (blue) vs Bitcoin price (brown) over 2020–2026, showing diverging trends at times and peaks around 2025–26](https://clear-wealth.com/wp-content/uploads/image-3.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions")**Bottom line**. The U.S. stock market is back going like hell to the upside. And underlying fundamentals support the move. But the markets are not without risks. Continue to remain dedicated with your long-term investment plan, but also continue to monitor for downside risks and make adjustments on the margins accordingly as needed in case the markets start rolling down an empty ocean road instead. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1101071. **Categories:** Insights --- ### [Market Rebound](https://clear-wealth.com/market-rebound/) **Published:** April 24, 2026 **Author:** Clear Wealth Planning **Content:** In this week’s GVA Market Insights, our Asset Management team dissects the latest stock market rally: - **Markets rebound despite early volatility:** Equities have surged to all-time highs following a turbulent quarter, as investors look past geopolitical tensions and easing oil prices support sentiment. - **Broad-based rally with rising retail influence:** April gains have been strong across sectors and regions, fueled by AI-driven optimism and increased participation from individual investors. - **Risks remain on the horizon:** Ongoing Middle East tensions, policy uncertainty, and potential inflation pressures could challenge the market’s recent momentum. ![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")###### [Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Eric Parnell and Evan Coffey are solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by them are their own and are not those of LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. **LPL Compliance Tracking #: 1097505** **Categories:** Insights --- ### [In Bloom](https://clear-wealth.com/in-bloom/) **Published:** April 17, 2026 **Author:** Clear Wealth Planning **Excerpt:** After what has been another difficult first few months of the year for the second year in a row (remember the Liberation Day tariffs around this very same time last year?), the U.S. stock market is once again in bloom. **Content:** > *“And I say he’s the one Who likes all our pretty songs And he likes to sing along And he likes to shoot his gun But he knows not what it means Knows not what it means And I say yeah“* > > *– In Bloom, Nirvana, 1991* After what has been another difficult first few months of the year for the second year in a row (remember the Liberation Day tariffs around this very same time last year?), the U.S. stock market is once again in bloom. Following a near -10% decline in the S&P 500 starting in late January through the end of March, the market has bounced a resounding +11% with gains in 10 out of the last 11 trading days, setting fresh new all-time intraday highs in the process. This current stock episode is the latest of so many examples throughout history of why it is so important not to succumb to the stresses of geopolitical conflict and the associated financial media headlines by trying to time the market event. Is the outcome of the Iran conflict any clearer than it was two weeks ago? Kinda. But the market got the economic and financial break in the clouds it needed (promises of settlement talk and the potential reopening of the Strait of Hormuz simply being on table), and the rally has been on like Donkey Kong since. Just as you never want to try to fix the roof of your house during a hurricane, once you’re in the midst of a market storm like we’ve experienced over the last couple of months, it is almost always best to “wait for the bounce” once the volatility has cleared and then decide whether you want to take risk off the table. What is this Chief Market Strategist’s take with the S&P 500 having already bounced from 6316 to just over 7000 since March 30? Cue the movie reference first shared in my article from Halloween 2025: ![](https://clear-wealth.com/wp-content/uploads/golikehell.jpeg "golikehell | Great Valley Advisor Group - Clear Wealth Planning Solutions") **And I say yeah**. So why the continued short-term optimism for the U.S. stock market despite the lingering uncertainty? Let’s begin with the technicals in the chart below. The market cap weighted S&P 500 has already blasted like a blow torch through butter all of its key moving average resistance lines. How fast is this market moving? When I started writing this article before getting pulled away yesterday, we were over 65 points away from new all-time highs first set in January effectively at 7000. As I resume the writing of this article this afternoon, we’ve already crested as high as 7008 and the trading day isn’t even over yet. While some amount of consolidation may soon be overdue in the next few days with the S&P 500 now arriving at overbought levels (RSI of 68), we should not be surprised to see the S&P 500 trading north of 7250 by the time we’re firing up our Memorial Day barbeques. ![](https://clear-wealth.com/wp-content/uploads/bloom1.png "bloom1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") But is there a basis for this stock market rally to continue? And I say yeah. Let’s go around the horn. Economic growth outlook? The U.S. economy appears to be losing some steam with the Atlanta Fed GDPNow for 2026 Q1 drifting down to +1.3%. But the important point is that the economy is still growing, and early projections for 2026 Q2 are similarly positive for growth if not marginally more so. ![](https://clear-wealth.com/wp-content/uploads/bloom2.png "bloom2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Inflation expectations, while understandably elevated given all that has been going on in the Middle East and with oil prices, are still at a more than reasonable 2.6% on average for the next five years. ![](https://clear-wealth.com/wp-content/uploads/breakeven.png "breakeven | Great Valley Advisor Group - Clear Wealth Planning Solutions") And corporate earnings growth projections, which are the primary determinant of stock market returns over time and had already been robust, continue to get revised higher with profits now expected to increase at a high teens rate through the rest of 2026 and into 2027. And with first quarter earnings season now getting underway, investors will be provided with fresh visibility into the earnings outlook for the coming quarters. And this reduction in uncertainty and additional timely information is one of the reasons why stocks traditionally perform fairly well during earnings seasons over time. > *“He’s the one who like all our pretty songs And he likes to sing along And he likes to shoot his gun But he don’t know what it means Don’t know what it means to love someone”* > > –In Bloom, Sturgill Simpson, 2016 Given this decidedly positive short-term outlook, it is worthwhile to consider a different take on this market song. Importantly, the markets continue to grapple with downside risks that need to be monitored closely in the months ahead. While a renewed rise in inflation continues to linger as the primary downside risk for financial markets (higher inflation would mean the need for tighter fiscal and monetary policy, and since I have a better chance of finding an Asian Unicorn (Saola – actually exists – look it up) than a politician in Washington DC willing to raise taxes on anyone other than trillionaires, the Fed’s going to have to do the heavy lifting by raising interest rates, thus draining liquidity out of financial markets and sending asset prices lower all else equal), a new primary risk continues to unfold that warrants close attention. Could it go by the way of commercial real estate in 2023 that ended up being a nothingburger? Absolutely. But it is important to monitor nonetheless in the months ahead. What is this risk? Signs of potentially accumulating bond market stress. Now don’t get me wrong. I was a huge fan of the bond market for decades. A more than forty-year bull market run from 1981 through 2021 will do that. But since the inflation outbreak in 2022 that normalized interest rates, we have been operating in what may be best described as a bear market in bonds in the last five years since. This does not mean that bonds still can’t offer highly attractive returns for investors – after all, some of the greatest periods for stock market investing took place during the secular bear markets of 1968-1982 and 2000-2012. Instead, it just means that investors may need to work harder to get the attractive returns that bonds have to offer today. If anything, it highlights the importance of identifying the best professionals to capture the investment opportunities that exist in these areas of the market. So what are we seeing today that we need to monitor going forward? Here are a few high level indicators. (Why if you are a stock investor do you care? Because the bond market not only sets the liquidity but also the valuations upon which the stock market is built). The first is the 10-year U.S. Treasury Yield. After surging from 0.5% in the wake of the COVID outbreak in 2020, it has been rangebound between 3.5% and 5.0% for the last three years since 2023 (higher bond yields, lower bond prices). If the 10-Year U.S. Treasury yield finds itself jumping sustainably above 5%, this is not a good sign. Today, we are at a comfortable 4.25% right smack dab in the middle of the range, so nothing to worry about right now. But just as the S&P 500 can make its way from 6316 to over 7000 in a figurative heartbeat, so too can Treasury yields move at a similar pace. ![](https://clear-wealth.com/wp-content/uploads/bloom3.png "bloom3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Next and more importantly is what is known as spreads, or the additional premium that investors require to take the risk to own bonds other than Treasuries. The higher the spreads, the more risk averse the underlying investors. The more risk averse, the more likely asset prices including stocks and bonds are going down. What have we been seeing recently? SInce bottoming in early 2025, credit spreads have been steadily on the rise. Focusing on CCC & Lower US High Yield Index spreads that historically have been the first to show signs of stress that eventually spread to the broader market, we have seen spreads widen from the lows just before 7% at the beginning of last year to above 10% for the first time since the Liberation Day tariff related spikes in spreads took place just over a year ago. We’re currently at the high end of the neutral zone, but if spreads start moving sustainably above 10% or more, we should be prepared for this risk-off sentiment to spread to other more established market segments. ![](https://clear-wealth.com/wp-content/uploads/bloom4.png "bloom4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") As already mentioned, we’ve seen risks like these bubble to the surface in the past, and they ended up coming to nothing as the S&P 500 continued to go like hell to the upside. And as the CBOE Volatility Index (VIX) (and potentially soon oil prices) have shown us, months of accumulated stress – the VIX had been steadily rising since December – can release itself in a matter of days if not hours. ![](https://clear-wealth.com/wp-content/uploads/bloom5.png "bloom5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Bottom line**. With the onset of spring, capital markets are once again in bloom. Stocks are back to new all-time highs. Bonds are rallying. Precious metals are glistening anew. We are not without downside risks, but continuing to resist the headline risk and staying dedicated to your long-term investment strategy continues to be rewarded as much as ever. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1094030. **Categories:** Insights --- ### [Two Acts, One Quarter – The Story of Q1](https://clear-wealth.com/two-acts-one-quarter-the-story-of-q1/) **Published:** April 8, 2026 **Author:** Clear Wealth Planning **Excerpt:** The first quarter of 2026 came to a close last week, and it played out in two distinct acts. The quarter opened with momentum. **Content:** The first quarter of 2026 came to a close last week, and it played out in two distinct acts. The quarter opened with momentum. The music was playing and people were dancing. The record may have been a little quieter and starting to skip, but nobody was reaching for the needle. The S&P 500 touched 7,000 for the first time on January 28th, capping three consecutive years of double-digit returns and reflecting a market that convinced itself that the soft landing wasn’t just possible, it was done. Inflation was cooling, the Fed appeared poised to cut rates, and AI-driven earnings growth was rewriting expectations across corporate America. The biggest names in the tech announced lofty capital expenditure targets and ambitious new projects, and the train that had barreled down the tracks for three years was widely expected to keep chugging. Confidence was high. Perhaps too high. Then the cracks started to appear. Quiet rumblings that may have started before the holiday season, quickly snuffed out by stuffing and stockings, reemerged in financial headlines. Hundreds of billions in pledged AI spending suddenly became a liability, and software was now at risk of being commoditized by the very technology it had helped build. The rotation was underway before investors had time to register it. The narrative wasn’t all bad, though. With the high-flyers taking a seat on the bench, areas of the market that hadn’t received much playing time over the prior three years, value and international in particular, began to stir. This might just be their year. Then, on February 28th, the narrative changed. U.S. and Israeli forces launched strikes on Iran, triggering an effective closure of the Strait of Hormuz and the largest oil supply disruption in modern history. Inflation fears reignited. Expectations of a rate cut evaporated. Stocks, bonds, and gold fell in tandem. By March 31st, the S&P 500 had shed 4.63% for the quarter. The story of Q1 2026 isn’t simply one of a market that went down. It’s the story of two separate shocks that each, on their own, would have defined the quarter. Together, they redefined the outlook for the year. ![](https://clear-wealth.com/wp-content/uploads/image-1.png "image-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **The Stage is Set** Heading into 2026, the U.S. economy looked resilient. Yes, I can hear the interjections already. “But what about GDP in the fourth quarter?” And it’s a fair point. Following the latest revision in early March, the headline GDP print for Q4 2025 came in at a mere 0.7%, but that figure requires important context. The 43-day government shutdown, the longest in U.S. history, distorted the number significantly. An estimated 1.2 percentage points came off the print from government restrictions on spending alone. Strip that out, and the underlying picture was considerably healthier. Consumer spending grew at a 2.0% annualized rate in Q4, and business fixed investment expanded at 2.2%, driven heavily by AI-related data center buildout. The Fed had cut rates three times in the second half of 2025, bringing the federal funds rate to a range of 3.50% – 3.75%. Inflation, while still above target, was trending in the right direction. CPI was running at 2.4% year-over-year through January, with PCE at 2.8%. Unemployment was holding steady near 4.4%. The labor market wasn’t booming, but it wasn’t breaking. In short, markets entered Q1 with a reasonable economic foundation. The coveted soft landing had arrived. The question was simply how long it could hold. **Act One: The AI Reckoning** For nearly three years, artificial intelligence had been the market’s North Star. From the spring of 2023 to the end of 2025, the AI trade drove one of the most powerful bull runs in modern market history, lifting semiconductor stocks, hyperscalers, and everything adjacent to the buildout. Investors looked past the mounting capex bills, trusting that the returns would eventually justify the spending. By early 2026, that trust was beginning to crack. I want to make it abundantly clear. The AI trade is not over. Technology, communication services, and cyclicals should not be put out to pasture. But the trade has lost significant wind from its sails and floated adrift through Q1. The performance data backs that up. During the first quarter, value stocks gained 0.7% as measured by the MSCI World Value Index, while growth stocks fell 8.6% as measured by the MSCI World Growth Index. Small caps, energy, utilities, and consumer staples took the baton from mega-cap tech. Perhaps the most significant shift, however, was geographical. International equities, long overshadowed by U.S. large-cap dominance, began attracting meaningful inflows as investors questioned whether concentration in the U.S. had simply become too great. European and Japanese equities outperformed early in the quarter, with the Nikkei 225 up 16.91% and the MSCI Europe up 7.68% through February 27th. For the first time in a long time, international diversification was working. Investors who had looked beyond U.S. borders were being rewarded for it. ![](https://greatvalleyadvisors.com/wp-content/uploads/2026/04/image.png "image | Great Valley Advisor Group - Clear Wealth Planning Solutions") On the other side of the ledger, the “AI loser trade” started quietly in the software sector. The concern was not that AI was failing. It was that it was performing too well and coming directly for the SaaS business model. A new generation of capabilities was raising serious questions about the durability of enterprise software. Why pay significant per-seat subscription fees when a general-purpose AI can replicate those workflows at near-zero marginal cost? The selloff spread from software to trucking, commercial real estate, financial data, and beyond. Any industry where AI disruption looked plausible was suddenly in the crosshairs. To underscore market impact, Microsoft closed the quarter down 23.4%, its worst quarter since Q4 2008 and its worst start to any year since going public in 1986. The Fed, meanwhile, still appeared on track to cut rates. Incoming chair Kevin Warsh was seen as accommodative, and by mid-February the case for at least two cuts in 2026 looked solid. Gold surged above $5,300 an ounce on a wave of geopolitical uncertainty stemming from the U.S. incursion into Venezuela, then abruptly collapsed more than 13% in a matter of days as speculative positions unwound. It was a disorderly but manageable quarter until February 28th. **Act Two: The Gulf Changes Everything** On February 28th, the United States and Israel launched coordinated strikes on Iran under Operation Epic Fury, targeting military installations, nuclear sites, and senior leadership, including Supreme Leader Ali Khamenei. Within days, Iran’s Islamic Revolutionary Guard Corps effectively closed the Strait of Hormuz, the narrow waterway through which roughly 20% of the world’s oil and LNG supply passes daily. What had been a market story about AI disruption became an energy crisis overnight. Oil told the story most starkly. Brent crude had been trading around $70 per barrel heading into March. It surpassed $100 on March 8th for the first time in four years, peaked at around $120 per barrel, and stabilized in the $100-$110 range through the end of the quarter. Gasoline prices at the pump hit $4.05 per gallon by March 31st. The IEA coordinated its largest ever strategic reserve release of more than 400 million barrels, and it barely moved the needle. The damage extended well beyond oil. A key LNG facility in Qatar was struck, aluminum production plants were hit, and the downstream effects on helium, a critical component in semiconductor manufacturing, raised fresh concerns about technology supply chains. The Fed, which had been widely expected to cut rates twice in 2026, went on hold. At its March meeting it was voted 11-1 to hold rates at 3.50%-3.75%, explicitly citing the energy shock. Bond traders, who had briefly seen the 10-year yield down below 4% in February, watched yields climb toward 4.35% by quarter end. Stocks, bonds, and gold fell together. The classic diversification playbook broke down. As Q1 closed, both sides murmured about a willingness to negotiate sending markets higher on the final day of trading of the quarter. But at the time of writing, the Strait remains closed, the situation fluid, and the full economic consequences still unfolding. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-04-08-at-43711-PM.png "Screenshot 2026-04-08 at 43711 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") **What to Watch in Q2** The defining variable heading into Q2 is one that no economic model can reliably forecast: the duration of the Iran conflict. A swift resolution and reopening of the Strait of Hormuz would likely trigger a sharp relief rally across risk assets, a pullback in oil, and a rapid repricing of Fed expectations back toward cuts. A prolonged closure, particularly one stretching into the summer, risks a deeper stagflationary impulse that would put the Fed in an increasingly difficult position and pressure corporate earnings in ways no yet reflected in analysis estimates. On the monetary policy front, all eyes will be on Fed Chair Jerome Powell’s final weeks in office, with his term expiring in May. The transition to an incoming chair under these conditions adds an additional layer of uncertainty. Markets will be closely watching for any signals of a shift in posture, dovish or otherwise, at a moment when the Fed’s credibility depends on staying the course. Q1 earnings season, beginning in mid-April, will serve as the first real stress test of how corporate America is absorbing the energy shock. Guidance will matter more than results with investors looking for clarity on margin impact, supply chain exposure, and capital expenditure plans in an environment where the cost of doing business has shifted materially in a matter of weeks. The first quarter of 2026 reminded investors just how quickly the narrative can change. In the span of three months, markets went from pricing perfection to pricing conflict. The debate went from the ROI of AI capex to watching oil tankers navigate a war zone. The two forces that defined the quarter, technological disruption and geopolitical shock, are not going away. Both storylines are likely to grow more complex as the year progresses. What Q1 made clear is that diversification, discipline, and a willingness to look beyond the dominant trade of the prior cycle are not just sound principles, they’re essential. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #1089027.* **Categories:** Insights --- ### [Something in the Orange](https://clear-wealth.com/something-in-the-orange/) **Published:** March 30, 2026 **Author:** Clear Wealth Planning **Excerpt:** t has been a tough start to 2026 for financial markets to say the least.  And following three years of relentless, tech fueled US stock market upside, many are now increasingly wondering whether the orange dancing in the eyes of investors for so long is finally starting to extinguish.  With so much turbulence, volatility and uncertainty in today’s market, where the hell are we supposed to go? **Content:** > *“It’ll be fine by dusk light, I’m tellin’ you baby, These things eat at your bones and drive your mind crazy.“* > > *– Something In The Orange, Zach Bryan, 2022* It has been a tough start to 2026 for financial markets to say the least. And following three years of relentless, tech fueled US stock market upside, many are now increasingly wondering whether the orange dancing in the eyes of investors for so long is finally starting to extinguish. With so much turbulence, volatility and uncertainty in today’s market, where the hell are we supposed to go? **Never comin’ home?** The widespread despondency among investors is certainly understandable. One has to look no further than a chart of the headline S&P 500 to see the pain in the market in recent months. After peaking right before Halloween last year, the US stock market was already starting to grind to a halt. Already trading below its October and January highs while struggling to hang on to its medium-term 50-day moving average (blue line in chart below) by the end of February, the market cap weighted S&P 500 Index broke decisively to the downside once the bombing started in Iran. In the time since, support at the long-term 200-day moving average (red line) also quickly came and went. And as the first quarter of 2026 draws to a close, the S&P 500 is on the brink of entering full blown correction territory at down -10% from its previous peak (it is lower by more than -8% in early trading on Friday). Adding salt to the wound is that while momentum is starting to become extended to the downside, the market is not clearly oversold with an Relative Strength Index reading still holding marginally above 30. As a result, a test of the ultra long-term 400-day moving average (pink line) in and around 6250 (down more than -11% from January peak) on the S&P 500 should not be ruled out over the next week or so. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-30-at-23003-PM.png "Screenshot 2026-03-30 at 23003 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") A different look at the market highlights the anxiety investors have been feeling lately. The CBOE Volatility Index, also known as the VIX as shown in the chart below, is a measure of market “fear” based on the price that investors are willing to pay for options contracts, presumably among other things to buy protection for their long stock portfolios. Since the sanguine days of the second half of last year where the VIX was trading below 15, we have been moving steadily higher throughout 2026 to readings above 30 in recent weeks. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-30-at-23017-PM.png "Screenshot 2026-03-30 at 23017 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") These readings raise the understandable question. Is the market poisoned? And are we never comin’ home back to new all-time highs? **Something else in the orange**. We see orange on the horizon when the sun is setting into dusk. But we also see orange in the mornings when we start to see the sun. And there are many things in the orange today that suggest brighter days are ahead despite the currently trembling market. Let’s take it from the top. Three conditions are primarily important to drive the stock market higher long-term – sustained economic growth, moderate inflation expectations, and rising corporate earnings. Where do we stand on each of these measures today? We begin with the latest projections on 2026 Q1 GDP as measured by the Atlanta Fed GDPNow estimate from the Federal Reserve Bank of Atlanta. Why do I like this measure? Because it is a reading based on the data, not the sentiment (or ulterior motives) that may drive many economists’ forecasts. It has also been uncannily accurate over time. Although it has cooled a bit, the latest reading for the current quarter is still a healthy +2.0%. And checking in with our friends at the New York Fed Staff Nowcast that are also at roughly +2.0% for 2026 Q1, they are currently projecting nearly +2.7% for next quarter from April to June. Put simply, the US economy appears to be continuing to grow at a healthy clip. This is key for future corporate earnings (the “E” in the P/E ratio to value stocks), and it’s worth noting that earnings are still projected to grow by double-digits through the rest of 2026 and into early 2027. And history has shown a very high correlation between corporate earnings growth and rising stock prices over time. What about inflation expectations, which according to this Chief Market Strategist ranks tied for first as the primary downside risk for capital markets going forward. Why is that again? Because sustainably higher inflation not only means narrower corporate profit margins and lower corporate profits, but also that the Federal Reserve would likely need to raise interest rates, which means liquidity is being withdrawn from the financial system (read: lower stock prices). So, where do we stand today in what the market is pricing in for expected average inflation over the next five years (not what the financial news media might suggest could happen with inflation because oil has suddenly popped toward $100 per barrel)? Not only have inflation expectations come nowhere near the levels that culminated with the Russian invasion of the Ukraine, they have barely budged in the wake of the Iran conflict and remain at relatively low levels. Case in point – on February 27 just before the attacks on Iran began, the 5-year breakeven inflation rate was a relatively tame 2.40%. At the peak of inflation worries on March 18 more than a week ago now, we hit 2.66%. This is a rise of just 26 basis points to a level that frankly I’ll take all day long for the next five years to support higher stock prices at 2.66%. And where are we as of Thursday’s close? At 2.56%, down 10 basis points from the peak and just 16 basis points from before we started. Put simply, the market does not see what is taking place in the Persian Gulf as inflationary. At all. Not even a little bit. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-30-at-23033-PM.png "Screenshot 2026-03-30 at 23033 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s keep going. What about the price of oil, which has potentially meaningful short-term economic implications. What can we take away here? Is that the worst associated with the potential economic impact is potentially behind us. The price of West Texas Intermediate Crude (shown in the chart below) peaked (smoothing out the March 9 intraday price spike) at $102.44 per barrel back on March 16. Brent Crude peaked three days later on March 19. Remember that the breakeven inflation rate peaked on March 18, more than a week ago. Since that time, oil prices have started to drift lower. At the same time, the daily metrics I’m following is less focused on the number of missile and drone launches from Iran and more focused on the number of oil tankers passing through the Strait of Hormuz. Not coincidentally, the low point was two tankers per day on average during the period from March 19-22. While the number of tankers per day has marginally increased since then, we are likely to see the rate of tankers passing through the Strait of Hormuz gradually increase in the coming days and weeks. If this comes to pass, oil prices will likely continue to come down. And if oil prices find further relief, stock prices are bound to like it. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-30-at-23042-PM.png "Screenshot 2026-03-30 at 23042 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s get back to the stock market itself. Yes, the market cap weighted S&P 500 has broken key support at its 200-day moving average and may potentially fall as low as its 400-day moving average. But lest we forget that the theme for 2026 and really going back to last Halloween has been the broadening of stock market performance. In other words, it was the many other sectors not named Information Technology in the S&P 500 that had been leading the market higher over the last five months now. And when we look at the S&P 500 on an equal weighted basis, we see that not only is the market actually holding support at its 200-day moving average, but all of the major trendlines (50-day, 200-day, 400-day moving averages) all continue to trend briskly higher even in the midst of recent market turbulence. Is this a “buy the dip” opportunity that I sniff lurking underneath the market surface? Only time will tell, but it sure has that aroma about it. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-30-at-23045-PM.png "Screenshot 2026-03-30 at 23045 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") One final something else in the orange that I will share as I write during the Friday intraday that I’m sure will have me eating crow for dinner tonight (what wine pairs well with crow? I’ve heard Sangiovese, but hopefully I need not find out). Coming out of yesterday’s brutal trading action, I would have reasonably thought that the markets were going to bleed hard to the downside throughout the trading day on Friday. This is because browbeaten investors that have endured volatility and downside for yet another week would rather not be long heading into a weekend where the news continues to flow but the markets are closed until Monday morning. But instead of bleeding lower, the S&P 500 opened solidly to the downside, but has been drifting marginally higher through the rest of the morning. If US stocks can hold their ground, or better yet start to catch a bid through the remainder of the trading day, this would color me even more optimistic that a bottom may be starting to form underneath this market after a turbulent many weeks. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-30-at-23101-PM.png "Screenshot 2026-03-30 at 23101 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") One final bonus point of reassurance – something in the yellow if you will. The price of gold has also been getting hammered along with stocks since the start of the Iran conflict. But after fifteen days of increasingly relentless downside in gold prices, we’ve seen gold catch a bid including a nearly +4% bounce today. Short covering? Perhaps. But gold being up nearly +4% on a Friday when the S&P may be finding its footing is constructive as we head into the holiday week next week. > “But I miss you in the mornings when I see the sun, Somethin’ in the orange tells me we’re not done” > > *– Something In The Orange, Zach Bryan, 2022* **Bottom line**. It has been a particularly difficult month of March for investors. And while there are downside risks that will potentially require increasingly close attention as we continue through 2026, the constructive positive in the meantime is that a number of signs suggest that the market impacts from the geopolitical conflict in Iran may be entering the late stages and that relief may soon be coming to financial markets as the sun starts to rise over the blooms of spring. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1085559. **Categories:** Insights --- ### [Crisis in the Middle East](https://clear-wealth.com/crisis-in-the-middle-east/) **Published:** March 18, 2026 **Author:** Clear Wealth Planning **Excerpt:** In this week’s GVA Market Insights, our Asset Management team deep dives into the crisis in the Middle East. **Content:** In this week’s GVA Market Insights, our Asset Management team deep dives into the crisis in the Middle East: - **Middle East Escalation & Oil Shock:** Operation Epic Fury and the Strait of Hormuz disruption have driven oil near $100+ and injected geopolitical risk, but markets have reacted relatively calmly so far. - **Macro Impact Remains Contained:** Inflation expectations and yields have ticked higher, equities modestly lower, and Fed rate cut expectations have been pushed back. - **Credit Market Stress is the Real Risk:** Widening CCC spreads, private credit redemption pressure, and loan markdowns signal potential cracks that could spill into broader financial markets if conditions worsen. ###### [![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Eric Parnell and Evan Coffey are solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by them are their own and are not those of LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. **LPL Compliance Tracking #: 1080611** **Categories:** Insights --- ### [Masters of War](https://clear-wealth.com/masters-of-war/) **Published:** March 13, 2026 **Author:** Clear Wealth Planning **Content:** > *“Come you masters of war,* *You that build the big guns,* *You that build the death planes,* *You that build all the bombs,* *You that hide behind walls,* *You that hide behind desks,* *I just want you to know,* *I can see through your masks”* > > *–Masters of War, Bob Dylan, 1963* Financial markets are transfixed by war. On Saturday, February 28, the United States and Israel launched an attack on Iran. In the eleven days and counting since, we have seen Iran knocked down but not out and counterattacks from the regime that have spread against targets across the Middle East. This has had a meaningful effect on oil markets, to which the global economy remains highly sensitive. While financial markets are likely to continue to react to this still unfolding geopolitical conflict, it is a different war that is simmering in the headlines in an entirely different way that is far more likely to drive the stock market in the months ahead. **Saturday night’s alright for fighting**. Investors should beware of getting complacent heading into the weekend. The start of the Israel-Hamas conflict? Saturday, 10/7/23. The US strikes on Venezuela? Saturday, 1/3/26. The US/Israel strikes on Iran? Saturday, 2/28/26. A US-led intervention in Cuba? Perhaps some future Saturday TBD. Nonetheless, financial markets have been open for trading for seven days since this latest geopolitical episode began, and the reaction so far has been notable. Let’s begin with the headline grabber, which has been the price of oil. With traffic through the Strait of Hormuz having effectively ground to a halt, the price of oil has predictably spiked. After bottoming just below $55 per barrel in mid-December and still hovering around $64 per barrel in late February, the spot price of West Texas Intermediate crude oil briefly surged toward $120 per barrel before settling just below $95 at the close on Monday. Brent crude oil had a similar trajectory, having risen from around $59 per barrel in mid-December and $70 per barrel in late February to over $105 per barrel before settling just below $99 yesterday. These are big spikes that could understandably spark stock investor and inflation watcher concern. But let’s put them in a broader context. For the interest of discussion, let’s keep it simple and focus on West Texas Intermediate crude oil, as both tell effectively the same story. Yes, WTI crude oil prices briefly blipped toward $120 per barrel on Monday, but it also shed $25 bucks before the day was out. And so far on Tuesday, it’s down another $10 bucks to below $85 per barrel. In short, this spike was so fast that literally if you blinked you probably missed it. For higher oil prices to become a stress on the global economy, they need to be sustained for a prolonged period. But this spike didn’t last longer than a hot minute. Let’s continue. Come back in time if you will and take a look at the price of oil on a nominal basis (this is an important point) over the past 20+ years since 2006. Assume for a sec that oil prices find their footing and resume their sharp rise to the upside and hold these higher prices for an extended period. It’s easy to forget that +$100 per barrel oil (on a nominal basis) was kind of a thing from 2008 to 2014, and the Fed couldn’t manufacture inflation at the time despite the fact that they wanted it really badly. Taking this one step further, it should be noted that on a real (inflation adjusted) basis, the price of oil from 2008 to 2014 was really more like in the range of $150 to $220 today, yet still no inflation to be found at the time. A ha! What about 2022 when oil prices spiked and held above $100 per barrel for a spell following the Russian invasion of the Ukraine? Indeed, but lest we forget two things. First, it was major oil producer Russia’s call to invade the Ukraine back in 2022, so we didn’t have direct control on the resolution of that ongoing conflict. Second and more importantly, the 2022 inflation spike was just as much if not more about the absurdly excessive fiscal and monetary bazooka that was unleashed on the global economy by all sides of the political aisle in response to the COVID crisis in 2020 that laid the groundwork for that inflation outbreak, and even then it was as fleeting as the Fed getting off the sidelines and FINALLY lowering interest rates off the zero bound. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-13-at-83513-AM.png "Screenshot 2026-03-13 at 83513 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") So, what about the ongoing conflict in Iran and the expected impact on oil prices going forward? Expect continued volatility absolutely. But here is the reality. The conflict with Iran may continue to drag on for a few more weeks or perhaps even months. But the ability of the Iranian regime to counterattack across the region is being depleted by the day. Consider the following chart showing estimated Iranian missile attacks by day since the conflict began the Saturday before last. From around 170 on February 28 to 4 yesterday. While ten days is an insufficiently large sample size, a simple trend analysis coupled with the -97% decline in missile attacks suggests that the worst is likely by far behind us in this regard. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-13-at-83522-AM.png "Screenshot 2026-03-13 at 83522 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") What about the drones? Pretty much the same story. Down an estimated -90% over the past ten days, but this is getting definitively weaker for Iran, not stronger. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-13-at-83533-AM.png "Screenshot 2026-03-13 at 83533 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Does this mean the Strait of Hormuz is reopening right away and oil prices are heading back below $70 per barrel tomorrow? Probably not. The threat of missile and drone attacks will linger for at least a week or two, and we also can’t rule out the threat posed by anti-ship cruise missiles, naval mines, coastal artillery, and/or proxy militia launches from places like Yemen and Iraq. Moreover, we must remember that shipping product through the Persian Gulf is a business, and insurance companies may have a say on whether these vessels can set sail right away or not. As a result, it may take a week or two at least before shipping activity starts to get back to normal through the region. With that being said, it is important to also note that financial markets are a forward-looking mechanism, so even if markets anticipate things are going to get back to normal in the foreseeable future, that may be enough to bring oil prices back down. Indeed, it may help explain while we are more than $35 per barrel lower on the price of oil today versus just 24 hours ago. We’ll finish this part of the discussion with one final important point that we can file under “price is truth”. Even if I was not convinced that the Iran conflict won’t eventually cause a major inflation outbreak, the market decisively disagrees. In the day before the attack on Iran was launched, the average expected inflation rate over the next five years was a subdued 2.40%. As of yesterday on day ten of the conflict, the average expected inflation rate over the next five years has “spiked” by a whopping 16 basis points to a still subdued 2.56%. Put simply, the financial market itself that simply does not care about anybody’s feelings whether right or wrong gave a collective yawn about whether the Iran situation is going to cause any meaningful and sustained inflation going forward. In a word according to the 5-year breakeven inflation rate, the answer is “no”. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-13-at-83542-AM.png "Screenshot 2026-03-13 at 83542 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Could this inflation outlook change? Absolutely – continue to watch the 5-year breakeven inflation rate that is available for free from the Federal Reserve Bank of St. Louis. But at least to this point, the outlook is reassuring. **AI Wars**. So where is the real war that is likely to have a more substantive and sustained impact on financial markets taking place? Across the information technology landscape including Magnificent Seven guest stars from communications services (Alphabet and Meta) and Consumer Discretionary (Amazon and Tesla). And the battleground upon which the war is being waged? Artificial intelligence. First, let’s draw back the lens and look at the broader, market cap weighted S&P 500 Index (which is made up of 33% information technology, 11% communications services, and 10% consumer discretionary (33+11+10 = 54, yikes)). First, it is actually notable how well the US stock market has held up amid all of the uncertainty caused by the Iran conflict. Overall, the S&P 500 is effectively flat since the market close on the Friday before the attacks on Iran began, having fallen by roughly -0.5%. What is more notable is the fact that the S&P 500 today is trading below its highs from late October 2025 more than four months ago. This suggests that stocks continue to work their way through what can best be described as uncertainty since late last year. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-13-at-83553-AM.png "Screenshot 2026-03-13 at 83553 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions")Screenshot 2026 03 13 at 83553 AMWhat resides at the heart of this uncertainty? The free cash flow management, capital expenditure, and debt raising decision making from many of the AI masters of war – Amazon, Alphabet, Meta, Microsoft, and Oracle. Together, these Mag 7 titans and friends make up more than 17% of the market cap of the entire U.S. stock market (we should note what titans are not included on this list for different and varying reasons – NVIDIA, Apple, Broadcom, Tesla – this is an important distinction for future discussion). Let’s get quickly to the bottom line. Together, these five companies spent more than $400 billion in 2025 on AI related capital expenditures. And in 2026, they are projected to spend as much as another $700 billion on further AI related capital expenditures. This spending is the equivalent of a top ten market cap company in the S&P 500 Index. It’s a lot. While these companies have been copious free cash flow generators in recent years, they only create so much. So while free cash flow growth is projected to take a hard turn to the negative for these five companies, at the same time they are tapping the debt markets like drunken sailors. They’ve already raised more than $120 billion in 2025 (after raising a mere $28 billion per year on average over the previous five years), and they are projected to tap the debt markets for more than $400 billion over the next three years to finance continued spending. For companies whose stock prices went soaring over the past decade behind the narrative of low debt and strong free cash flow growth, these AI wars drive a meaningful spike through the heart of this investment thesis. Such is likely why the markets continue to struggle to adjust to this new AI narrative, as winners and losers will be crowned before it’s all said and done. **Bottom line**. Financial news has been understandably focused on the spillover effects on markets from the Iran conflict. But upon closer inspection, we see that markets are actually holding up well amid the uncertainty. Instead, the war unfolding within the investment space that is having a more notable and lasting impact on asset prices is the battle that continues to unfold across the AI landscape. And this is a source of uncertainty and increased volatility that is likely to persist for the foreseeable future. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1077513. **Categories:** Insights --- ### [Seasons](https://clear-wealth.com/seasons/) **Published:** March 12, 2026 **Author:** Clear Wealth Planning **Content:** > “Summer nights and long warm days , Are stolen as the old moon falls, And my mirror shows another face, Another place to hide it all” > > –Seasons, Chris Cornell, 1992 The party is over. After a three-year rager in the technology sector fueled by a mosh pit of Artificial Intelligence (AI) euphoria, the long overdue hangover is now setting in. The AI party is now over, and the AI arms race is now underway. Here is the new fundamental reality. Over the last several years, having some semblance of an attachment to the rise in AI assigned to your company was a fast-track way to notch a 2x to 3x or more on your stock price. You might not even be generating revenue yet from your dream AI innovation – if your idea was good enough, the investor demand was there (how very “dot.com” of investors – will we ever learn?). Granted, revenue and earnings growth have been rolling in for many of the leading players, as this boom has been legit and real. But like every great party, eventually it must come to an end, and such is the juncture we have arrived at today. The boom in AI has entered a phase where structural under investment now means strategic irrelevance. It’s either kill or be killed, and this new arms race includes much of the Mag 7 and the biggest companies in the world. Gone are the summer nights and long warm days of copious free cash flow growth across the tech landscape. Stolen in its place is a record torrent of capital expenditures and asset growth funded by any available cash flows, off balance sheet funding initiatives and century bonds. Like any arms race, winners will be crowned and losers will be left to join former tech heavyweights like Eastman Kodak, Sperry, DEC, and Wang among others in the dustbin of stock market history. NVIDIA will be differentiated from Microsoft that will be differentiated from Amazon that will be differentiated from Meta that will be differentiated from Oracle and so on, and not all will be winners. > “And I’m lost, behind, The words I’ll never find, And I’m left behind, As seasons roll on by” > > –Seasons, Chris Cornell, 1992 **A new season underway**. So what does the new tech reality look like as we work through the winter of 2026? The old moon first started falling on the tech sector all the way back around Halloween, and the storm clouds are slowly continuing to accumulate. Consider the chart below showing the cumulative return of the S&P 500 versus the Information Technology sector since October 30, 2025. While the S&P 500 is essentially flat at up less than +1% over this time period, the tech sector is lower by nearly -8%. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23101-PM.png "Screenshot 2026-03-12 at 23101 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") At first glance, this almost sounds like perma-bearish hyperbole. The tech sector has been higher by +150% since October 2022, and this Chief Market Strategist is sounding the alarm bell after a down -8% in less than four months. Really? I initially look askance at myself in the mirror. But here’s the thing. I’ve been a steady defender of the prospects of the tech sector more specifically and the broader market in general during past downturns. Why? Because the underlying economic and corporate earnings fundamentals supported it. And when considering these fundamentals today, they remain highly supportive – the latest reading on GDP was soft but still positive, and corporate earnings are still forecasted to rise at a double-digit annualized rate. So why the consternation? Because the underlying reality is quickly changing, as free cash flows across the tech sector are evaporating before our eyes and leverage is accumulating at a breakneck pace. We’ve seen this story before, most recently during the dot.com era a quarter century ago, and rosy profit forecasts can quickly give way to actual earnings declines in a blink of an eye under such conditions. As a result, keeping a close watch on individual tech company fundamentals will be key in the coming months as we progress through 2026. > “Sleeping with a full moon blanket, Sand and feathers for my head, Dreams have never been the answer, And dreams have never made my bed” > > –Seasons, Chris Cornell, 1992 Let’s continue with a closer look at the technicals starting with the technology sector itself. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23112-PM.png "Screenshot 2026-03-12 at 23112 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") So much in the chart above is textbook for a sector that has been in a slow rolling over process for months. After peaking around Halloween, the tech sector has been slowly fading with a successive series of lower highs and lower lows. Fading relative strength (RSI) and momentum (MACD) over this same time period confirm this weakness. In the process, the sector has broken support at its medium-term 50-day moving average (blue line in chart above) that has now become resistance as it clings to long-term 200-day moving average support (red line in chart above). Now the bullish counterpoint to this bearish presentation is that the tech sector is currently in nothing more than a flag pattern as it consolidates previous gains in reloading for its next advance to the upside. This may very well be the case, and we should know the outcome soon as the now downward sloping 50-day moving average falls toward the still upward sloping 200-day moving average with tech stocks wedged in between. Break to the upside, and it’s back on like Donkey Kong. Break to the downside, and an official bear market in technology stocks (down -20% from previous highs) could soon come into view. An additional point of concern for tech shares. The NASDAQ 100 where all of the biggest name in technology hang out has been highly correlated with cryptocurrencies for more than a decade now. This is reflected in the chart below. Thus, it is notable that cryptocurrency prices have been struggling mightily since the middle of last year. Will the cryptocurrency implied price of the NASDAQ 100 eventually follow? Only time will tell, but it’s worth watching crypto prices in the coming weeks for any renewed life and subsequent reassurance that tech may be able to hold its ground instead of succumbing to the downside. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23117-PM.png "Screenshot 2026-03-12 at 23117 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") > “Well I want to fly above the storm, But you can’t grow feathers in the rain” > > –Seasons, Chris Cornell, 1992 The weakness in tech has important implications for the broader market as measured by the market cap weighted headline benchmark S&P 500 Index (that’s a lot of adjectives!). Why? Because amid all the tech euphoria, the sector and its adjacent names in communication services, consumer discretionary, and even financials have grown to make up more than 40% of the S&P 500. As a quick aside, a classic rule is that any time a sector grows to become more than 20% of the S&P 500, trouble for the sector is likely to follow. Thus, at more than 40%, we remain in rarified air. Let’s take a look at the charts. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23134-PM.png "Screenshot 2026-03-12 at 23134 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") The S&P 500 has clearly been looking gassed in the last five months. After peaking just before Halloween, the benchmark index has chopped back and forth in the time since. And it’s very possible that a “U” shaped top could continue to form. Perhaps “7000+ GO LIKE HELL” will give way to “7000+ MULTIYEAR PEAK”. Only time will tell. > “If I could be short on words, But long on things to say, Could you crawl into my world, And take me worlds away” > > –Seasons, Chris Cornell, 1992 **Bullish**. Enough of this bearishness! Let’s talk about the good stuff. This is arguably the most exciting start to a calendar year we’ve seen in years. Why amid this gathering technology cloud? Because just about everything else is working in spades. Consider the equal weighted S&P 500 (remember those adjectives from above), the mid-cap S&P 400, and the small cap S&P 600 indices, or effectively the rest of the U.S. stock marketplace that have been hanging out at home plugging away while the tech sector was raging. Surging higher all by nearly double digits since Halloween. This helps explain why more than 61% of stocks in the S&P 500 are outperforming the underlying index year-to-date. The long overdue broadening of market performance is underway. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23138-PM.png "Screenshot 2026-03-12 at 23138 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Developed international and emerging stocks? Doing even better up double-digits since Halloween. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23154-PM.png "Screenshot 2026-03-12 at 23154 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Commodities like gold, copper, and oil? En fuego. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-12-at-23203-PM.png "Screenshot 2026-03-12 at 23203 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Even boring old bonds are outperforming the S&P 500 and the tech sector since Halloween. In short, there is a lot to get excited about in the stock market today. It’s just tough to see it because the big tech sector cloud is hanging so heavy on the S&P 500 right now. Such are the merits of broad portfolio diversification, as it enables investors to enjoy the summer nights and long warm days that are continuing through the winter of 2026. > “As the seasons roll on by, yeah” > > –Seasons, Chris Cornell, 1992 **Bottom line**. The tech sector that has dominated the minds and hearts of so many investors for so long may be entering a new season where winners will be separated from losers. But even if increasing volatility and downside comes to this market leading space, the opportunity will remain to continue to pursue the winners in the AI revolution while also benefiting from broad portfolio diversification as capital flows like Cuervo through the rest of the financial marketplace. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1072192. **Categories:** Insights --- ### [Epic Fury](https://clear-wealth.com/epic-fury/) **Published:** March 4, 2026 **Author:** Clear Wealth Planning **Excerpt:** Over the weekend, the United States and Israel launched Operation Epic Fury, which involved hundreds of U.S. and Israeli aircraft performing strikes on key military and nuclear sites. **Content:** Over the weekend, the United States and Israel launched Operation Epic Fury, which involved hundreds of U.S. and Israeli aircraft performing strikes on key military and nuclear sites. The military campaign was launched after negotiations between Washington and Tehran stalled over Iran’s nuclear program. On Saturday, the compound of Supreme Leader Ali Khamenei was targeted, and he was reportedly killed in the attacks. President Trump described the situation as a “major combat operation” in Iran, aimed at “eliminating threats from the Iranian regime.” He warned that “this regime will soon learn that no one should challenge the strength and might of the United States Armed Forces.” The widening conflict has inflicted a toll on civilians, including more than 100 children reportedly killed in a strike on a girls’ school in southern Iran. The escalation has also thrown regional infrastructure into chaos, with closed airspace, suspended flights, and an attack on Dubai International Airport. More than 3,400 flights were cancelled Sunday across seven airports in the Middle East as Iranian drones struck some of the region’s most recognizable landmarks. Debris from intercepted drones hit one of the Etihad Towers in Abu Dhabi and the “seven-star” Burj Al Arab hotel in Dubai, where the lower portion of the building reportedly caught fire. Nearby, four people were seriously injured when a kamikaze drone struck the Palm Jumeirah Fairmont Hotel, another tourist hotspot popular with Western visitors. ![](https://clear-wealth.com/wp-content/uploads/explosions.png "explosions | Great Valley Advisor Group - Clear Wealth Planning Solutions") As of Monday, Israel and the United States had struck more than 2,000 targets across Iran, including senior military and political officials along with Islamic Revolutionary Guard Corps leaders, aerial defense systems, ballistic missiles and launchers, intelligence targets, and command centers. On the other side, five countries – Jordan, Kuwait, Bahrain, Qatar, and the UAE – said they had intercepted and shot down about 1,400 Iranian missiles and drones. When the US and Israel first attacked Iran on Saturday, European leaders were diplomatically neutral at best and Middle Eastern leaders condemned the attacks. But once Iran started firing missiles indiscriminately against various countries, both Europe and the Middle East turned decisively against Iran and vocally supported further action. This is a notable shift that bodes ill for Iran both in the weight of further attacks but also the resolve of the U.S. and Israel to see the mission through thoroughly. In a joint statement Sunday evening, the three leaders stated they were appalled by what they described as “indiscriminate and disproportionate missile attacks” from Iran and vowed to “take steps to defend our interest and those of our allies in the region.” Late Sunday, Israel announced that it had struck Hezbollah targets in Lebanon after the Iranian-backed group launched a projectile into Israel, the first time it had done so since 2024. Hezbollah said it launched rockets and drones at Israeli territory in retaliation for the killing of Iran’s Supreme Leader. **Timeline of Events Leading to Operation Epic Fury** Saturday’s strikes were not sudden. They were the culmination of eight months of failed diplomacy, mounting sanctions pressure, domestic unrest inside Iran, and an unprecedented U.S. military buildup across the region. The path to conflict was gradual, visible, and ultimately combustible. - **June 13th, 2025** – Israel launches major air strikes against Iranian nuclear and military facilities, amid talks between the U.S. and Tehran. Iran responds within hours with a large-scale missile and drone attack on Israeli cities. - **June 22nd, 2025** – A week after the initial Israeli air strikes, the United States strikes Iranian nuclear facilities at Natanz, Fordow, and Isfahan, with President Trump stating that the attacks severely crippled Tehran’s nuclear program. In retaliation to the targeting of the nuclear sites, Iran fired missiles towards the Al Udeid airbase in Qatar, housing U.S. soldiers. The missiles were intercepted by U.S. air defenses. - **June 24th, 2025** – The U.S. brokers a ceasefire between Iran and Israel, ending all hostilities. - **August 22nd, 2025** – Iran agrees to resume nuclear talks with the United Kingdom, France, and Germany, despite the threat of revived sanctions. - **August 28th, 2025** – The three European countries trigger a mechanism reinstating the United Nations’ sanctions on the Islamic republic for the first time in a decade. - **November 7th, 2025** – President Trump tells the press that Iran has requested that Washington remove its crippling sanctions on Tehran. - **December 28th, 2025** – Protests break out in major cities across Iran, including Tehran, as soaring prices follow the rial’s sharp decline against the U.S. dollar. The currency’s collapse fuels severe inflation, with food prices rising 72% year over year. What begins as economic unrest quickly transforms into a broader movement demanding an end to the Islamic government, becoming the largest uprising since the 1979 Islamic revolution. During the demonstrations, Ayatollah Ali Khamenei and senior officials reportedly order security forces to use live ammunition against protestors, according to Iran International, leaving thousands dead. Human rights activists in Iran confirmed at least 7,000 deaths with other agencies reporting more than 30,000. In the aftermath, authorities impose a nationwide internet shutdown lasting two weeks in an apparent effort to restrict information and suppress coverage of the crackdown. - **January 13th, 2026** – President Trump tells Iranians to “keep protesting,” claiming that “help is on the way.” At this point the US begins to bolster its military presence in Iran. Over the course of the next 6 weeks, the United States goes on to build up its largest military presence in the Middle East since the 2003 invasion of Iraq. This includes two aircraft carrier strike groups. ![](https://clear-wealth.com/wp-content/uploads/assets.png "assets | Great Valley Advisor Group - Clear Wealth Planning Solutions") - **February 6th – February 26th, 2026** – Iran and the U.S. have indirect nuclear negotiations in Geneva, mediated by Oman, with the goal of reaching a deal to curb Tehran’s nuclear program. - **February 27th, 2026** – Oman’s foreign minister says Iran agreed to degrade its current stockpiles of nuclear material to “the lowest level possible” – effectively to unrefined levels. President Trump says he prefers diplomacy but warns that “all options” remain available if diplomacy fails. - **February 28th, 2026** – Israel launches coordinated strikes on Iranian targets. The United States follows. Iran responds with a wave of counterattacks across 12 countries in the Middle East, making the most significant regional escalation in decades. **Financial Market Reactions** **Oil** The most visceral reaction to the weekend’s events took place in the commodities market, specifically oil. On Sunday oil prices surged with U.S. crude futures rising as much as 11%, trading as high as $75 a barrel, Brent futures, the global price gauge, jumped 8%, to roughly $79 a barrel. The back and forth strikes over recent days have thrown one of the world’s key shipping routes for energy into the crossfire. Iranian officials and media have shared conflicting statements about the status of Strait of Hormuz, but as of noon today the shipping route remains open. The key oil shipping lane, which accounts for 20% of the world’s daily oil volume, is vital to keep open in order for oil prices to remain in check. As of Sunday night, three ships were attacked near the Strait of Hormuz, with Iran continuing to launch strikes across the Middle East in response to the U.S. and Israel. Two vessels have been struck, and an unknown projectile was reported to have exploded near a third according to the UK Maritime Trade Operations Center. ![](https://clear-wealth.com/wp-content/uploads/crude.png "crude | Great Valley Advisor Group - Clear Wealth Planning Solutions") At market open on Monday ICE Brent Crude continued to hover around $79 a barrel and was up 8%. ![](https://clear-wealth.com/wp-content/uploads/equities.png "equities | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Equities** As for equities, index futures were down more than 1% on Sunday night but pared losses at the open on Monday. ![](https://clear-wealth.com/wp-content/uploads/futures.png "futures | Great Valley Advisor Group - Clear Wealth Planning Solutions") The S&P 500, Dow Jones Industrial Average, and Nasdaq were down as much as 50 bps after the open, but at the time of writing the S&P and Dow were flat to moderately positive with the tech heavy Nasdaq up around 50 bps. As expected, major moves were concentrated in sectors like energy and industrials. Exxon Mobile, Occidental Petroleum, and Chevron were each up approximately 1.50% at the open, but mixed news about the status of the Strait of Hormuz left investors searching for answers, leading to choppy trading. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-03-04-at-51043-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") Defense stocks including RTX, Northrop Grumman, Lockheed Martin, and BAE Systems all bounced off the weekend news and ensuing comments from the President stating that the operation could last for “four to five weeks”. Citi analyst Charles Armitage stated, “The U.S./Israeli strikes on Iran and Iran’s subsequent retaliation are likely to increase investor focus on missile-defense systems, as well as a likely increase in U.S. spending.” ![](https://clear-wealth.com/wp-content/uploads/defense.png "defense | Great Valley Advisor Group - Clear Wealth Planning Solutions") A less expected reaction in equities took place in the airlines sector. Airline stocks fell sharply during early trading as the conflict forced governments to shut down airports and cancel flights. On top of the logistical nightmare, higher oil prices will drive up the price of jet fuel, hurting profits. The conflict is also likely to force travelers to cancel or put off trips, particularly on international flights. Shares of American Airlines, United Airlines, and Delta all fell sharply with UAL and AAL each down more than 3.50%. ![](https://clear-wealth.com/wp-content/uploads/airline.png "airline | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Safe-Haven Assets** Another expected market reaction was a flight to save haven assets such as gold and the U.S. Dollar. Gold rallied early, but pared gains, up about 1% at $5,300 an ounce at the time of writing. Prior to market open futures had spike to more than $5,400 an ounce. ![](https://clear-wealth.com/wp-content/uploads/gold.png "gold | Great Valley Advisor Group - Clear Wealth Planning Solutions") The U.S. dollar also rallied more than 1% on the day with the DXY hitting 98.60 intraday. The jump in value is once again attributed to the spike in energy prices and increased safe-haven demand. Geopolitical shocks often rattle markets in the short term—stocks fall, safe-haven assets rise, and commodities spike—but history shows these reactions are usually temporary. Once uncertainty fades, markets tend to normalize, with stocks often ending higher than before the event. Past crises, such as 9/11, illustrate how quickly markets can rebound, suggesting this latest conflict is unlikely to derail long-term trends.In moments like this, discipline matters more than emotion. Investors should resist the urge to reposition portfolios based on fast moving headlines and instead stay anchored to their long-term strategy. Geopolitical shocks can create volatility, but they rarely justify abandoning a well-constructed plan. As we look ahead, the broader risk is not limited to Iran alone. Economic fragility paired with political strain can become combustible in other regions. Whether that risk materializes will depend heavily on how the current conflict progresses and whether tensions intensify or begin to stabilize. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #1072950.* **Categories:** Insights --- ### [Market Insights – Tariffs](https://clear-wealth.com/market-insights-tariffs/) **Published:** February 26, 2026 **Author:** Clear Wealth Planning **Excerpt:** The Supreme Court ruled that President Trump cannot unilaterally impose broad tariffs under IEEPA. Trump delivered the State of the Union, and the AI boom is not fading; it's just rotating. **Content:** Here are the highlights from the latest Market Insights video with Evan Coffey and Eric Parnell: - **Supreme Court Ruling on Tariffs:** The Supreme Court ruled that President Trump cannot unilaterally impose broad tariffs under IEEPA, creating uncertainty around effective tariff rates, potential refunds, and future enforcement. - **State of the Union & Economic Backdrop:** President Trump’s address emphasized patriotism and tariff resolve, while economic data shows moderating growth, slightly higher unemployment, and sticky inflation. - **AI Trade Rotation, Not Collapse:** Despite headlines warning that the AI boom is fading, market performance suggests rotation rather than systemic weakness, with equal-weight indices, small caps, and cyclical sectors outperforming even as large-cap technology faces valuation pressure. ###### [![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Eric Parnell and Evan Coffey are solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by them are their own and are not those of LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. **LPL Compliance Tracking #: 1070584** **Categories:** Insights --- ### [All The World's A Stage](https://clear-wealth.com/all-the-worlds-a-stage/) **Published:** February 19, 2026 **Author:** Clear Wealth Planning **Excerpt:** The game has changed once again.  At one time, many decades ago, we operated in a Cold War world defined by spheres of influence.  **Content:** > *“All the world’s a stage,* *And all the men and women merely players;* *They have their exits and their entrances;* *And one man in his time plays many parts,* *His acts being seven ages”* **– As You Like It, William Shakespeare, 1623** The game has changed once again. At one time, many decades ago, we operated in a Cold War world defined by spheres of influence. One sphere was led by the United States and “The Western World”. The other was led by the Soviet Union and “The Eastern Bloc”. But with the fall of the Soviet Union in 1991, spheres of influence gave way to globalization defined by increasing economic and social interdependence and integration around the world. But starting last decade, the pendulum started swinging back. And with Russia’s invasion of the Ukraine in 2022, the world is increasingly shifting back toward nationalism and a return to spheres of influence. This change has important investment implications that capital markets are only beginning to grapple with. As a result, it is worthwhile today to evaluate the evolving geopolitical landscape as we move through the remainder of the 2020s and into the 2030s in how this latest change may influence our investment decision making. **THE LEADS**. The global landscape is now defined by three spheres of influence. Two represent the major superpowers, while the third is playing the role of disruptor. **United States** This is your main protagonist and the central character driving the global story going forward. Say what you will about the current state of relations with its global allies and adversaries, the US economy and its financial markets remain a force to be reckoned with whether the rest of the global cast likes it or not. At $28.8 trillion, it is by far the largest economy in the world, making up more than 26% of global GDP. It is also the third largest country in the world by population with 341 million people, or just over 4% of the world. And from a financial market perspective, it is an absolute beast. Not only is the US the keeper of the global reserve currency in the US dollar, but it makes up nearly two-thirds of the stock market capitalization of the entire world at 64%. If you live in the US, investing in international markets may be an afterthought. If you live outside of the US, an allocation to US markets is essential for most stock investors. **China** This is your second main character and arguably the primary antagonist in the story depending on where you live in the world. Although it recently ceded the mantle of the most populated country in the world, it still boasts about 1.4 billion people, or 17% of the entire world. Its economy also ranks as second largest at $18.5 trillion, or 17% of global GDP. Its financial markets are a mere fraction of the size of the US, however, making up just over 3% of world market capitalization. **Russia** This is not your father’s Soviet Union. Russia is no longer the counterbalancing superpower rivaling the US. They are a non-factor in global financial markets having squandered their rising star “BRICS” status from the globalization era. Russia ranks eleventh worldwide in economic output with a GDP of $2.1 trillion, and they are the ninth most populated country at 146 million people. Nonetheless, Russia’s geographic size and legacy commands their own sphere of influence as a regional and disruptive power in the global order. **THE SWING POWERS**. Before we more broadly define these three spheres of influence, it is important to highlight a few additional key players in the global cast. **India** Leading among these is the new global population leader, with 1.42 billion people and counting. It now also ranks as the fifth largest economy in the world at $4.1 trillion. India’s determination is to maintain strategic autonomy within these three spheres of influence, which includes cooperating widely and playing these powers off against each other. Once more closely tied to Russia, India’s allegiance has increasingly shifted toward the US, but this is a relationship defined more out of necessity and shared concerns about China. In short, India looks to the US sphere for security, looks to the China sphere for economic growth, and maintains its legacy ties to Russia. And its big and economically important enough to pull off this balancing act across the three new spheres. **Western Europe** While undoubtedly aligned with the US sphere, the continued influence of what was once the center of the world in spheres of influence days gone by cannot be overlooked. For when you aggregate the economies of Germany, UK, France, the Netherlands along the various other countries in this part of the world, most of which share the euro currency, you have total GDP of $24 trillion that makes up roughly 22% of total global economic output. Combined population is also comparable to that of the US at roughly 310 million, and many of these economies have financial markets that are just as established and healthy, albeit smaller, than the United States. They may not control their own sphere of influence in the new world order, but they cannot be disregarded for their collective influence either. **THE SUPPORTING CAST**. Before fully defining the three spheres, it is also important to give recognition to other notable characters in the new global landscape. **Turkey** Another swing player like India. Turkey is geographically significant not only because it resides effectively at the cross section of all three spheres, but it also controls access to the Black Sea. Moreover, the country ranks in the top 20 worldwide in terms of GDP and population. Turkey is also highly transactional and is likely to remain another swing state between the three spheres for the foreseeable future. **Iran** A major global energy producer, Iran is aligned with both Russia and China. The country’s rulers are increasingly fighting for their survival, however, which could lead to shifts in its allegiance over time. **Saudi Arabia** Long aligned with the United States as one of the largest energy producers in the world, Saudi Arabia has been increasingly charting its own independent course in working to hedge its relationships between the US and China. **Israel** A military and tactical powerhouse in traditionally the most politically unstable part of the world, Israel remains aligned with the US but will likely assert its own unique influence on events as they unfold across the Middle East and Gulf States. **The Population and Resource Giants: Indonesia, Nigeria, and Brazil** These three countries rank fourth, sixth, and seventh, respectively, in global population with more than 725 million people combined, or 9% of the world. In terms of economic output, Brazil ranks in the top 10 worldwide at $2.3 trillion, Indonesia in the top 20 at $1.5 trillion, and Nigeria in the top 35 at $500 billion. And what makes all three particularly notable is their massive presence in the commodities space, whether it be agriculture, industrial metals, and/or energy. All are swing states, and have the potential to become heavyweights on the global stage in their own right, but only if they can overcome the issues with execution and governance that have held them back from realizing their potential for so long. **THE STAGE**. Now that we have introduced the primary cast, let’s bring out the rest of the ensemble players too and fully define the stage. The following are the three spheres of influence as of today. **United States Sphere** Defined by financial integration, military alliances, and trade agreements, this sphere includes the following: **Core:** - United States and Canada - Western and Northern Europe (NATO) - Japan, South Korea, Australia, and New Zealand - Central and Latin America - Israel **Secondary – Potential Swing Players:** - Middle East and Gulf States - Parts of Latin America (Venezuela, Brazil) - Southeast Asia (Philippines, Singapore, Vietnam) - Taiwan (potentially contested with China) - India **China Sphere** Defined by trade dependency, infrastructure power, manufacturing, and finance **Core:** Mainland China, Hong Kong, Macau **Expanding influence:** - Southeast Asia including Indonesia - Central Asia - Africa - Middle East - Central and Latin America **Russia Sphere** Defined by energy, military pressure, and political disruption including in former Soviet Union regions **Core:** Russia, Belarus **Challenging:** - Ukraine - Central Asia - Eastern Europe > *“Sweet are the uses of adversity,* *Which, like the toad, ugly and venomous,* *Wears yet a precious jewel in his head;* *And this our life, exempt from public haunt,* *Find tongues in trees, books, in the running brooks,* *Sermons in stones, and good in everything”* **– As You Like It, William Shakespeare, 1623** **THE SCRIPT**. We’ve defined the three spheres of influence along with the various key swing players and supporting cast. This provides us with a useful framework for future discussions on the economic and financial market opportunity set in a world increasingly moving through deglobalization toward this new reality. So, what then are the expected financial market impacts associated with these evolving spheres of influence on the global environment that has the potential to persist through the remainder of the first half of the 21st century if not longer? The following are the key expectations: - Slower economic growth - Increase supply chain disruptions - Higher commodities prices - Higher inflation - Reduced corporate profitability - Narrowing corporate profit margins - Higher borrowing costs - Increased financial market volatility - Energy sector over technology sector One may read through the above list with alarm about the associated financial market impacts. Perhaps, but one could also look at the above list and see tremendous opportunity. For while some segments of financial markets may indeed struggle with the geopolitical environment not being so overwhelmingly coordinated and accommodating, many other market segments are built to thrive under these same conditions. If anything, the shift in the world order toward spheres of influence could also usher in another renaissance period in active management last seen from the late 1960s to early 1980s. In short, it’s not necessarily a bad thing if investors actually have to work at it in generating outsized returns for a change, for it is times like these where some of the greatest value can be added. As we first introduced with my previous article Tuesday’s Gone from January 27 and continuing through this article, we will continue to maintain a long-term eye on events as they unfold across the global geopolitical landscape and their potential implications on financial markets. Stay tuned. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #1067455.* **Categories:** Insights --- ### [Mr. Brightside](https://clear-wealth.com/mr-brightside/) **Published:** February 13, 2026 **Author:** Clear Wealth Planning **Excerpt:** I’m a financial asset Mr. Brightside, as I see a market that is arguably off to its healthiest start in years. **Content:** > *“Open up my eager eyes* > > *‘Cause I’m Mr. Brightside”* > > *–Mr. Brightside, The Killers, 2003* I keep hearing all of this talk about stock market turbulence and unrest to start the New Year. And while fear and jitters certainly make for more interesting financial news flow, I’m sorry folks, I’m just not seeing it that way. I’m a financial asset Mr. Brightside, as I see a market that is arguably off to its healthiest start in years. **Coming out of my cage**. Has the headline benchmark S&P 500 had a rousing start to 2026? Not really. It is only higher by +1.5% year to date and was lower for the year as recently as last week. But it’s hardly a disaster either. I mean, if currently clocking at a +12% annualized rate including touching fresh new all time highs through the first six weeks of the year is considered a tough market, I’ll take that kind of turbulence all day long. Sign me up. ![](https://clear-wealth.com/wp-content/uploads/1-2.png "IMG_9349 | Great Valley Advisor Group - Clear Wealth Planning Solutions") So where is all of the volatility coming from? Why the tech sector and friends of course, as the information technology, communications services (Alphabet (Google) and Meta (Facebook), and consumer discretionary (Amazon and Tesla) sectors are lower for the year so far by, wait for it, -1.85%, -0.32%, and -3.39%, respectively. \*\*\*gasp!\*\*\* pearl clutch. Where is the Fed with emergency half point rate cuts? How will investors in these sectors survive after posting gains of +153%, +156%, and +77%, respectively, in the three plus years prior since the October 2022 lows? Perhaps here the GoFundMe call to action should be made to help those investors suddenly in need. Gimme a break. ![](https://clear-wealth.com/wp-content/uploads/2-2.png "IMG_9351 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Here’s the thing; this is already the worst part of the supposedly harrowing market story for the year to date so far, and it’s barely negative if at all. And the story only gets decidedly better from here. **I’ve been doing just fine**. Remember how financial pundits were wringing their hands for years about the perils of the extreme concentration of stock market returns where a select handful of tech and tech adjacent stocks were responsible for driving the market higher while the rest were left languishing on the sidelines? Well, the tide has definitively turned on this story so far in 2026. And for those that might proclaim that what is about to follow is nothing more than a fleeting shift at the start of the year that will just as quickly flip back, the reality is that these trends have been true dating back to before Halloween of last year. Let’s start by rolling down the size spectrum within the U.S. stock market. Consider U.S. mid-caps and small caps that are higher by +8.37% and +9.60%, respectively. Even the headline benchmark S&P 500 itself is having a strong start to the year when considering the index on an equal weighted instead of market cap basis with a +6.15% this year so far. ![](https://clear-wealth.com/wp-content/uploads/3-2.png "IMG_9352 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s keep going by breaking the market out across the remaining eight sectors that are not directly tech related (although I would contend that many companies in these sectors will ultimately be the primary beneficiaries of AI, but this is a rant for another article on another day). In a word, fabulous. Outside of utilities, all of the other remaining eight stock market sectors are higher for 2026. This includes Energy (+23%), Materials (+17%), Industrials (+13%), and Consumer Staples (+14%), all of which are up by double-digits in the first six weeks of the year. ![](https://clear-wealth.com/wp-content/uploads/4-1.png "IMG_9356 | Great Valley Advisor Group - Clear Wealth Planning Solutions") One more. Remember the resurgent performance of developed international and emerging market stocks last year, both of which posting gains north of +30%? Well, both non-U.S. markets are continuing the trend into 2026, which developed international higher by +9% and emerging stocks by +13%. What about that market concentration point made above? After all, only 29% of stocks in the S&P 500 outperformed the index during the period from 2023 to 2025, which is significantly below the long-term historical average of 49% (go figure, roughly one half of stocks in the S&P 500 outperform the index in a typical year on average – sounds about right). Where exactly are we so far in 2026? We’re seeing a massive broadening with more than 62% of stocks within the index now outperforming the S&P 500, which is healthy for continued broader market performance as we continue through the year ahead. **Open up my eager eyes**. Amid all of the consternation about the supposed currently challenged stock market state, I would contend that this is arguably the best start to a calendar year for financial markets in quite some time. Not only are the gains broad, but they are fundamentally healthy and supported by attractive valuations in many cases. Will there be inevitable pockets of sustained downside turbulence as we continue through 2026? Almost certainly absolutely, but such short-term bouts of volatility and downside are part of a normal functioning market – it goes with the territory. But the good news is that financial markets are offering an attractive bright side that may be getting overlooked amid the noise. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #1064499.* **Categories:** Insights --- ### [Olympic Metals](https://clear-wealth.com/olympic-metals/) **Published:** February 4, 2026 **Author:** Clear Wealth Planning **Content:** The Winter Olympics open this week in Milan, a global showcase of discipline, precision, and marginal gains measured in hundredths of a second. Yet one thing remains constant. Every event ends with athletes on a podium, medals draped in gold, silver, and bronze. The symbolism is universal. Gold represents supremacy. Silver rewards excellence just short of the peak. Bronze honors resilience and staying power, recognizing those who withstand the grind, absorb setbacks, and still finish standing. Markets, it turns out, are staging their own version of the Olympic podium. **The Precious Metal Podium** The rally in precious metals has been anything but quiet. Gold, silver, and copper have surged to record levels and investor attention has swung decisively toward hard assets. Financial television, market commentary, and portfolio strategy discussions have all been dominated by the same question: What is driving the demand for precious metals? ![](https://clear-wealth.com/wp-content/uploads/om1.png "om1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Even with the broader uptrend still well intact, it is worth addressing the sharp reversal visible in recent price action. Metals suffered a violent sell off last Friday as optimism around rate cuts was reassessed following President Trump’s nomination of former Fed Governor Kevin Warsh as the next Fed Chair. Spot silver fell roughly 28% to $83.45 an ounce, its worst single day decline since March of 1980. Spot gold shed approximately 9%. While the Warsh nomination acted as the trigger, the broader driver was profit taking. After a meteoric twelve months, investors were quick to lock in gains at the first sign of pressure. While the pullback grabbed headlines, it did little to change the underlying dynamics driving interest in precious metals. For gold, the case is straightforward. Investors are confronting rising fiscal deficits, escalating geopolitical risk, and a growing unease about the long-term credibility and independence of monetary policy and the Federal Reserve. Garnishing this consternation cocktail, the U.S. dollar has dropped more than 10% over the past year. Central banks have been steady buyers of gold, reinforcing the perception that precious metals are once again being treated as a form of insurance rather than a speculative trade. Like Olympic gold, the metal at the top of the podium commands the most attention when uncertainty rises. ![](https://clear-wealth.com/wp-content/uploads/om2.jpg "om2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Silver’s resurgence fits neatly into that narrative as well. Historically more volatile and more economically sensitive, silver tends to amplify gold’s moves when investors become anxious. It shines brightest when markets are searching for protection but still willing to take risks. In that sense, silver has earned its place alongside gold in the current metals conversation. But the Olympic podium is not complete without bronze. Fun fact, bronze is primarily an alloy of copper and tin, with copper typically making up around 88%-95% of traditional bronze. And in markets, copper fills a similar role to bronze. It rarely gets the headlines, but it often carries the greatest weight. Gold reflects fear. Silver magnifies it. Copper reflects reality. **Copper Price Action** Over the course of 2025, prices of copper rose from approximately $8000 per ton to the mid $12,000s. The metal got a significant boost over the summer after President Donald Trump announced a 50% tariff on copper and copper-intensive goods, a move aimed at reducing reliance on foreign suppliers and strengthening the domestic supply chain. Later that month, the administration clarified that the final tariff would apply only to semi-finished copper products and copper-intensive derivatives, not raw or refined copper. This caused prices to drop briefly, but supply disruptions, most notably major mudflows at Freeport McMoRan’s Grasberg mine, one of the largest supply sites in the world for copper, sent prices back on a steady upward trend. The metal finished the year up more than 40%, its biggest annual jump since 2009. Priced per pound, copper is currently trading near $5.92 with prices topping $6.50 just last week. Overall, the outstanding performance represents a structural reassessment of one of the most frequently utilized metals globally. ![](https://clear-wealth.com/wp-content/uploads/om3.png "om3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **The Metal Behind the Machines** Copper’s relevance today has far less to do with sentiment and far more to do with physics. Unlike gold and silver, copper does not necessarily benefit from uncertainty. It benefits from construction, electrification, and scale. And few forces are more copper intensive than the ongoing buildout of artificial intelligence. AI is often framed as a digital or software driven revolution, but its real footprint is physical. From powering electric vehicle engines, battery systems, charging infrastructure, renewable energy installations, and data centers, new-age physical technologies necessitate significantly more copper than traditional infrastructures. Large language models and advanced computing systems require enormous amounts of power, far exceeding that of traditional data centers, with modern AI facilities often consuming several times the electricity per square foot of conventional data centers. In the United States alone, data center power demand is projected to roughly double over the remainder of the decade, forcing utilities to rethink grid capacity and transmission investment. That power must be generated, transmitted across long distances, stepped down through substations, distributed locally, and dissipated through complex cooling systems. Copper is essential at every step of the process. From high voltage transmission lines and transformers to server racks, power distribution units, and cooling equipment, AI is ultimately an electricity story, and electricity is a copper story. **Supply & Demand Factors** What makes this shift particularly important is that it is not cyclical. Previous copper bull cases were often tied to housing booms, emerging market industrialization, or Chinese infrastructure cycles. The AI driven demand is different. It’s structural, global, and largely non-discretionary. Hyperscale data centers are being planned and built regardless of economic conditions, and utilities are forced to accelerate spending simply to keep up. In many regions, the limiting factor for new AI capacity is no longer capital or land, but access to reliable power. That constraint pushes demand upstream into the power grid itself, where copper intensity is highest. As a result, copper demand is rising on a timeline measured in years. According to S&P Global, copper demand is now expected to surge from 28 million tons in 2025 to 42 million tons by 2035. With the supply constraints highlighted below, the market will likely run up against a 10-million-ton shortfall. Markets are accustomed to thinking about copper in cycles. The AI buildout challenges that framework entirely. ![](https://clear-wealth.com/wp-content/uploads/om4.png "om4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The problem, of course, is that supply cannot respond nearly as quickly as demand is accelerating. New copper projects are notoriously slow to come online. From permitting through construction, a typical copper mine takes at least 10 years and declining ore grades means that even when projects are completed, output growth is muted. Unlike gold or silver, which can be hoarded or moved with relative ease, copper is a physical bottleneck. You cannot conjure more of it overnight. At the same time, the regions capable of producing incremental copper are limited. Chile, Indonesia, and Peru remain the dominant global sources, but have encountered disruptions. From technical challenges and environmental issues, to political risk and labor disputes, all constrain production. Leading producers such as Freeport McMoRan and Codelco are grappling with aging infrastructure. Even if prices rise, supply elasticity is low. The combination of accelerating demand from AI, electrification, and grid expansion with inflexible supply creates a rare setup in modern commodity markets. The result is a market that is structurally underestimating the gap. Traders may treat copper like any other cyclical metal, reacting to macro headlines, inventory reports, or Chinese construction data. But the real story is different. AI, data center electrification, and grid modernization are not optional projects that can be postponed. They are essential and incredibly capital intensive. Copper is not merely a tradable asset. It is one of the key physical foundations of an economy that is fueled off the AI buildout. Markets may be fixated on gold and silver, dazzled by their shine and symbolism. But while those metals reflect fear and sentiment, copper tells the story of what must be built. AI, electrification, and grid expansion are essential, power-hungry, and copper intensive. The metal may not dominate headlines, but it dominates reality. Gold protects against what might go wrong. Copper powers what must go right. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #1059454.* **Categories:** Insights --- ### [Tuesday’s Gone](https://clear-wealth.com/tuesdays-gone/) **Published:** January 27, 2026 **Author:** Clear Wealth Planning **Content:** ![](https://clear-wealth.com/wp-content/uploads/AdobeStock_1322387059_Editorial_Use_Only-scaled.jpeg "| Great Valley Advisor Group - Clear Wealth Planning Solutions") > *“Tuesday’s gone with the wind”* *–Tuesday’s Gone, Lynyrd Skynyrd, 1973* It has certainly been a rousing start to the New Year. No sooner did the ball drop on Times Square and the President of Venezuela was making an unexpected visit to the United States, Iranian protesters were flooding into the streets, and sabers were rattling between the United States and NATO (!?!) over control of Greenland. Living in interesting times indeed! Now much fuss has been made in the financial media since the calendar has flipped to 2026 about the tumultuous effects this news flow has had on financial markets. But has it really? **Frankly, my dear, I don’t give a damn**. Let’s consider the headline S&P 500 Index, the market cap weighted benchmark that is now roughly 50% allocated to the technology sector if you throw in a few of the leading former tech and tech adjacent names such as Alphabet (Google), Meta Platforms (Facebook), Amazon, Tesla, Visa, and MasterCard. Does the psychologically important but otherwise meaningless 7000 mark remain frustratingly elusive? Sure. But the headline index is still trading marginally higher for the year to date, which can hardly be described as any form of market turmoil. What about Tuesday when the S&P 500 along with its NASDAQ 100 counterpart plunged by more than -2% in the wake of the Greenland brouhaha over the weekend? Gone with the wind, as stocks have rallied by more than +2% since, effectively wiping away the momentary blip. We didn’t even retest the sharply upward sloping 100-day moving average, for goodness sake, much less see anything that could even be described as roiling capital markets. ![](https://clear-wealth.com/wp-content/uploads/tuesday-1.png "tuesday-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") But let’s not stop there. A key theme garnering investor consternation over the past couple of years has been the extraordinary concentration of stock market returns. The tech sector didn’t grow to become nearly 50% of the S&P 500 out of nowhere after all (quick aside: a sector weight north of 20% has historically been a major “bubble” warning sign, so the 34% official weight to the tech sector today is notably significant (not saying it’s a “bubble” btw, but it does merit monitoring)). So how has the rest of the market been holding up since the start of the year? Check it. ![](https://clear-wealth.com/wp-content/uploads/tuesday-2.png "tuesday-2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") When looking at the equal weighted S&P 500 where tech ranks as the third largest sector at 13% of the index, it is already up nearly +4% YTD. U.S. mid-cap stocks as measured by the S&P 400 are doing even better at nearly +6% higher so far in 2026. What about long downtrodden publicly traded U.S. small caps that have been supposedly getting squeezed out by private equity in recent years? Surging by as much as +9% in the first fourteen trading days of the year, which equates to something like +150% annualized for the year if this continues through the rest of the year (which of course it won’t, but if markets were truly being staggered by recent geopolitical news, we wouldn’t be talking about a more economically sensitive area of the market on track for triple digit returns so far this year). With 61% of stocks within the S&P 500 outperforming the overall index so far this year, this is long anticipated broadening of market returns truly playing itself out. Not only is this highly constructive for stocks going forward, but this is not necessarily a new development, as 52% of stocks in the S&P 500 have outperformed the overall index since the start of 2025 Q4. This is broadening that is now four months in the making and coming in the context of a headline index that is continuing to press new all-time highs. Very good stuff. What about stocks across the rest of the world? Both developed international and emerging market stocks are also higher by more than +7% year to date. And these are not currency effects driving these upside results so far in 2026, as the US Dollar index is effectively flat relative to global currencies so far this year. This is real honest to goodness positive returns coming in from the rest of the world. Throw in the fact that the latest data driven GDP forecasts from the Atlanta and New York Fed have the U.S. economy continuing to grow GDP at a robust rate, inflation expectations that remain largely in check despite a recent blip higher, and corporate earnings that are still projected to grow in the +15-20% range on an as reported (GAAP) basis in the coming year, and we’re looking at a most constructive investment market environment as the first month of the year starts to draw to a close. If this is market calamity, I’ll take a whole lot more of it thank you very much! We’ve seen this story for five years and counting. A lot of things get said, and a lot of things happen, but as long as the fundamentals remain strong and the markets are getting the liquidity they want, capital markets will remain poised to continue to do just fine. > *“Well, when this train ends, I’ll try again, alright”* *–Tuesday’s Gone, Lynyrd Skynyrd, 1973* **I’ll think about that tomorrow**. With such resoundingly positive sentiment to start out this latest missive, why go any further? Because there is a bigger story that must be told. We are not necessarily seeing it manifest itself in the stock market today, but it’s coming. In fact, it’s already been underway for a few years now. And while stock investors remain understandably inclined to think about that tomorrow, the time to continue considering it and incorporating into our portfolio modeling strategy remains today. So, what’s happening? The world continues to change, and it is doing so fairly rapidly. Let’s quickly reflect on the recent before times. Since the fall of the Soviet Union in 1991 (having grown up as a cold war kid worried about the threat of global thermonuclear war (bonus points for knowing the movie reference – Bueller?) and trained to seek cover under my elementary school desk (I’m still not sure how that was going to help, but whatever, it’s was break from class), I can still remember the early morning rainy day in August 1991 arriving for preseason soccer camp during my senior year in high school when the assistant coach, who was also a social studies teacher, broke the news of the failed hardline coup that effectively marked the beginning of the end – the world has certainly changed ever since), the global economy transitioned from iron curtains and spheres of influence to kumbaya and globalization. This fostered an historically unprecedented period of economic prosperity where production specialization could be optimized globally, and production possibilities curve shifted steady outward over time. This also supported an environment of persistent disinflation and seemingly perpetual price stability. If anything, policy makers eventually struggled mightily to ward off deflation and keep prices rising toward an arbitrary 2% target (not sure why 2% inflation ended up becoming the magic number, as I always saw the equally arbitrary 3% inflation number in my macro textbooks from the late 20th century, but hey, economics is a *social* science with a lot of assumptions). But this is no longer our world in the after times. And while we are seeing these forces play out in the bond market and precious metals, the stock market has yet to react or adjust to the new reality. While the change had been coming arguably for decades prior – I would argue one could go all the way back to the Russian invasion of Georgia (the country) back in 2008 if not earlier to find the seeds of where we are today – the seminal event marking the new world change in my view took place in February 2022 with the Russian invasion of the Ukraine. What is this new global reality going forward over the next ten to fifteen years? I’ll bottom line it. Globalization is giving way to deglobalization (globalization is increasing, but at a diminishing rate). Global integration is giving way to spheres of influence. Kumbaya is fading away and iron curtains are starting to form. The pendulum is moving in the opposite direction. What does this mean from an economic and capital markets perspective? Let’s start with the likely effects on the global economy all else equal. Reduced rates of economic growth. Higher levels of inflation. Narrower corporate profit margins. Slower rates of corporate earnings growth. Moving on to the likely effects on capital markets, particularly given the already chronically high and rising level of sovereign debt globally coupled with an increasingly challenging demographic outlook in many countries around the world. Higher government bond yields, which imply higher borrowing costs given the historically tight spreads for virtually everything relative to government bond yields. Greater demand for real assets both for financial and national security reasons. Lower stock valuations. Increased stock price volatility. All of this sounds like it might be something to worry about. Perhaps if you’re someone that’s inclined toward nostalgia and resistant to change. But opportunistic investors are those that not only move quickly to ride their blues away but recognize that the geopolitical and economic environment train rolls on. And it is important to also know that some of the best investment environments throughout history have not been when asset prices of all colors are rising relentlessly from the lower left to the upper right. Instead, innovation is rewarded, and fortunes are made during periods of market uncertainty and turbulence, for these are the times when assets can be acquired and accumulated at some of their most attractive prices. One has to look no further than the likes of Warren Buffet to see how well it can all work out. And we’re only at the beginning of this next great era for capital markets. I’ll close this latest missive not with a bottom line but a preview. We will continue as always to focus on the market in front of us today. After all, it is in the current environment where the boots on the ground decisions are made on the margins from a portfolio management standpoint. But we will also be increasingly focusing on how this new world order is starting to take shape, for it will help inform how we are continuing to position from an asset allocation strategy standpoint for the events that are only now starting to unfold over the next decade or more. I look forward to sharing this next great journey with you. Ride on train. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #1054749. **Categories:** Insights --- ### [Market Insights – A Noisy Start](https://clear-wealth.com/market-insights-a-noisy-start/) **Published:** January 23, 2026 **Author:** Clear Wealth Planning **Content:** Here are the highlights from the latest Market Insights video with Evan Coffey and Eric Parnell: - **Geopolitics have been noisy to start 2026** and could continue to produce headline risk, but financial markets continue to fade geopolitical shocks unless they become policy-driven. - **Earnings remain supportive:** Q4 results and forward EPS estimates point to continued growth, led by technology. Economic fundamentals will be critical to corporate earnings in 2026. - **The Fed has room to be patient:** Cooling job growth and sticky inflation keep cuts on the table for 2026, but argue against aggressive easing. ###### [![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Eric Parnell and Evan Coffey are solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by them are their own and are not those of LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. **LPL Compliance Tracking #: 852597** **Categories:** Insights --- ### [Three Predictions for 2026](https://clear-wealth.com/three-predictions-for-2026/) **Published:** January 15, 2026 **Author:** Clear Wealth Planning **Content:** “Lengthy, uninterrupted booms, like the one in the 1920s, produce a collective delusion. Optimism becomes a drug, or a religion, or some combination of both. Propelled along by a culture of hot tips, one-of-a-kind deals, killer sales pitches, and irresistible slogans, people lose their ability to calculate risk and distinguish between good ideas and bad ones.” – Andrew Sorkin, *1929* The quote above from Andrew Sorkin’s latest book, *1929*, may be read as pessimistic at first glance. I view it differently. Instead, it’s a warning to remain disciplined during periods of market euphoria. While the following three predictions for 2026 may sound cautious at the headline level, the substance beneath them is more nuanced than it first appears. Each view is ultimately grounded in the view that markets are transitioning, rather than deteriorating. My overarching recommendation for the coming calendar year is to keep a watchful eye on whether the market successes of 2023, 2024, and 2025 prove sustainable. **The AI Bubble Evolves** While the header of this paragraph is intentionally provocative, it should not be interpreted as a negative judgement on artificial intelligence. A “popping” AI bubble is less about collapse and more about maturation. Excess speculation gives way to discipline, capital will likely shift toward more durable business models, and the overall industry emerges stronger on the other side. In that sense, the next phase of the AI cycle may prove healthier, more durable, and ultimately more profitable than the one that preceded it. Financial news in 2025 could largely be characterized by two words: tariffs and bubbles. Focusing on the latter, headlines were filled with warnings that America’s largest corporations were propping up a market destined to implode. Much of this narrative has been driven by market participants who remained sidelined during a market that produced nearly 80% returns over the past three years. As frustration builds, FOMO sets in. Investors pile into the frenzy without a clear understanding of future fundamentals or whether the prices they are paying offer a reasonable risk-adjusted return. That behavior, more than valuations alone, is what inflates bubbles. Howard Marks’ recent podcast *Is It a Bubble?* provides a useful framework for thinking about market euphoria and the idea of an investment bubble. Marks references Ben Hobart and Tobias Huber’s concept of two interrelated market bubbles: inflection bubbles and mean reversion bubbles. Mean reversion bubbles tend to be the more destructive variety. They often revolve around financial fads, promising high returns with minimal risk, and have no explanation of meaningful progress. When these bubbles burst, the market reverts back to its prior state. There was no expectation that these bubbles would represent overall progress for mankind. Inflection bubbles, by contrast, are rooted in genuine technological advancement. Railroads and the Internet are classic examples. When an inflection bubble deflates, the world does not revert to its prior state. Capital may be repriced and excess speculation removed, but the underlying innovation endures. What looks like a pop is more accurately described as excess fat being shed, leaving behind a more efficient market that still benefits from structural progress. This framework best describes where we are today and where I believe we are headed in 2026. Will the major hyperscalers continue to flourish? Likely. Will the companies that rode the coattails of the winners without revenue or a viable business model fade into dead money? Almost certainly. A popping AI bubble does not imply a broad market drawdown of 20-30%. Instead, it suggests consolidation, differentiation, and efficiency within the AI trade. Capex is also likely to remain elevated in 2026, helping keep the broader AI narrative intact. With that being said, investors should grow increasingly mindful of how this spending is financed. With AI investment among the Magnificent 7 expected to surpass half a trillion dollars next year, it’s worth noting that these major spenders including Microsoft, Alphabet, Meta, and Oracle held less than $400 billion in cash collectively at the end of the third quarter according to the Financial Times. Debt issuance was always going to be part of this cycle, but its scale deserves scrutiny. ![](https://clear-wealth.com/wp-content/uploads/goldman.png "goldman | Great Valley Advisor Group - Clear Wealth Planning Solutions") The companies I mentioned previously are not necessarily the weak link. The more concerning behavior is occurring further down the food chain. Startups and marginal players with little revenue are borrowing aggressively to build data centers for other startups. Each link in that chain compounds risk. To be clear, I am not willing to bet against today’s dominant players like Nvidia, Google, or Meta. In fact, AI infrastructure and energy-related positions could have an exceptional year as bottlenecks emerge from insufficient buildout. What I do believe is that investors need to be more selective in their AI and AI-adjacent exposure. A rising tide does indeed raise all boats, but it will also sink ones with holes. **The Fed Cuts Two More Times** Shifting gears from markets to the macro lens, let’s start with what is effectively guaranteed at the Federal Reserve in 2026: a new Fed Chair. Jerome Powell’s final term as current Federal Reserve Chair will end in May 2026, and speculation around his successor has already become a focal point in financial media. President Trump is almost certain to nominate someone who broadly shares his views on the current interest rate environment and the state of the U.S. economy. The emerging list includes Fed Governors Chris Waller and Michelle Bowman, Former Fed Governor Kevin Warsh, and National Economic Council Director Kevin Hassett. At the time of writing, Kalshi’s prediction market assigns a 43% probability to Hassett becoming the nominee, making him the clear front runner based on current wagers. ![](https://clear-wealth.com/wp-content/uploads/kalshi.png "kalshi | Great Valley Advisor Group - Clear Wealth Planning Solutions") Working off that assumption, it is worth examining what Hassett has said publicly in recent months. He has been careful to strike a balance between signaling independence and aligning with the White House’s broader economic priorities. According to a recent Wall Street Journal report, Hassett has emphasized that he would rely on his own judgement and resist overt political pressure when making rate decisions. At the same time, he has stated there is “plenty of room” to cut rates in the months ahead. In effect, Hassett has positioned himself as independent in process while aligned in outcome. That alignment is central to my expectation for two rate cuts in 2026. Market pricing supports this view. According to the CME FedWatch tool, futures currently imply two cuts next year, with a 31% probability the policy rate lands in the 3.00% – 3.25% range. The next highest probability is that of three cuts, bringing rates down to 2.75% – 3.00%. One cut ranks third, with a roughly 19% probability that we land in the 3.25% – 3.50% range. ![](https://clear-wealth.com/wp-content/uploads/3.png "3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") At the Fed’s December meeting, officials signaled expectations for just one cut in 2026. I believe that guidance proves too conservative. The most obvious reason is inflation. While recent data may be distorted by the government shutdown, it is still directionally meaningful. November headline CPI came in at 2.7%, well below the 3.1% consensus estimate. Core CPI, which strips out food and energy, was even lower at 2.6%. On the other side of the Fed’s dual mandate, unemployment has begun to drift higher. The jobless rate rose to 4.6% from 4.4% in September. As with inflation, the data may be noisy due to temporary distortions from shutdown related effects and contract roll offs tied to DOGE cuts. Even so, the trend matters. Inflation is moving closer to target while unemployment is moving further. Combine that backdrop with a new Fed Chair who has repeatedly acknowledged room to ease policy, and the case for two cuts becomes compelling. The setup for 2026 is not one of emergency easing, but of incremental recalibration. In that environment, two rate cuts feels less like a bold call and more like a path of least resistance. ![](https://clear-wealth.com/wp-content/uploads/unemployment.png "unemployment | Great Valley Advisor Group - Clear Wealth Planning Solutions") **U.S. Economy Grows at 4%** The U.S. economy is currently growing at somewhere in the neighborhood of 3.5% – 4.5%. In the second quarter of 2025, GDP expanded by 3.5%. In the third quarter, despite delays and renewed debate around data quality, growth accelerated to 4.3%. Looking ahead to 2026, the combination of interest rate cuts, sustained AI and data center infrastructure investment, shrinking trade deficit, and increased onshoring should be enough to propel economic growth to at least 4%. ![](https://clear-wealth.com/wp-content/uploads/real-gdp.png "real gdp | Great Valley Advisor Group - Clear Wealth Planning Solutions") The trade backdrop is already moving in a supportive direction. The U.S. recorded a trade deficit of $52.8 billion in September 2025, the lowest since June 2020. This compares to a $59.3 billion deficit in August and forecasts closer to $63 billion. Exports rose 3% to $289.3 billion, the second-highest level on record. While recent headlines around Venezuela have led some to assume a coming glut of oil supply, I remain skeptical of that conclusion. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2026-01-12-at-121638-PM.png "Screenshot 2026-01-12 at 121638 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Significant increases in Venezuelan oil production are years away due to industry disrepair and the nature of the crude itself. Venezuela oil is extremely heavy and requires blending with lighter oil to be usable. Layer in regulatory uncertainty and infrastructure constraints, and the idea of a rapid production surge becomes far less convincing. According to OPEC data, Venezuela produced 934,000 barrels per day in November, less than 1% of global demand and nowhere near the more than 3 million barrels per day it produced in the late 1990s. The immediate market reaction may be a modest dip in oil prices driven by oversupply headlines, but once short-term noise fades, prices could just as easily grind higher over the next 12 – 18 months. That scenario would further support U.S. exports of crude, refined products, and liquefied natural gas, helping the trade deficit narrow further. I’ve already outlined the case for additional rate cuts and an improving trade environment. The final and most powerful growth driver is the AI infrastructure buildout. To illustrate the scale of this investment and its role as a global economic engine, consider the following: - Total global AI spending in 2026 is expected to approach $2 trillion. To give scale to this eye-popping number and remind everyone how much a trillion dollars is, if you received one dollar per second for the next 31,000 years, you’d still be just shy of trillionaire status. - According to PwC, 88% of executives plan to increase AI budgets in the next 12 months, and 79% report that AI agents are already being deployed within their organizations. - Hyperscalers have pushed 2026 capex plans well beyond the $400 billion baseline. Google has indicated spending will rise meaningfully above its 2025 range of $91-93 billion, while Microsoft increased their Q1 spending by 74% to $34.9 billion. - The US defense budget for 2026 includes $13.4 billion dedicated specifically to AI and autonomy, marking the first year AI has its own standalone budget line. The purpose of highlighting these figures is simple. Regardless of how the first header in this piece may read, artificial intelligence is no longer a trend or a thematic trade. It has become one of the central pillars of the global economy. When combined with easier financial conditions and an improving trade balance, that reality makes a 4% growth outcome in 2026 not aggressive, but plausible. Taken together, these three predictions point to a market and an economy that is evolving, not unraveling. The AI trade becomes more selective rather than collapsing, monetary policy shifts to recalibration, and economic growth remains supported by structural investment and improving trade. None of these outcomes rely on speculation. They rely on durability. The risk for investors in 2026 is not that opportunity disappears, but that it becomes harder to find. In that environment, skepticism is not bearish. It is a competitive advantage. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #846951.* **Categories:** Insights --- ### [2026 Outlook](https://clear-wealth.com/2026-outlook/) **Published:** December 23, 2025 **Author:** Clear Wealth Planning **Content:** As 2025 comes to a close and the holidays draw near, it is a good time to consider the economic and market outlook for the year ahead. Let’s get right down to it. The economy. For the last four calendar years, markets have been bracing for the inevitable economic recession that never seems to arrive. “The second half of the year” has been the recurring phrase assigned to when the recession would supposedly arrive heading into 2022, 2023, 2024, and 2025, yet the year would come and go, and the economy would continue charging along. Expect more of the same in 2026. Consider the Atlanta Fed GDPNow economic forecast for U.S. real GDP for 2025 Q3, which is projecting 3% to 3.5% growth during the most recently completed quarter. No recession here. ![](https://clear-wealth.com/wp-content/uploads/26outlook-1.png "26outlook-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Of course, it’s not about where we’ve been, but where we are going that matters most to financial markets. And here, the news remains constructive. Consider the latest forecasts from the New York Fed Nowcast, which is also data driven but historically has been a more conservative projection relative to the recently more accurate Atlanta Fed reading. At present, the New York Fed Nowcast is projecting real economic growth in 2025 Q4 and 2026 Q1 of 1.8% and 2.2%, respectively. Put simply, this is an economy that continues to hum along at a solid clip. So what about the recession that has led to persistent hand wringing over the past few years? It is important to remember that the U.S. economy is a sum of its parts. And make no mistake, a number of segments of the U.S. economy have been struggling for some time now. For example, the ISM Manufacturing Purchasing Managers Index has been mired below 50 going back three years now, signaling a chronic contraction in manufacturing activity in the U.S. The same can be said for Industrial Production: Manufacturing, which has also signaled contraction remaining stubbornly below 100 for the last few years now as shown below. ![](https://clear-wealth.com/wp-content/uploads/26outlook-2.png "26outlook-2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") But while segments of the U.S. economy are indeed weak, this is being more than overwhelmed by the robust growth from other segments such as technology, thus resulting in real personal consumption expenditures (consumer spending), real gross private domestic investment (business spending), and real government spending all still steadily rising in support of broader economic growth for the U.S. So why do we as investors care so much about the economic growth outlook? Because Real GDP growth is the primary determinant of corporate profit growth, which is the primary determinant of stock market performance. And when it comes to projections for earnings growth in the upcoming quarters according to S&P Global, the outlook remains strong with projections in the mid- to high teens. These are the type of fundamentals that, if realized, typically support high stock prices over time. ![](https://clear-wealth.com/wp-content/uploads/26outlook-3.png "26outlook-3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The markets. The fundamental economic backdrop remains strong. But what of the markets themselves? Let’s start with the bond market before we get to the “good stuff” with stocks. Bonds. 2025 was a surprisingly good year for bonds, as the Bloomberg Aggregate Bond Index has risen by +7.0% year to date with only a handful of trading days left to go in the year. This comes on the heals of lackluster returns of +5.5% and +1.7% in 2023 and 2024, respectively, following the worst year in decades in 2022 when the core bond market declined by -13.0%. But the positive result for bonds in 2025 must be taken in context, for there is a reason why this year’s returns are a lot better than most might think or feel. For if we add 2024 Q4 to our bond market return measure through today, it is only up by +3.5%. In other words, the bond market had a really lousy end of 2024 that helped tee up a solid 2025. ![](https://clear-wealth.com/wp-content/uploads/26outlook-4.png "26outlook-4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") This highlights an important point about bonds as we move through the coming year. Bonds have been rangebound dating back to the start of the AI boom in the summer of 2023, moving back and forth in a range between 3.60% on the low side and 4.75% to 5.00% on the high side (important note: bond prices move inversely with yields – higher yields, lower bond prices; lower yields, higher bond prices). As shown in the chart above, we started 2025 with yields at or near the very high end of this range. And we are ending the year toward the lower end of the range, as the 10-year U.S. Treasury yield has been hard pressed to move sustainably below 4.00% for more than a year now. So while 2025 may have been a surprisingly good year for bonds, we should not be surprised if 2026 ends up being an unexpectedly disappointing year for bonds at they continue to travel back and forth in this trading channel, neutralized by easier monetary policy on the positive side being offset by persistent concerns about higher inflation on the negative side (inflation is the primary determinant of bond market returns – the outbreak of inflation in 2022 caused bonds to drop -13% that year, after all). Returns are likely to be positive overall for bonds thanks to the +4% coupon income being clipped, but total returns may be marginally less in the 2-4% range for the year when it’s all said and done. And if we do get an outbreak of inflation in 2026, all bets are off for bonds outside of short duration instruments. Stocks. The U.S. stock market continues to rise as we head toward 2026, but cracks are increasingly emerging. Let’s start with a look at the charts for context. ![](https://clear-wealth.com/wp-content/uploads/26outlook-5.png "26outlook-5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The uptrend for U.S. stocks as measured by the S&P 500 remain intact. Stocks quickly overcame the tariff induced turbulence in early 2025 to get back on track to the upside. And as 2025 draws to a close, 7000 on the S&P 500 now seems less a question of if than when. Stocks continue to respond well to technical support levels such as the 50-day moving average (blue line in the chart above) and 100-day moving average (orange line), and we should not be surprised if we are looking at an S&P 500 trading above 7200 by sometime in February. But as 2026 progresses, we should be prepared for the following for stocks. First, the relentless S&P 500 upside that investors have been enjoying since Halloween 2023 is likely to encounter increasing volatility as the year progresses. This includes periods of strong upside advances being followed by subsequent periods of consolidation and weakness. This is being foreshadowed not only by the slowly fading Relative Strength Index (RSI) and momentum (MACD) as shown in the two lower charts above, but also the steadily fading percentage of stocks trading above their 50-day and 200-day moving averages. In short, the market is looking increasingly tired, and this can even be seen in the price chart above of the S&P 500 itself, which is gradually fading into an upside down “U” pattern with the upside since the beginning of October far less pronounced than the gains from May to October. Another troubling signal is the precipitous and sustained decline in cryptocurrencies over this time period. It is worth remembering that sharp declines in cryptocurrencies in late 2017, late 2019, and late 2021 foreshadowed the prolonged periods of market turbulence or weakness that arrived for stocks in 2018, 2020, and 2022. Next, the AI “Woodstock” euphoria that has sent all tech stocks at the party higher amid the mad dash to establish dominance in the ecosystem that promises to transform the world over the next quarter century is likely to increasingly give way to an AI “Altamont” where the massive and arguably indiscriminate capital expenditures, in some cases with leverage, into the intertwined and circular flow of capital AI ecosystem finally reach the threshold where winners and losers will start to be differentiated. And because the flow of capital has been circular, as the losers begin to drop out, it has the potential to drag the margins (and stock prices) of the winners down with it. As a corollary that may or may not apply when it’s all said and done, Cisco Systems today enjoys revenues and profits that are 3x to 4x higher than they were a quarter century ago, yet it’s stock price today is still lower today than it was back in 2000. Cisco was a resounding dot com winner, but its stock price since 2000, not so much. Lastly, we’ll finish on a positive note. Not only can we not ignore the fact that the U.S. Federal Reserve is back to expanding the size of its balance sheet (if the last 16 years taught us anything, stocks love Fed interest rate cuts and asset purchases!), but stocks across the planet outside of the Mag 7 and friends are also trading at historically fair to discounted valuations. This suggests the long overdue broadening of stock market performance may finally come to pass in the coming year. We could even see stretches where the broader S&P 500 is falling at the same time that many of its underlying sectors are rising. This is a boon for active management relative to passive index strategies. And given the expectation that we could see further U.S. dollar weakening in the coming year relative to global currencies, developed international and selected emerging markets are well positioned to continue their 2025 outperformance of U.S. stocks, particularly given meaningfully attractive relative valuations and gradually improving economic fundamentals. **Risks.** Let’s quickly bullet point our key outlook conclusions so far: Economic growth is set to continue at a steadily strong rate despite recent pockets of weakness. Bonds are set up for more of a “meh” year in 2026 with risks marginally tilted to the downside (low single digit returns projection) Stocks are poised to continue their gains into the start of 2026, but increased volatility and competition in the tech space could make for a more uneven road through the rest of the year (high single digit returns projection) With all of this in mind, what are the downside risks that could derail this outlook (if we get upside risks, party on!). Certainly, a number of risks could arise that could shock the market at any given point in time. A geopolitical event could arise at any time (think China aggression against Taiwan as one of many possible scenarios), but it is important to emphasize that financial markets have historically shaken off such events in a matter of days in getting back to their regular business. And while it makes for great theater and/or entertainment depending on how you view it, anything that happens in the political realm is not market moving in any meaningful way unless it is such an outlier that the market is taken completely off guard (think the tariff announcement back in early April – not because tariffs were being announced but because they were so far outside of the range of what the market was expecting). Instead, as I pull the broken record from its sleeve and put it on the player, the primary downside risk for the economy and financial markets as we move through 2026 is once again . . . wait for it . . . a renewed rise in inflation. Why is this such a big deal from this Chief Market Strategist? What is the primary driver of capital market returns more than anything else? The flow of liquidity. If capital markets are receiving liquidity (tax cuts, subsidies, interest rate cuts, asset purchases), asset prices (stocks, bonds, precious metals, etc) are set to rise all else equal. Conversely, if capital markets are having liquidity withdrawn (tax increases, interest rate hikes), asset prices are set to fall all else equal. If accelerating inflation rears its ugly head, policy makers have no choice, even if it means plunging the economy into recession, but to raise interest rates (fiscal policy makers are not going to raise taxes – it’s just a political reality in today’s age), thus withdrawing liquidity from the market and pressuring asset prices. What if the Fed does not hike interest rates during an inflationary outbreak (or worse yet, continues cutting interest rates despite rising inflation)? The market will likely increasingly revolt as the underlying economy buckles, thus making matters even worse. Such a response would increase the probability for a dreaded stagflationary outcome, which is a trap that’s tough to get out of without a lot of monetary medicine (look up “mortgage rates 1981” to see what it tastes like). Fortunately, inflation pressures remain fully in check as 2025 is drawing to a close, as shown in the chart below, as average inflation over the next five years is fading toward 2% and seemingly becoming less of a concern for the market, not more. ![](https://clear-wealth.com/wp-content/uploads/26outlook-6.png "26outlook-6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Bottom line.** It promises to be an interesting year ahead for capital markets, filled with more nuance and differentiation versus the tech driven straight line returns seen over the last few years. Maintaining a focus on broadly diversified asset allocation dedicated for the long-term remains as sound an approach as ever as we enter 2026. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #839656. **Categories:** Insights --- ### [Market Insights – Rate Cut](https://clear-wealth.com/market-insights-rate-cut/) **Published:** December 15, 2025 **Author:** Clear Wealth Planning **Content:** Here are the highlights from the latest Market Insights video with Evan Coffey and Eric Parnell: - **The Federal Reserve:** The Fed cut the effective federal funds rate by another 25 basis points at its December meeting. What may be more intriguing for investors is their Summary of Economic Projections, which outlines participants’ expectations for growth, unemployment, and inflation. - **Downside Risks:** Three risks likely to hang over markets in 2026 are slowing corporate earnings growth, potential cracks in the AI trade, and a possible rise in inflation. - **Rapid Fire Projections:** Fixed income is expected to trade sideways in 2026, while equities could post another positive year but with higher volatility. Other asset classes like crypto and commodities remain difficult to forecast but could offer early signals about broader market direction. ###### [![](https://clear-wealth.com/wp-content/uploads/subscribe.png "subscribe | Great Valley Advisor Group - Clear Wealth Planning Solutions")Subscribe to the GVA YouTube channel](https://www.youtube.com/@GVA_RIA) Eric Parnell and Evan Coffey are solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by them are their own and are not those of LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. **LPL Compliance Tracking #: 837112** **Categories:** Insights --- ### [A Very Merry Melt-Up](https://clear-wealth.com/a-very-merry-melt-up/) **Published:** December 5, 2025 **Author:** Clear Wealth Planning **Content:** November gave equity investors whiplash. The first three weeks were a grind lower with all three major indices slipping more than 2.50%. The tech-heavy Nasdaq was down more than 6%, while the S&P slid almost 3.50%. Then Thanksgiving week hit and markets ripped higher with the Dow leading the charge up 2.73%. What looked like the start of the worst November since 2008 suddenly flipped into a setup for a classic holiday melt-up. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-12-04-at-101334-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") Inside GVAAM we have been debating exactly that. I generally sit on the bullish side of the table which is likely a byproduct of entering the investment world during the AI boom. Eric Parnell, our Chief Market Strategist, tends to stay more centered and cautious, which comes from his seasoned experience and weathering of numerous business cycles. Nonetheless, over the past few weeks, our roles have reversed. I became the skeptic pushing back against his call for the S&P to reach 7000 by year end. For most of early November, it looked like my skepticism would be right as markets bled lower. Then Thanksgiving week hit and we did a complete 180. This leads me to believe he may be right, which I have quickly learned is usually the case. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-12-04-at-101410-PM.png "Screenshot 2025-12-04 at 101410 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") The November pullback was a natural reset for a market that had seen almost no volatility since early April. From April 8th to November 1st, equities moved singularly up and to the right, doing so with extreme concentration. The S&P 500 and Nasdaq each gained more than 30% from their April lows as investors piled into anything with an AI label attached to it. The momentum was relentless until the first three weeks of November when the combination of stretched valuations, profit taking, political noise, and fatigue in the AI trade finally broke the trend. Technically, the market behaved exactly as you would expect in a cooling phase. Each major index slipped through its 50-day moving average in mid-November but met little resistance when pushing back above those levels in the final week of the month. The velocity of that rebound is what has me questioning the quality of this rally. A parabolic move can be perfectly fine when supported by fundamentals, but it can also be the sign of a sentiment driven chase by investors who lagged most of the year and are now scrambling to catch up. Part of GVAAM’s job is to question regime shifts and whether they are built to last. And while this piece is titled “A Very Merry Melt-Up”, I am not fully convinced one way or the other. Before drilling into the reasons why this could be a melt-up and the reasons why it might not be, lets take a step back and identify what I mean when I use the term “melt-up.” **Defining a Melt-Up** A market melt-up is a sustained, often unexpected surge in asset prices driven more by investors rushing into the market to avoid missing out, than by genuine fundamental improvement. The gains that follow are usually unreliable signs of where markets are headed and historically have preceded sharp reversals or full-blown meltdowns. History offers plenty of examples. In early 2010, unemployment remained high and the real estate market was still deeply impaired after the financial crisis, yet stocks surged through February, March, and April. The Great Depression also saw multiple stretches where markets rose sharply despite clear underlying economic weakness. **Reasons for a Melt-Up** Below are two clear reasons why the current rally has the characteristics of a melt-up and why investors should be cautious about blindly piling into the same mega cap names that have driven returns over the last three years. **Hawkish Fed Tone** Markets are pricing a near 90% probability that the Fed cuts by another 25 basis points at next week’s meeting, yet their commentary hasn’t exactly been dovish. After the October meeting, Chair Jerome Powell struck a hawkish tone by stating that a December cut was “far from guaranteed”, and while several Fed governors have since leaned more openly toward supporting a cut, none have delivered the kind of dovish confirmation markets want. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-12-04-at-101420-PM.png "Screenshot 2025-12-04 at 101420 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") This disconnect between expectations and messaging is exactly the kind of backdrop that produces melt-up behavior. When investors believe a cut is coming, they front-run it. They get long ahead of easing, not because fundamentals have drastically changed, but because cheaper financing might be around the corner. And when the Fed does not fully close that door as they did in late October, it fuels mechanical FOMO. Managers don’t want to be underweight if the market rips on a cut-driven relief rally. Even a hawkish tone leaves room for hope and that “hope gap” is precisely what momentum chases. Historically a Fed that sounds cautious but still delivers a cut creates a narrative investor’s love: policy won’t be loose long term, but short-term liquidity is coming. That combination reduces perceived tail-risk and boosts expected returns. The creation is rocket fuel for a sentiment-driven rally. In short, the market is effectively buying Santa’s ticket on the assumption of another 25 bp gift, even when the Fed’s language keeps that gift half-wrapped. **Playing Catch-Up** The second sign of melt-up dynamics is that investors are buying because they’re behind, not because fundamentals have materially changed. This year’s AI-driven rally has been extraordinarily narrow, and a large share of professional managers have lagged it. Bank of America’s November Fund Manager Survey showed merely 30% of global managers are overweight equities and most remaining underweight mega cap technology, which is the exact cohort driving index performance. Meanwhile, money market fund balances have hit a record $8 trillion, showing just how much cash remains parked on the sidelines. Being underweight the hyper-scalers powering the S&P is pure career risk in December. So, when markets reversed sharply into Thanksgiving, without any major shift in data, managers were forced to chase returns. That type of “buying because you must, not because you want to” is textbook melt-up behavior. Market breadth complicates the picture but does not contradict it. Yes, participation broadened modestly during the Thanksgiving rally, but the top ten stocks in the S&P still make up roughly 35% of the index and Microsoft, Apple, Amazon, Meta, and Tesla contributed a disproportionate share of the late-November rebound. Did we see Nvidia and Google lag their peers? Yes, but they also had astronomical runs leading up to November and Alphabet happened to be an exception to the early November bleeding with shares up more than 14% over the last month. When breadth expands from very narrow levels, it often reflects laggards getting bought simply because managers cannot afford to miss the move. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-12-04-at-101432-PM.png "Screenshot 2025-12-04 at 101432 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") This is not suddenly unanimous fundamental conviction. It is positioning pressure. It is investors trying not to fall further behind. **Reasons Against a Melt-Up** **Strong Q3 Earnings** A true melt-up requires prices to sprint far ahead of fundamentals. That isn’t what Q3 earnings show. The data points to real earnings strength rather than sentiment chasing. What’s the headline picture? Companies beat, revenue and margins are solid, and forward estimates, although docile, have remained elevated. Here are the hard facts from Q3 earnings season: - High Beat Rates: Roughly 78%-82% of S&P 500 companies beat Q3 EPS expectations according to FactSet, which is well above long-term norms of around 67%. - Margins are Holding at Cycle Highs: The S&P 500’s blended net profit margin for Q3 2025 sits around 13%, the strongest in roughly a decade and meaningfully above pre-pandemic averages. - Forward EPS and Revenue Trends are Positive: Analysts have revised forward 12-month EPS higher for three straight months. Revenue expectations are also firming, especially in technology, industrials, and communication services. - Valuations Haven’t Blown Out: The forward P/E of the S&P remains in the 22x-23x range, which albeit is not cheap, but it’s not the unhinged multiple expansion you would see in a melt-up. None of this means risk is gone. Valuations are stretched, and leadership remains narrow, but Q3 earnings undercut the argument that this rally is purely FOMO driven. **A Melt-Up Needs Macro Blindness** The second reason this rally looks more sustainable than a melt-up scenario is that macro and liquidity conditions remain supportive. Melt-ups often occur when macro risk is dismissed and speculative flows dominate. That’s not necessarily the case today. Right now, macro and liquidity signals are more supportive than destabilizing. This adds a structural floor under equities. Real yields have eased materially. The 10-year real yield is down from its late summer highs, reducing the discount rate applied to future earnings. Lower real yields provide a mechanical boost to equity valuations and help to justify the markets move. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-12-04-at-101440-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") Financial conditions are stable. Credit spreads are tight and while we had some chop in November, equity volatility remains largely in check. Systematic pressures like the stock-bond correlation have also normalized, meaning that risk isn’t necessarily being ignored, it’s simply not flashing danger. This keeps liquidity intact and supports risk taking. Finally, your traditional economic indicators may look soft but certainly not recessionary. Breakeven inflation rates remain steady around 2.3% and unemployment still sits at around 4%. Consumer spending, while pressured, continues to grow modestly. In other words: the macro picture may not be full of momentum, but it’s not deteriorating in the way that typically precedes melt-ups. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-12-04-at-101447-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") This isn’t a clean melt-up and isn’t a clean fundamental breakout. It’s a holiday cocktail of FOMO, positioning pressure, and legitimately solid earnings. That combination can keep pushing prices higher, but it’s not a guarantee of durability. Investors don’t need to play Grinch, but they also shouldn’t assume Santa is delivering unlimited upside. Respect the rally, participate where fundamentals justify it, and keep your guard up. The market may feel festive, but it hasn’t earned blind trust. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #833295 **Categories:** Insights --- ### [Let It Bleed](https://clear-wealth.com/let-it-bleed/) **Published:** November 25, 2025 **Author:** Clear Wealth Planning **Content:** > *“Well we all need someone to lean on* a*nd if you want it, well you can lean on me”* *–Let It Bleed, Rolling Stones, 1969* It has been a difficult past four weeks since late October through late November for the U.S. stock market. After hitting new all-time highs less than 80 points shy of the 7000 mark back on October 29, the S&P 500 has been steady decline since, having dropped by more than -5.7% through last Friday. This recent decline has raised concerns among investors that the high-flying AI “bubble” may have finally hit a wall and that it may be time to turn an eye toward the stock market exits. While I’m certainly no stranger to bearish sentiments about the intermediate-term to long-term stock market outlook, investors should caution about overreacting to any stock pullback that is taking place in the near-term today. **Lean on**. It’s never pleasant to watch stock prices move sustainably to the downside. But it’s important to remember that stock prices historically almost never move uniformly in one direction, whether it be to the upside, or the downside, at any given point in time. Instead, it almost always oscillates as it moves in any given direction over time. And the recent pullback since October should be viewed as nothing more than the latest “step back” in what has been arguably way too many uninterrupted “steps forward” dating back to late April. In short, stocks were loooooong overdue for a pullback as we readied our bowls of candy for Halloween, and the long overdue pullback we are now experiencing. The following is an excerpt from my recent GVA Economic & Market Update from right around the time of the market peak on October 31. *The S&P 500 is trading as much as +12% above its previous all-time highs set in February just before the tariff induced cascade to the downside. As it stands today, the S&P 500 is trading 3% above its medium-term 50-day moving average (blue line). It’s trading 12% above its long-term 200-day moving average (red line). And it’s floating 16% above its ultra long-term 400-day moving average (pink line). Put simply, we are overdue for a sustained correction if not an extended period of consolidation. And we should not be at all surprised to see the S&P 500 drop by more than 1000 points over a one to three month period from its recent all-time highs, and it would represent nothing more than garden variety mean reversion as part of a continued long-term uptrend dating back more than three years now.* So where do we stand today? We are now four weeks, or just less than one month, into a pullback that has seen the S&P 500 fall by -5.7% peak to trough. And as also mentioned in previous Market Updates, a -5% to -12% correction over a four to twelve week period is something that we’ve seen over and over again throughout market history where froth comes off the top of the market as part of a healthy “one step back” reset before stocks take their next “three steps forward”. As a result, we could see another six percentage points come off of this market through early next year, and the uptrend would very likely still be fully intact. **Dream on**. So where do we stand today? I don’t think we will see six additional percentage points come off this market through early next year. Instead, I would contend that the four week pullback we’ve seen since late October may be close to over if it’s not finished already. Consider the chart below. Regular readers are familiar with the medium-term 50-day moving average (blue line), long-term 200-day moving average (red line), and ultra long-term 400-day moving average (pink line) that I regularly cite as support/resistance trendlines for the stock market over time. But there are two other lines that I also roll out occasionally for times like today. These are the medium-term 100-day moving average (orange line) and the “smoothing mechanism” medium-to-long-term 150-day moving average (purple line). Often, when the S&P 500 breaks support at its medium-term 50-day moving average as it has over the past week, it will find support at its 100-day or 150-day moving average instead of making the sometimes long trip all the way down to the 200-day moving average. ![](https://clear-wealth.com/wp-content/uploads/bleed1.png "bleed1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Such is what appears to be formulating today. Let’s Zoom in to take a closer look. ![](https://clear-wealth.com/wp-content/uploads/bleed2.png "bleed2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The S&P 500 landed on its 100-day moving average (orange line) to close out the trading day last Thursday. It opened on this same line on Friday, tried to make a push below it during the trading day, failed, and marched its way back higher to close above this support line to close out the week. What have we seen so far during Monday’s trading? The S&P 500 is making a run at breaking back above its 50-day moving average support line, which I’m not yet ready to declare is resistance (you’ve got to spend a length of time longer than what it takes for milk to go bad in your fridge before you can declare that a previous support line is broken). Put simply, if the S&P 500 breaks out above 6715 between now and Thanksgiving (this will also require the Relative Strength Index (RSI) to advance back above 50), it’s very likely game on back to the upside and we can return to shopping for our S&P 500 “7000+ Go Like Hell” signs to hide behind the Christmas tree. *Cue 10/31 Market Update reprise* ![](https://clear-wealth.com/wp-content/uploads/golikehell.jpeg "golikehell | Great Valley Advisor Group - Clear Wealth Planning Solutions") Conversely, it is very possible that this Chief Market Strategist is dead wrong and we extend this current pullback into a full-blown correction (down -10%) over the coming weeks before it’s all said and done. If so, we then will refer to the 150-day (purple line) and 200-day (red line) moving averages currently at 6330 (down -8.5% from October peak) and 6166 (down -10.9% from October peak), respectively, for the next levels of support to watch. but even if we fall that far (and it’s important to note that these lines are steadily rising), that we’d still be well within our historical “garden variety” pullback, uptrend still intact range. **​Feed on**. So why is this Chief Market Strategist that has been espousing his bearishness in recent GVA Economic & Market Updates suddenly sounding so bullish now that we are in the midst of a pullback? Because it’s all a matter of timing. I continue to contend that things could get dicey for the U.S. stock market as we make our way through 2026. But it’s not 2026 yet. And stuff has to happen between now and sometime in 2026 before I’m ready to declare that potential bearishness is something that may actually happen and we may need to adjust portfolios at the margins to do something about (we may not need to adjust either – as I always like to say, a well-constructed asset allocation portfolio is one that is positioned in advance for different potential market outcomes). Put simply, this is a 2026 problem to worry about. In the meantime, the market continues to provide a feast of reasons to remain bullish as we put the institutional trading season behind us (effectively ended last Friday) and retailer traders take over to potentially rally this market hard into the end of the year. Predictions of 7000 by the end of 2025 and 7200 by January/February 2026 are still in place from this Chief Market Strategist. Three key fundamental reasons support this continued short-term bullish view. First, the economic outlook continues to exceed expectations as show by the rising green line built on data steadily running above the rising blue line built on economist forecasts (read: soft opinions from people that go on financial media and wring their hands about things to worry about that may or may not be showing up in the hard data). ![](https://clear-wealth.com/wp-content/uploads/bleed3.png "bleed3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Second, corporate earnings growth needs to be trending lower if not outright declining before stocks are ready to fall into a sustained decline. The importance of corporate earnings growth on stock prices cannot be overstated, as the correlation between stock prices and corporate earnings growth is very high over the past 155 years. And when looking at the chart below from S&P Global (keeper of the S&P 500) that shows the annual GAAP earnings growth (%) on the S&P 500 for history (blue bars 2024 Q3 to 2025 Q2) and forecast (orange bars 2025 Q3 to 2026 Q2), we see bars that are steadily rising, not falling, into the high teens. This robust rate of current and expected earnings growth would need to at least begin to show signs of cooling off before we would start to become concerned about a sustained market correction or pending bear market if more than 150 years of history is any guide. ![](https://clear-wealth.com/wp-content/uploads/bleed4.png "bleed4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Third, inflation expectations remain fully in check. I’ve been chirping since the summer of 2023 that the primary downside risk to capital markets including stocks has been and continues to be a renewed rise in inflation. And while I can sit here all day and talk about the reasons why we may see a renewed rise in inflation in 2026 and beyond over the next decade that may eventually come to pass (see September 2021 and the months that followed on the chart below), the reality remains that while inflation is now sustainably higher than it was before COVID, expectations about future inflation remain fully in check with the 5-year breakeven inflation rate (the average expected inflation according to the markets (hard data) drifting toward 2.3%. ![](https://clear-wealth.com/wp-content/uploads/bleed5.png "bleed5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting these three key fundamental points together, and the underlying conditions simply do not exist outside of an exogenous or idiosyncratic event to support a more sustained and prolonged move to the downside in stocks outside of the customary and healthy regression to the mean pullback within a continued uptrend. **Bleed on**. Putting this all together, it may very well be that the market pullback that started back in late October may now be over. But if stocks continue to fall to the downside, investors should let it bleed and look sharp at key support levels for entry points if anything to loss harvest and buy dips on the margins as part of a continued broader uptrend in stocks as we head toward the New Year. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #830319. **Categories:** Insights --- ### [Charleston](https://clear-wealth.com/charleston/) **Published:** November 19, 2025 **Author:** Clear Wealth Planning **Content:** > “*Charleston! Charleston! Made in Carolina. Some dance, some prance, I’ll say, there’s nothing finer. Than the Charleston, Charleston.”* *–Charleston, James Price Johnson, 1923* Great Valley Advisor Group convened its latest Annual Advisor Conference at the Hotel Emeline in Charleston, South Carolina earlier this week. The event was an opportunity for advisors, investment partners, and the GVA team to gather in one of the country’s most historic and picturesque cities to share ideas on strategies for future growth, developments in financial technology, the outlook for the economy and markets, the latest investment opportunities, immersive dining experiences, and great conversation with family, friends, and colleagues. Since mine is to market strategize, the following were some of the key investment related takeaways from the event. ![](https://clear-wealth.com/wp-content/uploads/king-street-charleston.jpg "king-street-charleston | Great Valley Advisor Group - Clear Wealth Planning Solutions") > *“Calm as that second summer which precedes. The first fall of the snow,* *In the broad sunlight of heroic deeds* *The city bides the foe.”* *–Charleston, Henry Timrod, 1860* I will share going into the conference that I have been and continue to be, as Mike Arone best described it during our fireside chat on Tuesday, “uncomfortably bullish”. I am of the view that risk asset prices – stocks, bonds, precious metals – are all poised to continue to climb through the remainder of 2025 and into the start of 2026. But an increasing fragility and “radioactivity” continues to gather under the surface of these persistently glossy markets. One other contrast is worth mentioning. I remain more bearish on the intermediate term outlook as we progress through 2026 than my several esteemed investment partner colleagues that presented at our annual conference. But it is the ability to compare and contrast such varying expert views that make a conference like Charleston so worthwhile. So, without further ado, let’s dive into the investment highlights from the GVA annual conference. **Bonds**. It was easily the most entertaining and funny presentation on bonds that I’ve seen over my three decades in the business. Yes, you read that previous sentence right – thank you David Braun and the PIMCO ETF team that serves as the backbone for our fixed income model strategies. And David’s presentation was also rich with content on why investors should be constructive on bonds as we enter 2026. First, core investment grade bonds offer an attractive yield toward 4.5%, which forms a floor beneath expected bond returns. And given that current yields have a 94% correlation with 5-year forward returns from bonds coupled with the fact that bond returns have been trailing this implied expected return in recent years (potential upside regression to the mean – love it!), this implies that bonds are set to provide a rock solid mid-single digit annualized return for investors through the rest of the decade. Haunted by the 2022 bond market -13.0% decline on your Charleston ghost tour? Indeed, but David reminded us how much of an outlier 2022 was over the last 35 years, as the second worst year for core bond market returns next to 2022 over this time period was 1994, which was down by only -2.9%. Taking this one step further, only five years out of the last 35 saw negative bond returns at all. This is an 86% positive calendar year return win rate for core bonds over this 1990 to 2024 time period. These were just a few of the many great points in support of the bond market outlook shared by David during his presentation. So, what was still keeping this Chief Market Strategist up at night other than the copious steak, seafood, and spirits (libations, not the apparitions!) enjoyed before retiring over the past few days? The one thing that was continuously missing from the economy over the past 35 years outside of 2022. A sustained rise in inflation. Lavinia Fisher and Nettie Dickerson, eat your hearts out (figuratively, of course). **Stocks**. Next up on the investment front were our colleagues Amy Foland, CFA and John Speer, CFA, who have led JP Morgan’s development of custom model small account solutions for GVA Asset Management and our advisor clients. The JP Morgan team is constructively bullish on the stock market outlook and provided tons of good evidence to back up the thesis including the following: - Steady economic growth supported by accommodative fiscal and monetary policy - Healthy corporate profit outlook across the globe supported by earnings quality and productivity gains - Continued strong growth in capital expenditures, particularly focused on AI investment and industrial production in high tech industries - A steady broadening of earnings growth beyond the Mag 7 Even with the S&P 500 trading at new all-time highs, our friends at JP Morgan provided a compelling case based on cumulative S&P 500 total returns over the past four decades why it may be even more compelling than not to allocate to equities today despite trading at peak levels, as investing at all-time highs versus any trading day since 1988 has resulted in a more than six percentage point cumulative return advantage over a five year period. But once again, this risk management focused Chief Market Strategist remains “uncomfortably bullish”. I recognize and share all of the positive views expressed by the JP Morgan team. With that said, historically rich tech valuations coupled with an astronomically high bar of expectations for future AI related growth in a broader market on the S&P 500 that continues to run well above trend means that a mere sneeze from a major player nestled in the intertwined bowl of AI spaghetti could result in an angry bout of mean regression at best stretching over several weeks to a few months at any given point in time. Throw in some margin compression or a renewed rise in inflation, and down -40% or more on some of these highly profitable but even more high-flying tech names is not out of the question even if the underlying fundamentals remain constructive. Remember, the largest company in the world by market cap in NVIDIA dropped from $153 to $86 (down -43%) in the first four months of this year (remember when earlier in 2025?) before rising to $212 and landing at $188 today. And lest we forget that this same NVIDIA dropped by -70% from November 2021 through October 2022 before bouncing back in the tailwinds of the AI “bubble”. This is Provost Dungeon kinda scary volatility when it’s moving to the downside, particularly if we don’t get the subsequent bounce to new all-time highs the next time around. **Fireside chat trilogy**. The last of our three economic and market focused discussions as mentioned above was with State Street’s Mike Arone. This marked the third time in the last three years that I’ve had the honor to take the stage with Mike to ask him questions, as he enlightens the audience with his perspective and expertise. And this time around Mike was as good as ever. Here were some of his key takeaways: - As mentioned above, Mike like me is “uncomfortably bullish” - Stimulative monetary policy, the fiscal boost from the One Big Beautiful Bill, increased tax refunds in the year ahead, and still strong corporate earnings growth are all powerful forces to drive risk asset prices to the upside - Mike’s two primary risks to the outlook are (1) a re-acceleration in inflation, particularly if labor markets hold up better than expected, and (2) future earnings start to disappoint with valuations already stretched - Despite these risks, Mike maintains his optimism that positive forces will outweigh the negative and that investors will continue to climb the “wall of worry” into 2026 - This includes a potential broadening of stock market performance beyond the tech/AI space Those that have followed my views over the past few years know that much of what Mike communicated in Charleston is consistent with my own market views, particularly as they have evolved as 2025 has progressed. I was more “resoundingly bullish” in the first half of 2025, particularly during the tariff induced market selloff that became wildly overdone given the fundamental backdrop at the time but have moved increasingly to the “uncomfortably bullish” camp as we bring 2025 to a close and head into 2026. I also share his generally constructive view on real assets going forward. I would say the differences in Mike and my view resides more on the margins. While Mike stands more on the side that markets are poised to maintain their strength despite the downside risks, I am a step or two more to the less optimistic side. This nuanced difference is best encapsulated by how we see today’s market rhyming with history. While I find myself saying that today’s market mood is increasingly reminding me of 1999, Mike is of the view that today’s market mood reminds him more of 1998. And as shown in the chart below, the “you are here” difference between 1998 and 1999 makes a notable difference on expected market results heading into 2026 and 2027. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-11-18-at-82836-PM.png "Screenshot 2025-11-18 at 82836 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") > *“We know not; in the temple of the Fates, God has inscribed her doom;* *And, all untroubled in her faith, she waits* *The triumph or the tomb”* *–Charleston, Henry Timrod, 1860* **Charleston**. These were just a few of the highlights from what was an interesting and informative set of days for our latest GVA Annual Advisor Conference. And as it relates to exploring what to expect from the economy and markets over the coming year and beyond, the ability to come together to discuss and explore these comparing and contrasting views from some of the leading experts in the country was invaluable in helping to determine how to set and maintain investment strategy in the months ahead. It was a great time seeing everyone in Charleston, and I look forward to being together again in the future for our next gathering of advisors, investment partners, and friends. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #825716. **Categories:** Insights --- ### [7000](https://clear-wealth.com/7000-2/) **Published:** November 5, 2025 **Author:** Clear Wealth Planning **Content:** > *“There’s a point at 7000 RPM… where everything fades. The machine becomes weightless. Just disappears. And all that’s left is a body moving through space and time. 7000 RPM. That’s where you meet it. You feel it coming. It creeps up on you, close in your ear. Asks you a question. The only question that matters. Who are you?”* *–Carroll Shelby, Ford v Ferrari, 2019* Capital markets are being pushed to their limits. Investors are being driven to an edge where the forces of fundamentals, technicals, total return, liquidity, speculation, and risk are all converging. U.S. stocks, bonds, precious metals have all become weightless, collectively soaring to the upside seemingly driven almost purely by momentum and flow. Investors are thinking less about the “why” behind their capital allocations, instead giving over control and embracing the reality that markets appear to be instinctively rising no matter what. We can feel it coming. It’s where we will meet it. As the S&P 500 stands poised to accelerate past 7000 for the first time between now and the end of the year, it will be asking you a question. The only question for investors that will matter. Who are you? ![](https://clear-wealth.com/wp-content/uploads/golikehell.jpeg "golikehell | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Ghost in the machine**. We should not ignore the resoundingly strong fundamentals that continue to underpin today’s capital markets. For all of the thinking about the inevitability of recession over the last few years, the U.S. economy continues to motor. As shown in the chart below, “Blue Chip” economists forecasts (blue line below) are now scrambling to catch up to the reality that the data (green line) has been implying for months now. Expect more of the same as we continue through 2025 Q4 to the end of the year. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-11-05-at-123948-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") The economy drives corporate earnings, which is the fuel for higher stock prices, and here the picture looks even better. As reported earnings (GAAP) on the S&P 500 have grown by more than +13% annualized in the first half of 2025, and they are forecasted to continue rising at a faster +13-16% rate through the rest of the year and into the first half of 2026. And what about what has been the primary downside risk confronting investors for much of the 2020s, which is the threat of sustainably higher inflation? Expectations remain fully contained with the latest 5-Year Breakeven Inflation Rate reading still drifting below 2.4%. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-11-05-at-123956-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") Put all of this together, and the S&P 500 remains poised to drive straight past 7000 through the remainder of the year and go like hell into 2026. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-11-05-at-124006-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") > *“You promised me the drive, not the win”* *–Ken Miles, Ford v Ferrari, 2019* **Full throttle.** So what could possibly go wrong? A lot. Let’s begin with the S&P 500 chart right above with the S&P 500 trading as much as +12% above its previous all-time highs set in February just before the tariff induced cascade to the downside. As it stands today, the S&P 500 is trading 3% above its medium-term 50-day moving average (blue line). It’s trading 12% above its long-term 200-day moving average (red line). And it’s floating 16% above its ultra long-term 400-day moving average (pink line). Put simply, we as overdue for a sustained correction if not an extended period of consolidation in about a year. And we should not be at all surprised to see the S&P 500 drop by more than 1000 points over a one to three month period from its recent all-time highs, and it would represent nothing more than garden variety mean reversion as part of a continued long-term uptrend dating back more than three years now. But given that we have mostly flown past the historically turbulent period from mid-August to mid-November with flying colors, we should reasonably expect that the U.S. stock market is going to continue to run hot through Thanksgiving and the Santa Claus rally period into early January 2026. As a result, the magnitude of the next eventual garden variety, regression to the mean stock market correction is likely to only get bigger before we finally hit the brakes. OK. But we can probably handle that. A generation of investors since the Great Financial Crisis and through COVID have been conditioned over and over and over again to power right through any such stock market potholes. “Buy the dip” is the go like hell call that comes over the team radio, and this aggressive discipline has been rewarded time and time again for nearly two decades now. So why would next time be any different? Well, we cannot ignore the fact that the S&P 500 Equal Weighted, the S&P 400 Mid-Cap, and the S&P 600 Small Cap indices are all still trading below their late 2024 highs. Hell, U.S. small caps are still trading below their 2021 highs from four years ago on a price basis. And this is all under the surface of a U.S. stock market is higher by nearly +28% on the headline S&P 500 Index year to date. This is a VERY top heavy market. Yeah, but we all know this. And we all know that the top heaviness is concentrated in technology, which now makes up a gobsmacking 36.25% of the S&P 500. Throw in former tech titans like Google, Meta, Visa, and MasterCard and tech adjacent high flyers like Amazon and Tesla, and we’re up over 51% on tech concentration in today’s market. As a historical reference, any time over the last century that a single sector rose above 20% of the entire stock market, trouble has followed. Think oil stocks in the late 1970s and early 1980s, tech stocks at the turn of the millennium, and financials in the mid-2000s – all ended badly and stretched on for an extended period. And we’re at 36% to 51% on tech today. Go like hell! It’s also tough to look past stock market valuations. The S&P 500 Index is now trading at 30.7 times training 12-month as report earnings. Only once before in the past 155 years has the U.S. stock market P/E ratio rise above 30 amid expanding growth (in other words, it wasn’t because of a collapse of the “E”, but the rise of the “P” in the P/E ratio). This was in late 1998 and 1999. Dubious company. Of course, the lightning fast retort is the following: “dot.com stocks back then weren’t making any money, but stocks today are highly profitable!”. Indeed, but Cisco Systems, Microsoft, Intel, Dell Computer, Hewlett Packard, and scores of other tech companies back then were also highly profitable back then too, yet they plowed into the barriers for more than a decade after revving so hot in the late 1990s. And the fact that tech stocks today are trading at 42 times earnings versus their two decade historical average of 22 times earnings – nearly double the price – is also tough to look past. Something worries me even more today, however, which is the deep interconnectedness that has evolved between all of these high flying tech companies. By now you’ve almost certainly seen at least one of those pictures that looks like a plate of spaghetti showing the capital flows within the AI ecosystem. This is awesome as long as the spending continues to flow. But here’s the problem, and it is the same problem we saw during the Great Financial Crisis nearly two decades ago. Once any segment of the ecosystem starts to break, once a single car crashes on a blind chicane, the tech wreck can quickly pile up and compound on itself. We all as investors must keep a very close watch on this front in the weeks and months ahead. One last point getting back to stock market valuations. If you want a guaranteed derisive eyeroll from in-the-know investors, start talking about the Shiller CAPE ratio (Cyclically Adjusted Price-to-Earnings ratio, or effectively the 10-year P/E on the S&P 500 Index). I can barely restrain my own eyes darting to the ceiling as I type this point. But here’s the thing we cannot ignore. First, let’s get this out of the way. The Shiller CAPE ratio is NOT a market timing instrument. It’s not about what’s going to happen tomorrow, next week, or next year. Instead, it is an ultra long-term indicator. It gives us a measure of what we should reasonably expect over the next ten years. What is the CAPE approaching 40 telling us today? That the expected return on the S&P 500 over the next 10-years should come in around 1.6%. The only time this reading has been lower was in 2000, 1970, 1937, and 1929. It’s been four out of four in its past 10-year market return predictions. But the more important point to note is that when generating a 1.6% annualized return over a ten year period, it almost never comes in a grinding slog of successive 1% to 2% returns each year over ten years. Instead, it almost always comes with years that are down -20% to -40% followed by years that are up +15% to +30%. A price chart from 1997 to 2012 is what it typically looks like. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-11-05-at-124019-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") It is a stock market that is filled with opportunity. But you don’t just get to buy the SPX and forget it. Instead, you’ve got to work at it. And what will be the likely catalyst that finally ends the race in today’s stock market? Not recession. Inflation. It’s not here yet, but it’s potentially looming increasingly close down the racetrack. > *“Ohh! Giddy-up, giddy-up”* *–Ken Miles, Ford v Ferrari, 2019* **Driven to win.** And this is where we turn the tide on the terminal ending of the film. Today’s stock market is one that is FILLED with attractive total return opportunities. Technology, consumer discretionary, and communications services (TCC) own the day the same way that Technology, media, and telecom (TMT) owned the day back during the high flying tech bubble days. But what remains overlooked amid today’s ongoing tech dominance is that virtually every other segment of the U.S. stock market is trading at some of the deepest discounts we have seen in years if not decades. Health care, energy, materials, consumer staples, real estate, mid-caps, small cap, developed international, selected emerging markets that don’t start with “C” and end with “hina”, selected pockets in fixed income, commodities including but not limited to the recently raging gold and silver trade – all offer some of the most attractive expected total return opportunities on a go forward basis that we’ve seen in quite a while. So even if a rise in inflation or some other unanticipated risk blows the engine of the burning hot tech trade, the good news is that capital markets remain stocked with attractive ways to strategically allocate on a risk-adjusted return basis for years to come. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 820355 **Categories:** Insights --- ### [How Soon Is Now?](https://clear-wealth.com/how-soon-is-now/) **Published:** October 24, 2025 **Author:** Clear Wealth Planning **Content:** > *“When you say it’s gonna happen “now”.* *Well, when exactly do you mean?* *See I’ve already waited too long. And all my hope is gone”* –How Soon Is Now?, The Smiths, 1985 The rapidly spinning revolving door of financial market news has its latest headline to transfix investor emotions. The latest rumblings heading into the new trading week surround cracks in credit quality and tightening liquidity conditions. Names swirling at the center of these headlines include First Brands, Tricolor Holdings, Zions, Western Alliance, and Jefferies. And recent events have Jamie Dimon talking about ‘cockroaches’. All of this has some investors increasingly wondering whether a bigger problem for capital markets is gonna happen now and whether portfolio action may be required. The best place to turn when seeking to answer this key risk management question is not the headlines. Entertainers gotta entertain. Instead, look to the data. > *“We do not expect people to be deeply moved by what is not unusual”* –Middlemarch, George Eliot, 1871-1872 Let’s start with a good old fashioned indicator of banking system stress. Are banks showing the increasing propensity to not want to lend money to their business customers? For this, let’s turn to the Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices and focus on the Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms. Put simply, are banks infested with ‘cockroaches’ and thus increasingly shying away from lending out money to businesses? The answer here is decidedly “no”. Only 9.5% of domestic banks were tightening lending standards in 2025 Q3 according to the latest survey, which stands in sharp contrast to the north of 50% of banks that were pulling back on lending money during past episodes of stress like the 2022 inflation outbreak, the 2020 pandemic, the 2008 financial crisis, the 2000 bursting of the tech bubble or the early 1990s commercial banking squeeze. If anything, banks are not deeply moved by what is not unusual today. ![](https://clear-wealth.com/wp-content/uploads/1.png "1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") But before going any further, an important block of salt associated with this data. The SLOOS is released quarterly, and this most recent reading is from August 4. A lot has happened since August 4. And while I would normally follow by saying keep a close watch for the next data release on November 3 to see if this percentage is suddenly sharply rising, we’ve got the whole government shutdown thing that may keep us in the dark on the latest here for an undetermined time into the future. Fortunately, we’re not simply reliant on this single data point, as we have a variety of places to look elsewhere for answers. For this, let’s next look at the St. Louis Fed Financial Stress Index. This is a composite of 18 different stress indicators released weekly with a reading above zero signaling above average stress and a reading below zero signaling below average stress. Where do we stand today with the latest reading for October 15? A reading of -0.48, which is below zero and indicating below average stress. We’re cool as a cucumber on this reading right now, but once again an eventual week has passed. As a result, it’s worth seeing if we have any movement to the upside when the latest release comes out this Wednesday, October 22. Nonetheless, we are starting from a very low base of below average stress on this reading. ![](https://clear-wealth.com/wp-content/uploads/2.png "2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") We’ll keep going to another indicator that gets baked fresh daily out of the capital markets oven, which is high yield spreads. What’s happening here? This is the additional yield that investors require on any given trading day for taking on the additional risk of owning high yield bonds versus U.S. Treasuries. The higher the reading, the more stressed the financial system. Where do we stand today? In contrast to periods like the mid-2010s when a slew of exploration and production companies were going belly up, 2020 in the depth of COVID, 2022 when a scorching case of inflation infected capital markets, or even early 2025 when the tariff tantrum had markets locking up in the spring, we have seen a modest blip in recent trading days (squint to the bottom right and you might be able to see it!), but we remain at historically low levels in terms of the additional premium required by investors for owning riskier assets. ![](https://clear-wealth.com/wp-content/uploads/3.png "3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Still all good, but let’s go one more for good measure and focus on the worst of the worst, which are your companies in the CCC or lower credit quality space. This is often among the first areas of the market where signs of stress will emerge, as lenders will almost always pull back on their lowest quality borrowers first before the rest of the pack. How do we stack up here? OK, we’ve popped higher on these spreads by around 60 bps in recent days, this move is minimal to none in comparison to periods like 2020, 2022, early 2023 when a group of banks like Silicon Valley Bank were suddenly going belly up, or early 2025. ![](https://clear-wealth.com/wp-content/uploads/4.png "4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting this all together, while it is always possible that we could be seeing the very beginning of what could ultimately unfold into the next major credit quality driven liquidity squeeze, we’ve got a looooong way to go before we even begin having this conversation. In the meantime, these indicators look rock solid to support the idea that financial stress conditions are largely contained despite what the financial news headlines might be saying and doing to distract your eyeballs. Let me take this one step further. Suppose this does continue to unfold into a spike in credit defaults and liquidity conditions lock up? What then? What we know, whether right or wrong, good or bad, is that the Federal Reserve and/or the U.S. Treasury will intervene with their latest liquidity bazooka to rejuvenate the financial system and make it’s pain go away. If they can go so far to effectively guarantee high yield bonds during the COVID crisis, they can find an extra trillion dollars or two in the couch cushions at the Treasury and/or Fed to unlock financial conditions if something starts to go off the rails today. And remember, it is no coincidence that the inflating of the AI bubble got started in May 2023 not long after the massive liquidity injections to rescue the U.S. banking system in March 2023 and April 2023, as markets love liquidity. But what about Mr. Dimon and his ‘cockroaches’? Don’t get me wrong – I’ve been a big follower going all the way back to his Citigroup and Bank One days – respect. But he does have the propensity for the occasional headline overextension. For example, go back to August 2018 when the same JP Morgan CEO said “you better be prepared to deal with rates (10-year Treasury yields) 5 percent or higher”, and we’re still waiting to breach that level more than seven years later. Once again, mad respect, but doesn’t mean that everything that comes off the cuff during a media interview is take-it-to-the-bank prophesy. **Bottom line**. So what might the market actually need to worry about if not the onset of financial market stress? It remains the threat of a renewed and sustained rise in inflation. And the onset of any financial market stress will only serve to increase the probability of an eventual inflation accident that follows after simply too much liquidity persisting in financial markets for far too long. Keep an eye on the financial stress data for certain, but focus more closely on the inflation data in the days and weeks ahead for the source of potentially real and sustained financial market pressure. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 813721 **Categories:** Insights --- ### [Pretzel Logic](https://clear-wealth.com/pretzel-logic/) **Published:** October 14, 2025 **Author:** Clear Wealth Planning **Content:** > *Now you swear and kick and beg us that you’re not a gamblin’ man* > > *Then you find you’re back in Vegas with a handle in your hand”* *–Do It Again, Steely Dan, 1972* I recently had the opportunity to visit our GVA Advisors in Braintree, Massachusetts. This week’s article is inspired by the great discussions we had about the melodic bass and jazz trumpet in some of the greatest music of all time. **Do it again, and again, and again . . .** It is amazing how financial markets repeat the same cycles over and over again. A certain segment of the market suddenly gets hot, investors increasingly pour in to chase the narrative, by the time just about everybody gets on board the music stops, and the market gamble moves on to the next shiny investment object. The latest headline grabbing investment du jour? Mag 7? That’s so 2023. Today’s shiny investment market object is literally shiny objects. They are gold and silver. Let’s take a closer look. ![](https://clear-wealth.com/wp-content/uploads/pretzel1.png "pretzel1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") We’ll begin with gold. Uncorrelated with stocks. Uncorrelated with bonds. The yellow metal enters the asset allocation modeling conversation as a diversifier to manage correlation risk within a portfolio. The only problem was that you simply couldn’t give away the “barbarous relic” up until recently. No cash flow, no yield, no absolute metrics to measure valuation. And worst of all it has been an asset that reached a price peak of $1920 back in 2011 and was trading at or below this same price less than two years ago at the end of 2023. But what has happened since has been extraordinary. From the start of 2024 through about six weeks ago, the price of gold spiked from around $2000 to $3400. Amazing and much better than the headline dominating S&P 500 over the same time period. And in the past six weeks since the start of September, gold has gone parabolic in rising from $3400 to over $4000. In a word – wow! And just like that, an asset that would get little more than looks of derision for more than a decade is suddenly getting talked about by everyone. ![](https://clear-wealth.com/wp-content/uploads/pretzel2.png "pretzel2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Next, we’ll focus on silver. The white metal is gold’s maverick baby brother. Industrial metal by day, precious metal by night, it trades with two times the price volatility of gold. And it has been an exercise in unrelenting investor frustration for a half century. In1980, the price of silver reached an all-time high of $49.45 (on a nominal basis – it may have only been worth fifty bucks in Philadelphia, but fifty bucks bought you a lot more back then versus today). After more than thirty years of pain, silver finally returned to its previous all-time highs in 2011 at $49.51, only to repeat another down -80% over the next ten years. But suddenly, this woebegone precious metal that was mired in a chronic downtrend through the start of last year suddenly started to come back to life in extraordinary fashion. And on Thursday, silver briefly touched a new all-time intraday high of $51.19 before closing out the day just below $49 per ounce. Forty-five years is a long strange trip to end up back in the same place, but here we are today, and everybody’s suddenly talking about it. > “I loved you more than I can tell > > But now it’s stomping time” –My Rival, Steely Dan, 1972 So what is an investor to do with these meet the new alternative global reserve currencies, same as the old alternative global reserve currencies following the cryptocurrency interlude? They are just as uncorrelated to stocks and bonds as they’ve always been, so they still merit their place in the asset allocation model portfolio conversation as they always have. But following their recently phenomenal run up, investors should definitely be careful out there in the precious metals market. If an asset can double in less than two years and spike by +20% in just over a month, it can be cut in half or more in less than two years and drop by more than -20% in just over a month. It’s the other side of the risk sword blade. And given that gold’s Relative Strength Index (RSI – reading over 70 on scale from 0 to 100 means that a security is overbought and overdue for a meaningful pullback) reached over 87 on Thursday (in a three letter acronym in all caps – OMG), things have gotten a bit out of hand to the upside and is overdue for a meaningful breather. Silver is in the same camp with an RSI of just over 80 on Thursday. In short, these prices could continue to run to the upside, but don’t be surprised if they break sharply back to the downside any day now. But for this Chief Market Strategist, the bigger story is not what gold and silver are doing specifically. Instead, it is what the recent run up in gold and silver are signaling generally for the broader market. Overall, it is unsettling. Exactly what it is signaling remains to be seen, and there are no shortage of “experts” opining on the specific drivers of “why?” (one can easily shoot holes in many of these explanations, so be sure to do your own homework and verify what you are hearing), but such pricing disconnects in safe haven assets whether they be to the upside or the downside are often early warning signals of what is eventually to come. So what does this Chief Market Strategist think the run up in gold and silver is signaling today? First, that the abundance in liquidity in the financial marketplace has become so pronounced that it’s now spilling over everywhere including into gold and silver that are arguably some of the most liquid asset class categories in the markets today. Is there gas in the car? Yes, there’s gas in the car today. A lot of it. And this gas may continue to push asset prices including stocks, bonds, precious metals, and everything else that cannot be bolted down to the upside through the remainder of the year and into the start of 2026. After all, if you’re an institutional money manager and your livelihood depends on allocating client assets to financial markets, and you’ve been sitting things out waiting for a repeat of the correction that afflicted markets earlier this year from February to April, you’re likely feeling increasing pressure to get back into the markets with each passing week between now and the end of the year before 2025 runs out. Next and perhaps more importantly, an excessive abundance of fiscal and monetary liquidity both here and all around the world that can fuel asset prices higher today (see 2021) can increasingly flood into the broader economy and cause a scorching inflation problem tomorrow (see 2022). But unlike last time when the Fed had the flexibility to pull the emergency brake with more than five percentage points of rate hikes in short order to arrest the last inflation outbreak, the Fed is simply not going to have this ability the next time around. If anything, they may be adding even more fuel to tomorrow’s inflation fire today. Those pouring into gold and silver are likely starting to position in advance for this possible outcome, even if bond yields and/or the forward looking inflation data is not yet signaling such an outcome. Remember that the 10-year US Treasury yield was still around 1.50% at the end of 2021 and breakeven inflation rates were still at 2.4% in September 2021, but inflation was running wild only a few months later. > “Double helix in the sky tonight > > Throw out the hardware > > Let’s do it right” –Aja, Steely Dan, 1977 **Bottom line**. Shiny objects come and shiny objects go from financial markets year after year. It was true fifty years ago, it’s true today, and it will be true fifty years from now. And there’s absolutely nothing wrong with owning these various shiny objects all along the way. The key, of course, is to purchase them when they are still dull instead of chasing them when they are gleaming brightest. This reinforces the importance of remaining dedicated to the principles of broadly diversified asset allocation in investment portfolios. For if you have invested capital across a broad range of uncorrelated asset classes that includes categories that are strongly in favor and those that may be lying in wait, your portfolio is prepared in advance for the expected and unexpected events may be yet to come, both good and bad. These principles have also been true since the beginning of investment time, and will continue to hold true no matter what may be leading capital markets to the upside at any moment in time. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 810156 **Categories:** Insights --- ### [Growth Opportunities](https://clear-wealth.com/growth-opportunities/) **Published:** October 6, 2025 **Author:** Clear Wealth Planning **Content:** Artificial Intelligence has moved from buzzword to backbone. It dominates headlines, moves markets, and is reshaping the future of technology and the economy. For most people, AI is already part of daily life, and its influence will only deepen. For equity markets the question is not whether AI matters but where the next wave of opportunity lies. The dominant players such as Meta, Microsoft, Alphabet, and Amazon remain at the center of the trade, powering the buildout of large language models, machine learning, and the broader “intelligence revolution”. These firms are projected to invest more than $300 billion in AI related capital expenditures over the next year, with that figure on pace to approach $1 trillion annually by 2030. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-10-02-at-82016-PM.png "Screenshot 2025-10-02 at 82016 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") The economic footprint is already significant. According to the Bureau of Economic Analysis, AI spending has now surpassed consumer spending as a driver of U.S. GDP growth. While much of this capital is flowing to the tech giants, which collectively still account for nearly 40% of the S&P 500, the ripple effects extend far beyond the index leaders. Sub industries positioned to supply, support, and scale AI adoption stand to benefit from one of the most powerful investment cycles in decades. **The Origins of AI** As I always like to do, let’s take a quick step back and set the stage. Britannica defines artificial intelligence as the ability for a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings. Webster’s definition is nearly identical, with the added point that the computer system uses machine learning techniques applied to large collections of data. Using these definitions, if someone were to say that the bull markets of 2023 and 2024 were attributed to the “creation” of AI, they would only be half right. The beginnings of AI stretch back to mathematics and logic research in the 1940s and 1950s when Alan Turing released works such as *Computing Machinery and Intelligence*. He posed the pivotal question “Can machines think?”. Initially, many dismissed him as crazy, which has often been the fate of scientific pioneers. A key milestone came in 1956 at the Dartmouth Conference, where the term artificial intelligence was officially coined. The highlight of the event was a demonstration called the “Logic Theorist” developed by Allen Newell, Herbert Simon, and Cliff Shaw, which mimicked the problem-solving skills of a human mathematician. This was the true beginning of AI as we understand it today. While the history of AI is fascinating, it’s not the point of this article. The point of this article is to identify what comes after the meteoric rise of 2023 and 2024 in equity markets. These outsized gains were driven by the release and rapid adoption of generative AI programs like ChatGPT. Generative AI revealed to the general public just how powerful AI could be in a practical and accessible way. It fueled expectations of a massive productivity boom, triggered a wave of corporate investment, and pushed investors to seek exposure to the companies best positioned to capture this opportunity. At the center of this trade were the mega cap names that investors know well. Nvidia, Amazon, Alphabet, Microsoft, and Meta established early dominance in AI infrastructure and deployment, leading the S&P 500 to strong gains. The first wave of enthusiasm has been concentrated in a handful of dominant companies, but the broader story is only beginning to unfold. The technology is moving beyond chipmakers and major platforms, and into the businesses that provide the infrastructure, tools, and applications that make AI usable at scale. Identifying these adjacent beneficiaries is critical, as they represent the next layer of growth opportunities beyond the early winners. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-10-02-at-82054-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") **The Broader Ecosystem** Highlighted below are six industries within the broader AI ecosystem that stand to benefit as adoption accelerates. These areas extend past the familiar Magnificent 7 and provide a clearer view of where the next wave of growth may emerge. **Software, IT, and Cybersecurity** For AI to move from concept to daily business utility, it requires strong software frameworks, reliable IT infrastructure, and resilient cybersecurity. These elements provide the structure that allows new applications to run smoothly, scale effectively, and remain secure. Several companies are already at the forefront. Atlassian Corporation provides collaboration and workflow software that helps teams manage AI-driven projects and operations. Okta provides identity and access management solutions that secure authentication and protect sensitive data in increasingly complex digital environments. SAP integrates AI into enterprise resource planning software, enhancing decision making across supply chains, finance, and customer engagement. The companies that enable this secure and seamless integration will be critical in shaping the next stage of AI deployment, capturing growth as organizations embed the technology more deeply across operations. **AI Infrastructure, Utilities, Nuclear** AI applications are notoriously energy and data intensive, driving growing demand for computing infrastructure and reliable utility support. Data centers, cloud services, and power generation form the physical backbone that enables AI to operate at scale, making this sector a critical enabler of broader AI deployment. Companies operating in this space include Vertiv Holdings, which designs, manufacturers, and services equipment that manages power and cooling for data centers. Vistra Corporation delivers electricity and natural gas to residential, commercial, and industrial customers across the United States. In the nuclear sector, Cameco and Uranium Energy supply fuel that supports large scale, low carbon power generation. Powell industries and Constellation Energy Corp provide power and energy distribution along with electrical equipment for data center operations and energy intensive AI workloads. Looking forward, firms that provide resilient, scalable, and low carbon infrastructure will be central as AI workloads grow. With low operational costs and powerplant lifespans often exceeding 80 years, nuclear energy in particular offers a unique convergence of sustainability and capacity, highlighting the intersection of energy demand and the foundational systems that support AI. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-10-02-at-82105-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") **Quantum Computing** Quantum computing applies the principles of quantum mechanics to process information in ways that classical computers cannot. Unlike traditional bits, which are either 0 or 1, quantum bits (qubits) can exist in multiple states simultaneously, allowing certain calculations to be performed exponentially faster. While the technology remains in its early stages and faces challenges such as scalability and error rates, its potential is significant. Companies active in this industry include D-Wave which focuses on quantum annealing, a method designed to tackle complex optimization problems, and Rigetti Computing, which is developing gate-based quantum systems that aim for broader applications. Quantum computing has the potential to enable breakthroughs across multiple industries. In biotech, it could simulate complex molecular interactions for drug discovery. In finance, it could enhance portfolio optimization and risk modeling. In cybersecurity, it could reshape encryption standards. For AI, quantum machines could accelerate model training and solve problems beyond the reach of even the most advanced supercomputers. Quantum represents a longer-term frontier with the potential to dramatically expand AI capabilities as technology matures. **Biotechnology & Robotics** AI is transforming the life sciences and automation sectors by accelerating research, improving precision, and enabling smarter decision-making. In biotech, AI can model complex biological systems, streamline drug discovery, and support personalized medicine. In robotics, AI drives advanced automation in manufacturing, healthcare, and logistics, creating more efficient and adaptive systems. Several companies are already harnessing this potential. Tempus AI applies AI to precision medicine, using data analytics to guide cancer care and optimize treatment decisions. Procept BioRobotics specializes in AI-driven surgical robotics, enhancing precision and outcomes in minimally invasive procedures. Exelixis Inc leverages AI in drug discovery and development, helping identify promising therapeutic candidates more efficiently. The intersection of AI, biotech, and robotics is poised for rapid growth. Companies that combine automation, data analytics, and life sciences expertise will be well positioned to capitalize on the increasing demand for faster, smarter, and more efficient solutions in healthcare, research, and treatments. **Blockchain & Cryptocurrencies** Blockchain technology and cryptocurrencies are increasingly intersecting with AI by providing secure, decentralized ways to store and manage data, execute transactions, and verify digital processes. Beyond their role as digital assets, these technologies offer infrastructure that can complement AI applications, particularly in areas requiring transparency, security, and distributed computation. A number of companies are actively positioned in this space. Terawulf develops energy-efficient mining infrastructure for cryptocurrencies, supporting the broader blockchain ecosystem. Robinhood offers cryptocurrency trading and financial services that make digital assets more accessible to retail investors. MicroStrategy has adopted Bitcoin as a corporate treasury asset and is actively investing in blockchain related technologies to support its AI and analytics strategies. As AI adoption expands, blockchain and cryptocurrencies will play a key role in enabling secure, decentralized frameworks for data sharing, computation, and transactions. Companies that integrate AI with blockchain infrastructure or leverage digital assets strategically are likely to benefit from the growing convergence of these technologies across finance, enterprise, and emerging digital platforms. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-10-02-at-82117-PM.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") **The Next Wave of AI** Together, these six industries illustrate the breadth of AI’s influence beyond the first group of dominant names. From software and cybersecurity to quantum computing, biotech, blockchain, and energy infrastructure, AI is shaping both digital and physical domains in ways that redefine business and innovation. Each area represents unique opportunities, whether by enabling adoption, providing the backbone of infrastructure, or unlocking new capabilities. As AI becomes more deeply embedded in the global economy and financial markets, investors and businesses that look beyond the headline leaders will be better prepared to capture the next growth opportunities. The early winners proved the promise of AI, but the sectors building around them will determine how durable and far reaching that promise becomes. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #: 805096* **Categories:** Insights --- ### [A Storm Is Coming](https://clear-wealth.com/a-storm-is-coming/) **Published:** September 23, 2025 **Author:** Clear Wealth Planning **Content:** > *Boy: “Hay una tormenta en camino.”* > > *Sarah Connor: “What did he just say?”* > > *Gas Station Attendant: “He said there’s a storm coming in.”* > > *Sarah Connor: “I know.”* *–The Terminator, 1984* **A different storm**. Yes, Artificial Intelligence is increasingly taking over the world. And while I’m not sure that NVIDIA will have perfected the chips in the next four years to enable Skynet to send an Arnold Schwarzenegger automaton back in time to 1984, it is hard to ignore that 2029 is right around the corner. With that said and despite the fact I’m working on getting a voice that sounds like HAL 9000 from *2001: A Space Odyssey* for my talking ChatGPT (if only my name was Dave…), the threat of AI is not the storm I’m writing about as we head into the fall of 2025. Instead, the impending storm is called inflation. > *“Perhaps I’m just projecting my own concern about it. I know I’ve never completely freed myself of the suspicion that there are some extremely odd things about this mission.”* *–HAL 9000, 2001: A Space Odyssey, 1968* **Just what do you think you’re doing, Jay?** On March 17, 2022, the US Federal Reserve led by its Federal Open Market Committee (FOMC) embarked on its most aggressive monetary tightening campaign in nearly two generations. Having kept short-term interest rates pinned effectively near zero for well over a decade since the financial crisis and through COVID, the FOMC raised interest rates by over 5% through July 27, 2023 to diffuse the most significant outbreak of inflation since the period of time from the late 1960s to the early 1980s. Despite waiting way too long under “transitory” delusions to finally start tightening monetary policy in early 2022, the Fed ultimately achieved its goals of bringing inflation back down into a more sustainable 2% to 3% range. All good so far. ![](https://clear-wealth.com/wp-content/uploads/storm1.png "storm1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") But let’s fast forward to this time last year in September 2024. Inflation appears largely under control with headline CPI back in the 2%s and core CPI just above 3%, both trending lower. U.S. economic output was still growing at a steady clip at the time, but the unemployment rate had ticked up somewhat from a low of 3.4% in April 2023 to 4.1% in September 2024 (never mind that 3.4% was tied for the lowest unemployment reading on record since 1953 and 4.1% still represented the lowest unemployment rate in the U.S. since 1970 save a handful of months at the end of the tech bubble), so the Fed decided it needed to “get to work” with a 50 basis point rate cut in September 2024 followed by two more quarter point cuts in November and December 2024. Summary: 100 basis points in four months just because, you know, why not. This was and has been the first major cumulonimbus cloud in the impending storm – this increasingly engrained notion that the U.S. Federal Reserve should be cutting interest rates not because it needs to, but simply because they can. Don’t let those interest rate cuts burn a hole in your Federal Reserve wallet! ![](https://clear-wealth.com/wp-content/uploads/storm2.png "storm2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") I was not at all a fan of Fed rate cuts at the time, and I thought leading with 50 basis points when the market was largely expecting 25 basis points up until the final days before the September 2024 FOMC meeting was, how can I say it as politely as HAL and not as abrasively as when The Terminator visited the police station searching for Sarah Connor, *misguided*. Apparently, I was not alone, as the bond market also hated it, as the 10-Year U.S. Treasury yield proceeded to rise from a low of 3.6% literally as the Fed was meeting in mid-September 2024 to over 4.8% by early January 2025 around the time when the Fed finally stood down following 100 basis points of cuts. ![](https://clear-wealth.com/wp-content/uploads/storm3.png "storm3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") What has the bond market done in the months since mid-January? Yields have steadily come back down. That of course, brings us to today. On September 18, the U.S. Federal Reserve resumed their interest rate cutting campaign, this time lowering interest rates by another 25 basis points. “*But why!?!*“, this Chief Market Strategist is left to strenuously restrain himself from exclaiming. Let’s start with the economy. Despite worries about the recession in the U.S. that was supposed to arrive in 2022, then 2023, then 2024, and now 2025 but never, ever actually shows up, the U.S. economy remains strong. Consider the latest estimates for Real GDP growth for 2025 Q3. In a pattern we have seen repeat itself over and over and over again over the last several years, the actual data is signaling a much stronger economy than what the handwringing “Blue Chip” economist consensus is predicting how the economy will perform. For while the “experts” were projecting U.S. Real GDP growth will increase by less than 1% this quarter, the data signals that it is on pace to exceed 3% on a quarterly percent change basis. This is not only growth, but strong growth that continues to persist beyond expectations. ![](https://clear-wealth.com/wp-content/uploads/storm4.png "storm4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Are their signs of weakness on the margins? Absolutely, but there’s always signs of weakness on the margins. A “wall of worry” isn’t just there; it has to be constantly built over and over again. It’s always there. Will we eventually get an economic recession at some point? Absolutely, but it doesn’t appear it’s going to happen right now or anytime soon for that matter. Let’s continue forward. What about the unemployment rate? Still at 4.3% as of August 2025 (see earlier chart), which is barely above the 4.1% rate this time last year and still represents the lowest unemployment rate we have seen in this country since 1970 save a few peak months over the last 55 years. If AI is coming to take all of our jobs away along with Sarah Connor, it apparently has not arrived just yet. Strong economy, low unemployment rate, what about the U.S. stock market – the Lennie Small to the U.S. bond market’s George Milton (mixing my metaphors, I know – classic American literature is not the theme of this article – back to our regularly scheduled “sci fi” references, or will it ultimately be “sci fact”? Insert pensive thought emoji)? After all, I learned when growing up in my investment career that the U.S. stock market moves nine months ahead of the U.S. economy on average. Where is the U.S. stock market today? Trading overbought at fresh new all-time highs (insert another pensive thought emoji). ![](https://clear-wealth.com/wp-content/uploads/storm5.png "storm5 | Great Valley Advisor Group - Clear Wealth Planning Solutions")OK What about corporate earnings Surely we must be seeing signs of weakness in the corporate profit margins and forecasted earnings that is justifying the latest Fed call to action Well the collective profit margin on the SP 500 reached 125 during the most recently completed quarter which marked a cycle high that is more than two percentage points above the 15 year average And corporate profits on both an operating managed number and as reported actual number basis are projected to increase by a double digit annualized rate for the next seven quarters according to SP GlobalPreach HAL. There are some extremely odd things about this Fed rate cutting mission. > *“I’ll be back”* *–The Terminator, 1984* **Desperately seeking Sarah Connor**. So what could possibly go wrong here? Isn’t this awesome from an investment perspective. The stock market is already performing balls to the wall, and now it’s getting even more power in the form of rate cuts from the U.S. Federal Reserve. How much more? The CME Fed Funds futures are pricing in a more than 90% chance of another quarter point cut in October and a more than 80% chance of a third quarter point cut in December. And the key date to watch next year is May 15, 2026 when a new Fed Chair will grace the halls of the renovated Marriner Eccles Building. And from where I am sitting today, I do not see Jay Powell’s successor prioritizing hiking interest rates much less keeping interest rates level upon assuming the job, but only time will tell. Here’s what can and increasingly likely will go wrong in bringing the next storm to the economy and financial markets. Straight up, the Fed should not be cutting interest rates right now in the view of this Chief Market Strategist. If someone landed here from Mars or any Macroeconomics 101 class having just finished studying Chapter 15 in their textbooks entitled Monetary Policy, when presented on an exam with a scenario of persistently strong GDP growth and low unemployment what is the proper monetary policy response, the correct answer would not be to become more accommodative with policy. At best, a neutral stance would be justified with an eye toward potentially becoming more restrictive. Quick aside – the same question would apply when studying Chapter 12 – Fiscal Policy in this same class. The correct answer would certainly not be to lower taxes and/or increase spending (“and” applies today). Instead, consideration at minimum should be given to raising taxes and cutting spending under today’s circumstances. Raise taxes and cut spending. Funny (insert audible snicker), as that just simply isn’t going to happen on any side of the political aisle today until politicians are standing up to their knees in the fire. Of course, one key variable that has not been mentioned in the body of this article until now is also critical in determining the current and future path of interest rates, and that of course is inflation. The economy and financial markets remain sufficiently strong that if anything we are at risk of running hot even with a neutral monetary policy stance. But instead of contemplating whether we should be *tightening* monetary policy to help stave off any accumulating pricing pressures in the months ahead, the Fed is instead moving to *loosen* monetary policy. Yikes! For the record, I would not advocate for the Fed to raise interest rates in the current market environment. Instead, I’m in the “if it ain’t broke, don’t fix it” camp that if GDP is growing at a +3% clip with unemployment at 4.3%, corporate earnings growing at a double-digit rate, and the U.S. stock market at all-time highs, just leave things alone instead of throwing gasoline on the fire that might reignite an inflation problem we’ve been still working to eliminate the last few years. Now we’re looking at a situation where the Fed may eventually need to raise interest rates to correct for the potentially misguided lowering of interest rates today. And whether the Fed will have the gumption to follow through in raising interest rates if needed six, twelve, eighteen months from now remains to be seen. All of this points to an inflation storm that is increasingly building on the horizon. In fact, one can already feel the first heavy drops of pricing pressure rain in the data today. For example, after bottoming in the spring month-over-month headline and core CPI has been steadily rising at a measurable rate, with core CPI now back above 3% on an annualized basis and headline soon to follow. And looking further into a chart that scares the bejesus out of me from an inflation perspective (see below), we see that while services inflation (purple line) never really fully cooled off from the 2022 outbreak still hovering near 4% annualized, goods inflation (green line) that was the primary culprit for the 2022 inflation outbreak and had been until recently been mired in deflation and the primary driver in bringing pricing pressures back down is now once again screaming to the upside at +2% year over year and rising fast. ![](https://clear-wealth.com/wp-content/uploads/storm6.png "storm6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s bottom line it. The Fed is now cutting interest rates at a time when inflationary pressures are starting to burst back onto the scene. If anything, they should be starting to think about raising interest rates, but the exact opposite is now happening. It promises to be an increasingly interesting rest of 2025 into 2026 for financial markets and policy makers on this front. **Bottom line**. Remember. Although it got messy along the way, Skynet and The Terminator did not defeat Kyle Reese and Sarah Connor. And while HAL got all medieval on Frank Poole, some pretty transformational events took place after Dave Bowman got HAL singing “Daisy” (we’d probably need a film study appendix article to figure out how we wedge the ending from that one into the discussion). Also remember, while the S&P 500 and the Bloomberg Aggregate Bond Index dropped by more than -22% and -14% respectively during the 2022 inflation induced bear market – that’s a wicked storm for the 60/40 crowd – sectors within the stock market like energy soared by as much as +50% along with others such as utilities and consumer staples that were both solidly positive for much of the downturn. At the same time, those that steered to the short duration side of the bond market were rewarded with a steadily increasing coupon to clip with minimal price volatility. An inflation storm may be coming to financial markets, but I’ve always loved sitting on the porch listening to the rumbles of thunder as the rains roll in. Next time around should be no different. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 800074 **Categories:** Insights --- ### [Bond. Long Bond.](https://clear-wealth.com/bond-long-bond/) **Published:** September 11, 2025 **Author:** Clear Wealth Planning **Content:** > James Bond: “I admire your courage, Miss…?” > Sylvia Trench: “Trench, Sylvia Trench. I admire your luck, Mr…?” > James Bond: “Bond. James Bond.” –Dr. No, 1962 ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-09-11-at-105106-AM.png "Screenshot 2025-09-11 at 105106 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") **SPECTRE.** The U.S. stock market is a relentless winner. For nearly two decades since the financial crisis, stocks have been repeatedly confronted with all measures of danger and tight spots seemingly impossible to escape. Whether facing down the PIIGS, an oil market collapse, a global contagion, a scorching inflation outbreak, or averting another implosion of the global banking system, the U.S. stock market through luck and pluck has shown the ability time and time again to diffuse the proverbial bomb with a cheeky 0:07 seconds left on the clock to save the day for the investment world. But just as James Bond has faced down his and the world’s villains 25 times (or is it 27? or 28?) in the past and is set to give it a go once again with Amazon MGM in around late 2027 or 2028, so too is the U.S. stock market heading toward facing down it’s latest threat. But this time, the specter of danger this time coming from the most formidable of foes – it’s long-term ally and partner in the global bond market. > Dr. No: “The Americans are fools. I offered my services; they refused. So did the East. Now they can both pay for their mistake.” –Dr. No, 1962 **Resurfacing threat.** U.S., nay global investors, have benefited from a steady and strong tailwind for many of our lifetimes. Emerging from the Live And Let Die era from the late 1960s to the early 1980s when a intermittent but prolonged bout of hyperinflation brought the global economy to its knees and induced BusinessWeek (then the largest magazine by advertising pages in the U.S) to declare “The Death of Equities”, U.S. government bond yields reached a stunning Piz Gloria peak of over 15% in September 1981. Take a moment to pause and reflect on this point for a moment – imagine today getting paid over 15% to lend money backed by the full faith and credit of the U.S. government. At 3% annual inflation, this is unbelievable (goodbye TINA, hello TARA and CINDY!). Alas, if the annual inflation rate is also around 15%, not so much, as CINDY is not enough, and stocks needed a P/E ratio south of 7 times earnings to provide a positive equity risk premium (that’s some Goldfinger laser style threat for investors at the time – death indeed). ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-09-11-at-105928-AM.png "Screenshot 2025-09-11 at 105928 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") But since 1981, the inflation threat increasingly subsided and the bond market entered into a four-decade bull market from 1981 to 2021. As bond yields fell from over 15% to less than 1%, bond prices rose (winning for the “40” in the standard “60/40” allocation) and stock valuations ballooned as falling yields enabled investors to justify paying ever increasing multiples for company shares through a still positive equity risk premium (the excess return that stock investing provides over the risk-free rate (Treasuries) (even bigger winning for the “60” in the “60/40”). It has been a win-win environment for investors for four decades. Commercial break: Want a quick and dirty way to calculate the equity risk premium for stocks (not textbook, mind you, but “back of the napkin”)? Take the P/E ratio on the U.S. stock market (26.74 times trailing 12-month operating earnings on the S&P 500 today) and invert it to create a percentage (1/26.74 \* 100% = 3.74% – this is the earnings yield, or the earnings investors are generating for each dollar of share price). Now compare this to the 10-Year U.S. Treasury yield (currently 4.08%: 3.74% – 4.08% = -0.34%). Translation: stock investors are not only NOT receiving a premium for taking on the added risk of owning stocks versus U.S. government bonds, they are paying -0.34% for the added risk to own stocks. What justifies this seemingly irrational behavior? The belief that companies will grow earnings in the future sufficiently to provide a positive premium in the future, which is why the market gets worked up about the prospects of an economic recession (negative growth) and wants those Fed interest rate cuts sooooo badly (goose growth while lowering the risk-free rate bar). Be careful what you wish for with Fed interest rate cuts, says the investor reflecting back on the period from September 2024 to January 2025 when the Fed cut rates by 1.0 percentage point yet the 10-year U.S. Treasury yield rose by more than 1.2 percentage points. Why? The specter of inflation that comes with those rate cuts. Enter Joseph Heller’s Catch-22 into the narrative (“eat your heart out Ian Fleming”), but I digress. Now back to our regularly scheduled article. With all of this in mind, let’s introduce the chart below. Here is a chart of the 30-Year U.S. Treasury yield. As mentioned above, we mentioned the four-decade bond bull market that extended through 2021. But what has happened since 2021? It was actually 2020 when we saw the official lows in government yields below 1%. But bond yields remained low all the way through 2021. It wasn’t until the calendar flipped to 2022 and when the Russians started rolling tanks into Ukraine that Treasury yields started rising in earnest. And since that time, they keep rising. And rising. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-09-11-at-110105-AM.png "Screenshot 2025-09-11 at 110105 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") So where are we today. The 30-Year U.S. Treasury yield, which reached a low of 0.94% a few years ago, is now at 4.76% and rising. It’s lurched over 5% twice over the last two years, and the trend in this long bond yield is definitively higher. Let’s take this one step further. The U.S. makes up 39% of the total global bond market, but it is not alone in seeing this sharply rising trend in long bond yields. Consider Japan, France, the UK, Canada, Germany, and Italy, which together make up another 22% of the global bond market for a grand total of 61%. Each had 30-year government bond yields significantly less than 1% in recent years. Here is where these yields are today: 3.29% Japan 4.33% France 5.48% United Kingdom 3.69% Canada 3.27% Germany 3.50% Italy ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-09-11-at-110144-AM.png "Screenshot 2025-09-11 at 110144 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Villain monologue.** So, what does all of this mean for a U.S. stock market that remains seemingly oblivious to the latest threat growing all around it in the global long bond market. **Higher borrowing costs:** The U.S. government is facing higher costs to borrow money to support future growth and spending initiatives. And if the U.S. government is paying more, corporations that rely on low cost borrowing to sustain growth are also likely to get squeezed. And if governments and corporations are paying more in interest to borrow money, they have less left over to spend. **Debt sustainability risks:** It wasn’t that long ago that sovereign debt as percentage of GDP moved north of 60% and people were freaking out about it (it was 30% back in 1981 btw). Today we are at a 120% debt-to-GDP ratio, yet finding a politician in Washington interested in raising taxes and/or cutting spending is harder than finding Crab Key. **Specter of inflation:** Higher long-term bond yields also send an important signal about potential inflation. If governments continue to spend, and if central banks are compelled or induced to lower interest rates and/or keep interest rates low, we could have a nasty inflation outbreak that may persist with damaging consequences. Just as we saw during the period from the late 1960s to the early 1980s when the economy was left to run too hot and monetary policy was left too easy (once again, this was during a time when the U.S. debt-to-GDP ratio was less than 40%. Today it is at 120%), we had an increasingly scorching inflation problem despite the fact that economic growth was sluggish and riddled with recessions. **Tighter liquidity conditions:** Higher yields lead to slower growth, higher costs of capital, and higher discount rates for future cash flows (remember when you could plug 0% into your DCF to justify P/E ratios of infinity? This is becoming an increasingly distant memory.), all of which imply lower stock valuations than the frothy 27 times multiples in today’s marketplace (P/E ratios fell below 7 times back in 1981). Moreover, if bond yields keep rising and/or inflation starts to spiral out of control, fiscal and monetary policy makers may ultimately be compelled to cut spending, increase taxes, and/or raise interest rates. Put simply, the first ten months of 2022 could ultimately be a sneak preview of what might come to pass if the forces of steadily rising long term bond yields and rising inflation fully take hold. **Commercial break:** Let’s get the napkins out again. Let’s be light and exclude the 1970s. Instead let’s focus on the post Living Daylights era since the stock market crash of 1987 when all of the original Fleming books had been made into movies and the Greenspan Fed first embraced the heroic role of repeatedly trying to save the stock market world. During the period from 1987 to 2007 when long bond yields were more comparable to where they are today, the average P/E ratio was 19.34 times earnings. With the S&P 500 currently at an annualized $242.50 per share on a trailing 12-month operating earnings basis, this implies a fair value price on the S&P 500 of 4688 today, all else equal. But as the James Bond movies repeatedly showed through its cinematic history, all else is never equal. Back to our regularly scheduled article. **Monomyth.** There is a reason why investors hold the arguably misguided belief that the stock market does nothing other than go up over time. And there is a reason why we have 25 to 28 James Bond movies with another one on the way. This is because our literary hero always overcomes adversity, no matter how seemingly insurmountable, and saves the world at the end of the day. And the next episode to stagger global capital markets will be no different. It’s not a question of if. Instead, it is a question of whether you are ready when any such future episode comes to pass, whether it is the risk scenario outlined above or something entirely different and unexpected. And when such an episode finally erupts, what are you doing to not only defend against the collateral damage but also capitalize on the dislocations. Did equities die in the early 1980s as BusinessWeek forewarned? Indeed not, as it instead marked the beginning of the next great era of prosperity (not without some massive fits along the way!). Let’s reflect back to that period from the late 1960s through the early 1980s that most closely rhymes with the risk episode outlined above. While BusinessWeekwas contemplating the “Death of Equities”, investors were absolutely crushing it in energy and materials stocks. Consider the following list of publicly traded companies that were all in the top ten in the U.S. by market cap at the time: Exxon, Mobil (once separate companies, now ExxonMobil), Texaco (now part of Chevron), Standard Oil of California (Chevron), Standard Oil of Indiana (Amaco now part of BP), Atlantic Richfield (ARCO now part of BP), Shell, Schlumberger, and DuPont. A different kind of Mag 7 line up for a different time. Then there was commodities including the precious metals of gold and silver, the latter of which hit $50 per ounce in 1980 that is 20% above where it is trading today a half century later. What else did well during this past period? Here’s two: 1) Value meaningfully outperformed growth and 2) International meaningfully outperformed U.S. Does anyone see potential opportunities in these relative value trades circa September 2025 even without the above risk scenario playing itself out (imagine a James Bond movie where he’s only just plays golf with Auric Goldfinger and then goes home to doom scroll through his phone (where does James Bond live anyway? what kind of rates is he paying for life insurance, particularly given all those years that he smoked? what is his investment time horizon? does he think NVIDIA is overvalued? – nah, let’s get back to the saving the world theme, much more interesting – besides, we need a change catalyst, am I right?)). ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-09-11-at-110336-AM.png "Screenshot 2025-09-11 at 110336 AM | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s go one more as we progress our way through the triumph toward the denouement. Consider the now nonagenarian investor Warren Buffett, who as a quadragenarian investor fifty years ago was establishing the foundation of his fortune by hoovering up deeply discounted small and mid-cap value companies throughout the decade of the 1970s when equities were supposedly dying. **Bottom line.** Downside risks are accumulating for the U.S. stock market, and a leading risk is building in the long bond not only in the U.S. but around the world. How this risk plays out remains to be seen, but even if the worst comes to pass, remember that with dislocation comes opportunity. Maybe today’s Mag 7 won’t be so Mag anymore, but capital currently concentrated in a small handful of growth stocks has a lot of attractive destinations to flow both within equity markets and across capital markets. There is a reason why the 1970s is often regarded as the greatest period for active management, and such periods are often even greater for financial advice, as we are all reminded once again that there’s more to achieving your long-term goals than simply chasing the latest stock market winners. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 794192 **Categories:** Insights --- ### [Heavy is the Crown](https://clear-wealth.com/heavy-is-the-crown/) **Published:** September 2, 2025 **Author:** Clear Wealth Planning **Content:** Heavy is the head that wears the crown. While equity markets have staged a powerful recovery since bottoming in April amid noise around international trade, much of Wall Street is beginning to question whether the rebound has gone too far. Market concentration has reached unprecedented levels: 10% of companies within equity markets now account for 76% of total market capitalization, an all-time high. Within the S&P 500, the top 10 names represent nearly 40% of the index. Since April’s lows, the 20 largest stocks have surged an average of 40.6%, collectively eclipsing the entire market capitalization of China. The statistics could be stacked endlessly, but the message is clear – equity leadership has grown exceptionally narrow, a pattern markets have seen before and one that has often left investors exposed when sentiment shifts. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-08-28-at-10112-PM.png "Screenshot 2025-08-28 at 10112 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Lessons From the Past** This is not the first era of extreme concentration. In the early 1970s, the so-called “Nifty Fifty” commanded investor attention, a group of blue-chip stocks considered untouchable. Dubbed “one-decision” stocks because they were believed to be permanent holdings, they propelled the bull market of the early 1970s. Unlike the dot-com leaders that came decades later, the Nifty Fifty were profitable businesses with real earnings power. From 1957 through 1972, they posted average earnings growth of about 11% per year. The flaw would prove not to be the businesses themselves, but in investor behavior: valuations were ignored and multiples stretched. At their peak, the group traded at 42 times earnings, more than double the S&P 500’s average of 19. During this time, the top five companies made up almost a quarter of the market. Sound familiar? The breaking point came quickly. Inflation surged above 12%, interest rates spiked, and the U.S. economy slid into recession in 1973 and 1974. Subsequently, the Nifty Fifty’s darlings unraveled: Polaroid plunged 91%, Disney fell 87%, Avon dropped 86%, McDonald’s declined 72%, and even Coca-Cola lost roughly 69% from its peak. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-08-28-at-10126-PM.png "Screenshot 2025-08-28 at 10126 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") The cycle repeated at the turn of the millennium. Equity markets soared as the internet transformed business and drove speculation, culminating in the dot-com bubble. In 1999, the top 15 stocks accounted for roughly 70% of the S&P 500’s advance, and by March 2000, the five largest stocks represented nearly 18% of the index. When the bubble burst, the S&P 500 plunged almost 50% between 2000 and 2002, with the biggest winners of 1999 suffering the steepest losses. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-08-28-at-10133-PM.png "Screenshot 2025-08-28 at 10133 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") While today’s backdrop differs with AI-driven demand built on tangible technological and productivity gains, many of the parallels to these past bear markets are challenging to ignore. Once again, a handful of giants are carrying markets to record highs. And history is consistent in its warning: when leadership narrows too far, markets become more fragile. **Recent Cracks** Even before history is invoked, current markets are flashing signals of strain. The “Magnificent Seven” – technology, communication services, and consumer discretionary giants – have been responsible for much of the S&P 500’s gains. Broadening the group to the “Ten Titans” which adds Netflix, Oracle, and Broadcom, leadership is still concentrated in just a handful of names. Signs of fatigue have already started to appear with technology stocks falling 1.6% during the August 18th trading week, despite a late rebound following Fed Chair Jerome Powell’s comment that a September rate cut was in the cards. According to JPMorgan, retail investors were net sellers during the steep decline on August 19th – the first such occurrence in two months. Economic data hasn’t helped sentiment either. Inflation remains sticky with key PCE reports coming out on Friday August 29th, while early August brought weak job openings data and major downward revisions to employment figures. Recent tech news piled on the bearish sentiment when a widely anticipated launch of OpenAI’s GPT-5, marketed as a “PhD-level expert”, disappointed investors and analysts alike, raising questions about the pace of innovation. It’s important to acknowledge seasonality also plays a role as late summer often brings heightened volatility amidst thinner trading volumes. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-08-28-at-10142-PM.png "Screenshot 2025-08-28 at 10142 PM | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Scale of Concentration** Revisiting the beginning of this article, the current concentration at the top of the market is staggering. The S&P 500 has a market cap of approximately $54.3 trillion at the time of writing which accounts for about 80% of the overall U.S. stock market. For size, China’s stock market, which is the second largest in the world, has a market cap of around $14 trillion. This means that the 10 largest S&P 500 constituents are collectively worth almost twice as much as all of China’s publicly traded companies. For investors that means diversification has eroded with the index. It also means that its market-cap weighted nature has supplied double digit returns in 2023 and 2024 and led it to dramatically outperform its equal weighted counterpart over the past decade. Nonetheless, downturns are sharper, deeper, and volatility sustains longer. This was evident during the bear markets of 2020 and 2022, underscoring the fragility of a narrow leadership group. **Looking Ahead** The immediate question is whether today’s leaders – Amazon, Alphabet, Apple, Meta Platforms, Microsoft, Tesla and Nvidia – can sustain their dominance. A near-term test comes this week, when Nvidia, now the world’s most valuable listed company, reports earnings on Wednesday, August 27th. The results will serve as both a barometer for AI-driven spending and a sentiment catalyst for broader equity markets. Yet the bigger picture extends beyond any single earnings point. What matters is not just whether the Magnificent Seven or Ten Titans continue to grow, but whether the broader market can withstand a stumble from its heaviest hitters. Both the Nifty Fifty of the 1970s and the tech titans of 2000 show how quickly concentration can unravel when expectations outrun reality. While today’s market may not be fated to repeat those episodes, the lesson is clear. Heavy is the crown, not by its own weight, but because so few shoulders carry it. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 788596 **Categories:** Insights --- ### [Restless Uneasy Feeling](https://clear-wealth.com/restless-uneasy-feeling/) **Published:** August 26, 2025 **Author:** Clear Wealth Planning **Content:** *“I get this feeling I may know you, as a lover and a friend, but this voice keeps whispering in my other ear, tells me* *I may never see you again”* *–Peaceful Easy Feeling, Eagles, 1972* **A billion stars all around**. It’s all so perfect. The U.S. economy continues to grow at a healthy pace, inflationary pressures remain firmly in check, corporate earnings growth is brimming, and the U.S. stock market continues to advance to fresh new all-time highs. And all of this is happening as the U.S. Federal Reserve is poised to deliver up to two quarter point interest rate cuts before the end of the year to only add to the sparkling market environment. What is there possibly not to love? While life is not theater, all the world is still indeed a stage and the U.S. stock market has historically been a most dramatic player. And much like *Mad Men’s “Tomorrowland”* and *Downton Abbey’s “Cricket Episode” (Season 3, Episode 8)*, I am left with the lingering unease that maybe it all seems just a bit too perfect, thus potentially foreshadowing the inevitable difficulties that lies ahead. ![](https://clear-wealth.com/wp-content/uploads/pef-1.png "- Clear Wealth Planning Solutions") **I know you won’t let me down**. So what could possibly go wrong? Here’s what’s bugging me. Anecdotally, investor optimism is brimming, and for understandable reason. The widespread notion espoused by even the most experienced stock market experts is that the stock market “always goes up”. Thus, investors should take any downside volatility in stride and “buy the dip”, knowing that the market will eventually bounce back and reach new highs. Need proof? I’ve got 16 years of proof, the experienced investor might say while slapping the chart below on the screen. Look at 2010, 2011, 2015, 2016, 2018, 2020, 2022, and earlier this year. All massive dips that took place along the way as the U.S. stock market grew by nearly ten times in price alone. And so it goes, “Stay the course no matter what, and you will be rewarded”. And for any market participant under the age of 40, this conclusion has been nothing other than spot on. ![](https://clear-wealth.com/wp-content/uploads/pef-2.png "- Clear Wealth Planning Solutions") But here is the problem. It hasn’t always been this way. Let’s look at a most recent example, which is the 15-year period from 1998 to 2012 as shown below. ![](https://clear-wealth.com/wp-content/uploads/pef-3.png "- Clear Wealth Planning Solutions") Here we have the opposite phenomenon. For extended stretches during this time period, the notion of “buy the dip” gave way to “sell the rips”. And if it wasn’t for a massive monetary policy intervention that rescued a failing hedge fund in Long-Term Capital Management followed with a massive monetary policy intervention in the wake of the bursting of the tech bubble that inflated a housing bubble that subsequently burst and nearly sucked the entire world down a black hole were it not for an even more massive monetary policy intervention to save the financial system, we would be looking at something vastly different than a sideways moving chart for 15 years. (You might be thinking “*How many more massive monetary policy interventions might we need going forward?*“. Yeah, me too. It’s one of the reasons my head kinda wants to explode a lil bit when I hear repeated calls for the Fed to cut rates just ’cause, you know, they can. I’m a big advocate of keeping some dry monetary powder unless you really need it, because even recent history lived by the 50+ crowd shows that times arise where you *really* need it). So while 16 years from 2009 to the present seems like a really long time, it’s on the shorter side of what are known as secular market cycles, such as the 15 years prior from 1998 to 2012 that overlaps the current phase we are in today. What are these secular cycles? Basically, if you go back through really long periods of stock market history, you will repeatedly find that extended good periods for financial markets will be followed by extended more challenging periods that eventually fill the lessons in our economics and finance college courses for the next few decades (went to college in the 1990s and 2000s? You learned about the perils of “inflation”. Went to college in the 2010s through today? You learned about the financial crisis and the perils of “deflation” – always fighting yesterday’s battles we are). With all of this in mind, we must not forget the following long accepted notions: - *“There is no present or future – only the past happening over and over again – now.” — Eugene O’Neill* - *“History repeats itself, first as a tragedy, second as a farce.” — Karl Marx* - *“Those who cannot remember the past are condemned to repeat it.” — George Santayana* - *“History does not repeat itself, but it does rhyme.” — Mark Twain* - *“Those that fail to learn from history are doomed to repeat it.” — Winston Churchill* It should be noted that the counterbalancing famous quotes about dismissing or blowing off history including sentiments like “*History, Shmistory*” are vastly far fewer and further between. This is for good reason. **Already know how to go**. Still not entirely persuaded that the U.S. stock market entering into a more challenging period is a risk that we face going forward (which are periods that are absolutely great for active management and financial advisory work by the way, as it enables our profession to add true value for clients who need help navigating markets to achieve their long-term goals instead of trying to chase a small and changing handful of mega cap tech stocks irrationally to the upside)? Let’s take it from the top (or perhaps the early middle if you’re benchmarking all the way back to the Buttonwood Tree in 1792. We’ll start with the period from 1871 to 1898, which is 28 years. We see a U.S. stock market that outside of a massive rip from 1877 to 1881 was adrift during the entire time period, ending up the century effectively the way it started nearly three decades earlier. This, much like the period from 1998 to 2012, is what would be referred to as a ***Secular Bear Market***. These are prolonged periods where the stock market worked off the excesses accumulated during the previous bull market period. ![](https://clear-wealth.com/wp-content/uploads/pef-4.png "- Clear Wealth Planning Solutions") Let’s continue during a time when the bear reigned supreme and the bull was the afterthought. For the nine year period from 1898 to 1906, we saw the U.S. stock market double in value in a ***Secular Bull Market***. What ended the strong run? The Panic of 1907 (reference the Great Financial Crisis from 2007-2009 for correlation – history rhyming exactly a century later), which led not only to a required period of working off accumulated excesses as described above but also led to the creation of the U.S. Federal Reserve six years later in 1913. ![](https://clear-wealth.com/wp-content/uploads/pef-5.png "- Clear Wealth Planning Solutions") Back to the secular bear for the 15 year period from 1907 to 1921. This period included World War I and the Depression of 1920-21, the latter of which taught us that the way to end an economic depression quickly is to *withdraw liquidity* and let the system cleanse itself more quickly – fast track your way to the bottom. We and the Hoover administration learned such an approach may not actually work so well after all a decade later. ![](https://clear-wealth.com/wp-content/uploads/pef-6.png "- Clear Wealth Planning Solutions") Shifting back to the Secular Bull Market phase, the Roaring Twenties from 1921 to 1929 as shown in the chart below are still well known a century later including the painful demise at the end. ![](https://clear-wealth.com/wp-content/uploads/pef-7.png "- Clear Wealth Planning Solutions")What followed was the equally notorious Great Depression period that stretched the Secular Bear Market for two decades through the end of the 1940s ![](https://clear-wealth.com/wp-content/uploads/pef-8.png "- Clear Wealth Planning Solutions") Once the U.S. economy emerged from the Great Depression and World War II, the economic boom of the 1950s and 1960s fueled a Secular Bull Market run for the next 19 years. ![](https://clear-wealth.com/wp-content/uploads/pef-9.png "- Clear Wealth Planning Solutions") Of course, the seemingly endless post war economic boom ground to a halt starting in the late 1960s due to a series of economic recessions coupled with the outbreak of sustained inflation resulting in the toxic brew of “stagflation” that lasted through the 1970s and into the early 1980s. While the orange line in the chart below suggests that the stock market performed reasonably well during this time period, when viewed through an inflation adjusted lense as shown by the gray line, we see why BusinessWeek magazine slapped the now epically contrarian bottom signal “The Death of Equities” on its 1979 cover (it’s often overlooked that the final bottom did not come until nearly three years later after this cover hit the newsstands). ![](https://clear-wealth.com/wp-content/uploads/pef-10.png "- Clear Wealth Planning Solutions") We finish, of course, with the legendary economic and stock market period from 1982 to 1999 that included the longest sustained economic expansion in U.S. history at the time and culminated with the massive equity bubble to close out the millennium. Talk about accumulated excesses needing to be worked off. ![](https://clear-wealth.com/wp-content/uploads/pef-11.png "- Clear Wealth Planning Solutions") **Already standing on the ground**. All of this brings us back to today. We are currently in the tenth major secular market phase dating back over the past 150 years. This current phase is now running at 16 years and counting. And when we reflect back on the nine previous phases, while some have been longer and others shorter, they typically last around 17 years on average. What this suggests that we are likely already in the late innings if not in overtime in the current Secular Bull Market phase. More importantly, we have no shortage of accumulated excesses that exist today to support the notion that the onset of the next Secular Bear Market phase may be long overdue at this point. Not only are stock valuations trading beyond historical highs on both a one-year trailing P/E and ten-year cyclically adjusted P/E (CAPE) basis, but some other key indicators are also flashing signs of worrisome froth. Consider the market cap-to-GDP ratio, which historically averages around 100% and signals bubble territory for stocks when it is excess of 120%. Where is this reading today? Above 210%. Yikes! Or consider the U.S. government gross debt-to-GDP ratio that has historically averaged 66% since World War II and where 90% is considered the upper limit before economic growth may become meaningfully impaired. Where are we today in the U.S.? North of 124%. Gulp. The last one that I’ll mention ties to the extreme concentration we see in the U.S. stock marketplace today. Historically, when a single sector in the U.S. stock market made up more than 20% of the entire market cap of the S&P 500, it signaled excesses that would ultimately end badly and require an extended period of working off that would last years. More recent examples include the energy sector in the early 1980s, technology at the turn of the millennium, and financials in the mid-2000s. We know how all three of these past episodes ended. Where are we today? Tech makes up more than 34% of the total market cap of the S&P 500, and this doesn’t include the 7% that was sent out of tech and into communication services (Alphabet and Meta) and the 2% that was shifted to financials (Visa and MasterCard). Click all of this together and we’re well above double the historical 20% threshold at 43% to tech. What in the name of dot.com bubble could possibly go wrong? Next, it was also considered a problematic signal when a single company made up more than 6% of the S&P 500. The past three examples in the past fifty years were AT&T in the mid-1970s, Exxon in the early 1980s, and IBM in the mid-1980s all notched this distinction, and subsequent performance for all three stocks were less than stellar in the decades since. Where do we stand today? We have three stocks on the S&P 500 *all right now* that percentages of the S&P 500 in excess of 6% including NVIDIA at more than 8%, Microsoft at more than 7%, and Apple at 6%. Repeat for emphasis, only three stocks in the last fifty years combined versus three stocks all at once today. Check it – if an investor takes $1 million and puts it into the S&P 500 thinking that they are getting broad stock diversification, turns out they are taking nearly a quarter of their money, or $210,000, and allocating it to just three stocks that are all in the same sector. Hmmm. **Bottom line**. The fundamental economic and corporate earnings backdrop for the U.S. stock market is undoubtedly awesome. And there is seemingly no end in sight for U.S. stocks as they continue their ascent to fresh new all-time highs and potentially 7000 on the S&P 500 before the year is out. Nonetheless, we simply cannot ignore the rhythm of historical secular market phases and the fact that we may now be in the very late stages of a secular bull market dating back more than 16 years with accumulated excesses all around us. A secular bear market period where the cleansing of excesses will eventually take place, and we are at no shortage of excesses today that are currently well beyond their historical norms. Thus, remain bullish and constructive on the near-term market environment, but do not lose sight of the building long-term bearish challenges that lie ahead over the next decade. More importantly, remember that secular bear markets are historically the best periods for active management and financial advisory growth through new client acquisition and greater value proposition breadth. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 785805 **Categories:** Insights --- ### [So Fresh, So Clean](https://clear-wealth.com/so-fresh-so-clean/) **Published:** August 13, 2025 **Author:** Clear Wealth Planning **Content:** *“Ain’t nobody dope as me, I’m just so fresh, so clean”* *–So Fresh, So Clean, OutKast, 2000* **Gator belts and patty melts**. The U.S. stock market remains on one helluva ride in 2025. After starting the year on a December through February consolidation grind, worries about tariffs that eventually were manifested sent the S&P 500 on a -21% tumble through early April. But after giving new fiscal policy meaning to the old monetary policy trope “the pause that refreshes”, the headline index has been vaulting to the upside ever since. While trading less than +4% above it’s previous mid-February highs, the U.S. stock market is back to vibing with swagger. This is fresh and clean and all, but is it real? And is it sustainable? ![](https://clear-wealth.com/wp-content/uploads/1-1.png "1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Feeling like Rollo**. The U.S. stock market continues to come alive as we continue through the second half of the year for good reason. One has to look no further than the latest on corporate earnings to see why the market is exuding style and confidence. The earnings outlook has always been strong in 2025 running in the low double-digits, but remember when earnings season was getting underway a little over a month ago and the financial news media started wringing their hands about the potential for slowing profit growth coming out of 2025 Q2 earnings season? Yeah, not so much. Check it. At the start of 2025 Q2 earnings season, the actual profit growth forecast for the next four quarters is shown in the chart below by the dark red bars. Rock solid in the 12-15% (I’m still puzzling on where everyone was getting the 5%ish growth estimates heading into earnings season. C’mon!). Where are we today coming out of earnings season with roughly 80% of companies having reported? While companies typically revise their profit outlooks lower the closer the future draws closer to reality, they instead revised their already lofty outlooks higher as shown by the orange bars below to the 14-17% range. Showtime at the Apollo indeed! ***S&P 500 Annual As Reported Earnings Growth (%)*** *12 Month Earnings Per Share As Of 8/6/2025* *Historical data in blue, forecasted data in red and orange* ![](https://clear-wealth.com/wp-content/uploads/2-1.png "2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") *Source: S&P Global* Let’s dig a little deeper into the fundamentals. Keeping it clean, here is an early look at the Atlanta Fed GDPNow forecast for 2025 Q3. So fresh at +2% coming out of the gates for the current quarter based on the data, once again well ahead of more pessimistic “blue chip” economist expectations at a time when green, green from the Atlanta Fed in the chart below has been getting it right and blue from the economists has been getting it wrong. ![](https://clear-wealth.com/wp-content/uploads/3-1.png "3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") What about inflation expectations? Inflation, after all, continues to be the primary downside risk for financial markets as we move through the second half of 2025. The answer, pricing pressures remain cooler than sippin’ a milkshake in a snowstorm. ![](https://clear-wealth.com/wp-content/uploads/4.png "4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting all of this together, all of the core elements to drive stock prices higher – solid economic growth, steadily low inflation, and corporate profit growth – are firmly in place. Ain’t nobody as dope as the U.S. stock market right now. **(In my mind) the sky is falling**. With all of this stock market style and swagger, what could possibly go wrong? Remember, this is the U.S. stock market that we’re talking about. Yes, it has a track record of rising relentlessly over time (never mind the nominal period from 2000 to 2012, the inflation adjusted period from 1966 to 1982, or the inflation adjusted price performance from 1929 to 1986 for that matter – so stale, so dirty? Insert thinking emoji here), but it is not without the types of risk that can send it spontaneously into a bear market and back in lightning speed like it did, oh yeah, just a few months ago. One thing that bugs me is the once again overdue need for some mean regression (mean being “average” that is, not “impressive” or “cool”, and also not “tough” or “intimidating” (or then again maybe on the latter)). Consider the chart below. Following the phenomenal rally since early April, the S&P 500 is once again trading ahead of itself trading 3% above its medium-term 50-day moving average (blue line), which is nearly +5% above its long-term 200-day moving average (red line), which is more than +5% above its ultra long-term 400-day moving average (pink line). Knowing that these trendlines like to converge over long-term periods of time, this means that we could see anywhere between a -9% to -14% pullback on the S&P 500 over a four to twelve week period at any time and it would mean nothing more than a mean reversion within a long-term uptrend that would remain firmly intact. I then think about calendar effects – we are, after all, in mid-August and now entering what is seasonally the worst performing time of year for the U.S. stock market through mid-October. While some years it’s awesome, other years like 2023, not so much. ![](https://clear-wealth.com/wp-content/uploads/5.png "5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Also consider where we are relative to corporate earnings with the stock market today. Yes, earnings are rising, but the stock market as measured by the S&P 500 (blue line in chart below referencing the left axis) from a valuation perspective is running well ahead of its earnings implied price (12 month as reported earnings referencing the right axis in the chart below with the orange line being history and the green line the forecast – source for the data is once again S&P Global) at around 5200 today and 5900 at the end of the first quarter of 2026. It’s important to note that such a move would only take the S&P 500 down from an extraordinarily rich 28 times earnings to a still very rich 23 times earnings. Of course, valuations often do not matter for stocks until they do, which is around the time of an economic recession. With GDP growth projected to stay positive, this remains a worry for another day at least for now. S&P 500 Index (L, blue line) vs. S&P 500 12-Month As Reported Earnings ($, R, orange line / green line forecast) ![](https://clear-wealth.com/wp-content/uploads/6.png "6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") *Source: S&P Global* I then turn my attention to the CBOE Volatility Index, or VIX, which is a measure of “fear” in the stock market place. While we are not steadily operating at COVID period levels, the VIX remains elevated in the high teens and is not beyond spiking north of 60 over the past year, which is a stock market data way of saying that investors have had moments of super freaking out in recent months. ![](https://clear-wealth.com/wp-content/uploads/7.png "7 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Get to running off at the mouth**. This brings me to another worry. Don’t get me wrong, I get it. We live in an era of kayfabe politics in 2025 (unless we’re in the aftermath of a lost election – fleeting neokayfabe?). Washington DC has always been a performative stage, but now Reps, Senators, and Executives (and even some Judges) come packing chairs and the figure four leg lock to get their moment in the spotlight. It is important when watching the financial news and/or CNN, FoxNews, MSNBC to take everything we are hearing with a long reflective pause and a gigantic block of salt regardless of wherever you may reside on the political aisle (remember, the commentators on these networks are just as down with kayfabe as the pols they are reporting on – eyeballs must be attracted to sell advertising, after all). Nonetheless, the steady rumble of daily headline risk is set to continue for financial markets no matter how desensitized it may become. More specifically, a paradox continues to unfold that also has the lingering potential to rattle financial markets in the weeks ahead. Here is the apparent contradiction. We’re supposedly living in the greatest economy ever since the formation of the solar system (wait a second, what about the 9-18 month response lag of fiscal policy on the U.S. economy? Does this mean that credit for today’s economic super strength is owed to the previous administration? Is this Chief Market Strategist going kayfabe himself!?! Nah. Frankly, whether the current leadership in Washington is Democratic, Republican, Green, Libertarian, or from Mars, their impact on growth is at best on the margins. Economy gonna economy – you largely get what you get when you’re in office). So why then are the calls out so aggressively for the U.S. Federal Reserve to cut interest rates? If everything is so awesome and we just passed a big, beautiful fiscal policy bill that’s going to make things even “awesomer”, shouldn’t the Fed be keeping their powder dry and not lower interest rates? In fact, shouldn’t the Fed be thinking about the possibility of raising interest rates to counterbalance the already strong backdrop we outlined above coupled with the additional fiscal stimulus coming down the pike. Clearly, there is no shortage of liquidity when meme stocks that are otherwise on a fast track toward bankruptcy start spiking by more than +200% in post COVID, GameStop-ish, 2021 style. Unnecessary rate cuts are how an economy and markets that are thriving today can quickly become derailed by a scorching case of inflation in a few months time. It is important to remember that the calendar flipped for the economy and financial markets from 2021 to 2022 not that long ago, and both monetary and fiscal policy makers from both sides of the political aisle had their fingerprints all over that inflation mess. Nonetheless, the Fed is set to cut interest rates by a quarter point according to today’s projections when they next meet on September 16-17. Stay tuned. **So fresh, so clean, but not without risk**. The economy and financial markets are giving investors good reason for swagger and flex. Economic growth remains solidly positive, inflation pressures are under control, and corporate earnings are growing at a double-digit rate. But style and stride can lead to overconfidence. Not only is the market now once again overdue for a pullback, but downside risk catalysts remain that should be monitored closely as we continue through what is historically the most challenging months of the year for financial markets. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 782357 **Categories:** Insights --- ### [Powell Under Pressure](https://clear-wealth.com/powell-under-pressure/) **Published:** August 5, 2025 **Author:** Clear Wealth Planning **Content:** Nothing says monetary tension like a photo op in hard hats. When President Trump and Fed Chair Jerome Powell toured the under-renovation Marriner S. Eccles Federal Reserve building in Washington D.C., the visit was more than just a symbolic walkthrough. It marked the latest chapter in Trump’s long-running campaign to pressure the central bank into cutting interest rates. Trump and Powell’s uneasy relationship stretches back further than many remember. In November of 2017, Trump nominated Powell as Fed Chair. By mid-2018, after the FOMC had raised rates twice, Trump began publicly expressing dissatisfaction. In a July 2018 interview with CNBC, he said he “didn’t approve” of the hikes but still backed his nominee, calling Powell “a very good man.” He concluded the interview noting on the rate hikes, “I am not happy about it. But at the same time, I’m letting them do what they feel is best.” That tone didn’t last. By 2019, after two more interest rate hikes in 2018, President Trump’s frustration with Powell boiled over. He repeatedly criticized the Fed’s actions and famously compared Powell to “a golfer who can’t putt.” As the global economy inched closer to a then-unseen pandemic-era collapse, Trump intensified his demands for rate cuts and eventually, he got them. In the latter half of 2019, the Fed cut rates. Not once. Not twice. But three times. Trump remained unsatisfied. The day after the final 25-basis point cut brought the range down to 1.50% – 1.75% President Trump tweeted, “China is not our problem, the Federal Reserve is!”. Given that history, it’s no surprise that Trump is again urging the Fed to ease rates from their current 4.25% to 4.50% range. **Back in the Crosshairs** Even before retaking office in January 2025, Trump made clear that Powell’s job was far from secure. In early 2024, he stated he would not renominate Powell if reelected. Since then, he has escalated his critiques of the Fed’s policy and Powell’s leadership. His latest pressure point is the more than $2 billion renovation of the Federal Reserve’s headquarters. The Trump administration has questioned the scale and cost of the project, and just a week before the photo-op tour, Trump suggested that Powell’s handling of the renovation “could be grounds for firing.” He later walked back the comment. Now as the FOMC kicks off its July meeting, the central bank is widely expected to keep rates unchanged for the fifth straight time. While markets are pricing in near certainty of a hold, the FOMC minutes and Powell’s remarks may offer clues about whether a rate cut could arrive as soon as September. With Trump increasing the political heat, every word will be scrutinized. ![](https://clear-wealth.com/wp-content/uploads/1.png "1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **The Case for a Cut** While independence of the Federal Reserve is essential to sound policymaking, the question arises: Is the President simply “working the referees” of our interest rate environment because they’ve made the wrong call? Below are several reasons why a rate cut might be economically justified. **Recession Risk and Economic Softening** Although talks of a recession have cooled, cracks are still showing beneath the surface. The U.S. economy has remained resilient, supported by consumer spending, a tight labor market, and equity markets hitting all-time highs. Broader data tells a more cautious story. The Conference Board’s Leading Economic Indicator, a composite measure of forward-looking indicators, continues to flash recessionary signals. Manufacturing hours are near their October lows, private new housing permits have retreated from 2021 highs, and consumer business expectations remain pessimistic. The Fed has historically acted preemptively to preserve expansions by cutting rates in response to subtle but mounting weakness. If growth data further deteriorates, the case for a rate cut will strengthen. **Debt Servicing Relief** Trump has zeroed in on the rising cost of federal debt and for good reason. After two years of aggressive rate hikes in 2022 and 2023, the U.S. federal government is now spending more on interest payments than on national defense. With deficits at historic peacetime levels, high interest rates threaten to crowd out public investment. But the burden isn’t limited to Washington. Households and corporations with floating-rate or maturing debt are facing a sharp rise in borrowing costs, which curtails spending and investment. In lower-rated segments of the corporate bond market, refinancing risk is growing. While the Fed’s mandate doesn’t explicitly include managing debt loads, the increasing strain of interest payments across the economy is becoming harder to ignore. ![](https://clear-wealth.com/wp-content/uploads/2.png "2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Persistently High Mortgage Rates** Mortgage rates near multi-decade highs are freezing the housing market. Affordability has plummeted, sidelining first-time buyers and dampening demand. This slowdown extends beyond home sales, affecting construction, durable goods, and consumer confidence. With refinancing opportunities vanishing and equity withdrawal curtailed, the housing sector’s drag on consumption is intensifying. In regions heavily reliant on construction or housing-related services, the pain is even more acute, creating pockets of recessionary pressure that feed into broader concerns about growth. If weakness in housing begins to spill over into employment and demand more broadly, the Fed may find itself compelled to ease policy despite inflation concerns. ![](https://clear-wealth.com/wp-content/uploads/3.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") **The Case Against a Cut** Despite growing calls for a cut from the White House, the Federal Reserve has compelling reasons to stay the course. **Inflation Persistence and Labor Market Strength** Perhaps the most fundamental argument against a rate cut is that inflation, while cooler than its 2022 peak, remains above the Federal Reserve’s long run target of 2%. Particularly sticky categories include services, shelter, and wages. Easing rates too soon runs the risk of reaccelerating price pressures just as the Fed is making progress. Historically, premature rate cuts during inflationary periods have led to stop-and-go policy mistakes, which can destabilize markets and extend the timeline for restoring price stability. Think Fed Chair Arthur Burns in the 1970’s who eased too early and let inflation run rampant. Compounding the challenge is a labor market that, although softening at the margins, remains historically tight. Unemployment is still low, job creation is positive, and wage growth while moderating continues to run above pre-pandemic levels. As long as consumer spending holds up and employers continue hiring, the Fed has little immediate economic justification for pivoting to a more accommodative stance. ![](https://clear-wealth.com/wp-content/uploads/4.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") **Fed Independence and Credibility Risk** The Federal Reserve’s strength lies in its independence. If it cuts rates under visible political pressure, especially from a President with a track record of attacking the institution, it risks undermining that credibility. The Fed is designed to be insulated from short-term political cycles for precisely this reason: to make decisions based on data, not electoral timelines or political optics. If markets begin to perceive that rate cuts are being driven by the White House rather than macroeconomic fundamentals, confidence in the Fed’s commitment to price stability and maximum employment could erode. That loss of credibility could have long-lasting consequences, including upward pressure on long-term inflation expectations and Treasury yields. Once independence is compromised, it becomes far more difficult for the Fed to anchor expectations or execute effective future policy shifts. **Financial Conditions Are Still Loose** Despite the Fed’s aggressive tightening cycle, financial conditions across many asset classes remain relatively loose. Equity markets are hitting all-time highs, credit spreads remain tight, and corporate borrowing among investment-grade issuers remains robust. Consumers, while facing higher borrowing costs, continue to spend at a healthy clip, and asset valuations in both public and private markets reflect a risk-on sentiment. In this context, a rate cut could further inflate asset prices and overstimulate risk-taking. The Fed’s goal is not to maximize asset prices but to ensure price stability and sustainable growth. Loosening monetary policy amid such buoyant conditions could overstimulate the financial system. As the July FOMC meeting gets underway, the Federal Reserve faces not just an economic balancing act, but a political one. President Trump’s calls for lower rates are loud, persistent, and public. But history shows that yielding to political pressure often comes at a high cost. Whether or not a cut is appropriate will depend on the hard data, not headlines. And for Powell and the FOMC, the challenge is clear: hold the line on credibility while staying responsive to a shifting economic landscape. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #: 776446* **Categories:** Insights --- ### [Coldplayed](https://clear-wealth.com/coldplayed/) **Published:** July 29, 2025 **Author:** Clear Wealth Planning **Content:** **Coldplayed,** *verb* 1. Emotionally disappointed from being caught up in high hopes, only to be let down 2. Being unintentionally exposed while cheating in public **Trouble.** It’s been a tough week for people having affairs at concerts. A few key themes have risen to the surface in the process. One, there may actually be such a thing as bad publicity after all. Another, key person risk is real for more than just companies starting with “T” and ending with “esla”. But when looking past the Jumbotron sized elephant in the room, what is also highlighted is an ongoing chronic reality for investors that size may no longer matter the way it used to. Let’s ignore the players and instead focus on the stage. Astronomer, a company that I had never heard of until just over a week ago (undiscovered), is a company that helps its client firms move and manage their data automatically and reliably so that they can run AI models and make better strategic decisions. Their clients include well known names such as Apple, Ford, Marriott, Uber, and Autodesk. While it is still unprofitable and scaling to date, it is posting triple-digit year-over-year revenue growth with an expected path to profitability within the next two years (high growth). Prior to recent headline stealing events and perhaps even after, this company is a typical up-and-comer that likely would appeal to the investor seeking to build a portfolio roster with the “next big thing”. But here’s the problem. You can’t directly own this company, because it’s not publicly traded. And it probably won’t be for at least the next two years if not longer (assuming it can shed the recent bad publicity). The story of Astronomer (the company, not the Coldplay concert attending former CEO and head of HR) is not unique. And it continues to increasingly plague the mid-cap and small cap areas of investment markets that used to call companies like this home. There was a time not that long ago when companies that had high growth potential would tap the public markets by listing shares of their company on the NYSE or the NASDAQ in order to raise capital to fund their next great phase of growth (remember the IPO boom of the late 1990s among others?). These companies would enter the small cap indices like the Russell 2000 and rise their way through the ranks hopefully to S&P 500 large cap greatness. For example, when Amazon went public back in May 1997, it boasted a market cap of $438 million which at the time was square in the middle of the typical small cap space. Today, it ranks as the fourth largest company in the world with a $2.4 trillion market cap including a brief stint as the largest company in the world back in 2019. Another example, a company you might have heard of named NVIDIA debuted in January 1999 with a market cap of $626 million. Small cap. Today? The largest company in the world with a more than $4 trillion market cap. Today, the notion of “finding the next Amazon or NVIDIA” simply does not exist in any realistic way. Why? Because legions of companies like Astronomer with attractive business models and impressive growth are not going public. Instead, they are staying private for much longer. Why? Simple. The access to capital is cheaper and abundant in the private equity space, and as an owner you can remain focused on long-term strategic growth without having to answer to the short-term pressure of quarterly earnings expectations from the average Joe investor in the public market place. By the time you and your private equity supporters decide to take your company public, in many cases these companies are entering the market already in the mid-cap or large cap space. As one of many examples, specialized cloud provider CoreWeave recently entered public markets with a $23 billion market cap. Welcome straight into the big leagues. This among other reasons helps explain why we had more than 7,500 publicly traded companies in the U.S. at the end of the 1990s but only have just over 5,500 today. This ongoing trend of the companies with leading growth potential staying private for longer (what was at one time 6-7 years on average is now as much as 11-12 years on average) has increasingly gutted what was once the higher octane area of the market in mid-cap and particularly small cap stocks, as the shiniest stars that used to help drive the higher than average returns from the space for so many decades no longer reside in this area of the market. Consider the investor freshly coming out of the financial crisis in 2010. Disciplined and with a long-term view, they open up their Ibbotson SBBI yearbook and confirm once again the following based on returns from 1926-2009 (84 years is a solid long-term time period for reference): - **Large Cap Stocks:** Annual Return 9.8%, Standard Deviation 19.6% - **Small Cap Stocks:** Annual Return 11.9%, Standard Deviation 32.0% Small cap stocks are indeed more risky than large caps (much higher standard deviation). But an investor over 84 years of history was compensated for this higher risk in pursuing the likes of the next Amazon or NVIDIA with more than two percentage points of annual returns, which if compounded over long-term periods of time adds up to a lot of extra money. But much to the Coldplayed investors dismay starting in 2010, such has been the experience since through June 2025: - **Large Cap Stocks:** Annual Return 13.7%, Standard Deviation 14.5% - **Small Cap Stocks:** Annual Return 9.8%, Standard Deviation 19.8% Small caps over the last fifteen years have delivered four percentage points less in annual returns with considerably higher risk. Ugh. Unfortunately for small caps and mid-caps to a lesser extent, this phenomenon is not only a byproduct of more companies staying private for longer in the private equity space, but a number of other fundamental factors that include the following for those that remain in the publicly traded space: - Slower relative growth - Less ability to scale globally and access growth abroad - Higher interest rate sensitivity - Higher cost of capital - Greater labor costs and supply constraints - Margin compression - Reduced liquidity, market coverage and institutional interest These are all relatively negative competitive forces for the broad mid-cap and small cap stock spaces that are not likely to diminish anytime soon. If anything, they could become more pronounced as we continue through the remainder of the decade and beyond. **Clocks.** For all of the reasons cited above, it is reasonable to justify a reduced weighting to mid-cap and small cap stocks relative to large cap stocks in a broad asset allocation model portfolios. But this does not mean that the mid and small cap space should be abandoned altogether. The category still likely to have its bursts of relative outperformance, particularly given deeply discounted relative valuations and periodic macroeconomic tailwinds (lower interest rates, emphasis on onshoring/reshoring domestic production). Moreover, just because the category may have relative disadvantages from a broad brush stroke perspective, selected and more targeted attractive total return opportunities will still emerge from this area of the public market place. The key is a focus on active managers with the demonstrated skill and expertise to uncover these more curated and targeted opportunities going forward. **Bottom line.** The U.S. investment landscape has shifted from a size perspective since the Great Financial Crisis. The reward of higher annual returns for the risk of owning smaller company stocks has given way to large cap return dominance along with lower risk, and these trends may continue for the foreseeable future. This helps justify a reduced allocation to mid-caps and small caps in asset allocation portfolios. With that said, more targeted outsized return opportunities along with short-term periods of relative outperformance will continue to exist in the space, supporting a continued, more specialized allocation at a lower overall weight. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 774258 **Categories:** Insights --- ### [10 Years Gone](https://clear-wealth.com/10-years-gone/) **Published:** July 21, 2025 **Author:** Clear Wealth Planning **Content:** Last week, I had the opportunity to visit our GVA Advisors in Boca Raton, Florida. This week’s article is inspired by the great conversation we had during our stay with some of our Advisor friends over dinner (one of which I look forward to potentially hearing play the guitar someday!). *“Then as it was, then again it will be An’ though the course may change sometimes Rivers always reach the sea”* –Led Zeppelin, Ten Years Gone, Physical Graffiti, 1975 The path of capital markets over the past decade is clear and definite. The U.S. stock market has dominated the stage, led by the biggest common stock stars of them all in the mega cap space. Growth has trounced value by nearly three times over this time period, with the greatest winners of them all coming specifically from the tech space. With so much good fortune coming from such a narrow segment of capital markets, it raises the question as to whether the principles of broad portfolio diversification have become trampled under foot. Despite the ten years gone, portfolio diversification is arguably as important as ever as we move through the next ten years from now. *“Blind stars of fortune, each have several rays On the wings of maybe, down in birds of pray”* –Led Zeppelin, Ten Years Gone, Physical Graffiti, 1975 Indeed, a broad array of asset classes have relatively struggled over the past decade. This list includes the aforementioned value stocks along with U.S. mid-caps, U.S. small caps, developed international stocks, emerging market stocks, bonds, and precious metals. But just because they underperformed over the entirety of the last decade does not mean that they did not have their times of extended virtue along the way. For example, consider the performance of gold over the last three and a half years since the start of 2022 through today. Despite the phenomenal stock market run over this time period, the barbarous relic has generated nearly three times the return over this same extended period. And these results are coming from an asset that has comparable price volatility to the S&P 500 but travels a total return path along the way that is almost completely uncorrelated with a coefficient at +0.13. Much ballyhooed tech sector up +53% over this same time period, eat your heart out. ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-07-18-at-73502-AM-scaled-1.png "Screenshot-2025-07-18-at-73502-AM-scaled | Great Valley Advisor Group - Clear Wealth Planning Solutions") Nevertheless, I am reminded of the classic quote from an advisor who stood amid a restless audience at a national conference in September 2000 and boldly asserted the following rhetorical question to the presenter espousing broad portfolio diversification (no, it wasn’t me at the lectern that day, but my time was gonna come in the years that followed). *“We all know that technology stocks are going to dominate the market over the next ten years, so why then are we allocated to anything else in our investment portfolios?”* Umm. . . ![](https://clear-wealth.com/wp-content/uploads/Screenshot-2025-07-18-at-73514-AM-scaled-1.png "Screenshot-2025-07-18-at-73514-AM-scaled | Great Valley Advisor Group - Clear Wealth Planning Solutions") I’m guessing down as much as -80% is not what bro had in mind. Ten years gone is a wicked understatement. But you know what performed really well and posted positive returns over this same 2000s time period? Value stocks, mid-caps, small caps, international stocks, precious metals, and *commodities*. This highlights an important point. Winners across capital markets move in and out of favor over time. These phases are often secular in nature, which is why I’ll sometimes reference market cycles going back to the late 1800s because you need it to assess how conditions unfold and securities perform over multiple cycles that can last 17 years or more at a time on average in many cases. This doesn’t mean that mega cap growth tech stocks aren’t going to continue to kill it between now and 2035. But it also doesn’t mean that their not going to take a custard pie to the face either. Such are the continued wings of maybe confronting investors with every new capital market phase. *“Kind of makes me feel sometimes, didn’t have to grow* *But as the eagle leaves the nest, it’s got so far to go”* *–Led Zeppelin, Ten Years Gone, Physical Graffiti, 1975* **Graffiti**. You may have noted in the passage above the italicized emphasis on *commodities*. Talk about ten years gone for this woebegone asset class. Diversification? Indeed, with a low total returns correlation with the S&P 500 of +0.37. Di-“worse”-ification? Perhaps, with a cumulative return for commodities over this time period that is barely positive with marginally higher price volatility versus the S&P 500 that has been crushing it with double-digit annualized returns over the same time period. Why even bother discussing such a moribund asset class after so many dismal years? Because it wasn’t always this way for commodities. And it may not be this way again over the next ten years. Consider the period from 2000 to mid-2008. At a time when the cumulative return on the S&P 500 was negative, commodities were posting double-digit annualized returns fueled by robust global demand including most notably China. Remember watching CNBC in 2007 when everybody was buzzing about “rare earths” and were trying to get nailed down the correct pronunciation of *molybdenum*? It wasn’t because commodities were performing poorly at the time (hear anyone on the telly lately trying to wrestle out the name *dysprosium*? Yeah, me neither). So why even consider commodities today? It’s not because the price of commodities like copper and cocoa have outperformed a U.S. stock market that has been raging in its own right since the start of 2024. That’s anecdotal. Instead, it’s because the four-decade bull market in bonds ended back in 2022 for a reason. It’s because higher inflation is likely here to stay for the foreseeable future. It’s because a world that once seemed destined for perpetual globalization kumbaya in the years immediately following the end of the Cold War (remember Bush sharing a now notorious barbeque with Putin back in the day? “I looked into his eyes and I saw a soul. I trusted him”. Insert ironically pensive emoji in 2025 here (not a politically partisan knock mind you, as I could riff on Obama-Putin material just as easily too – remember the 2012 Presidential debate? I guess that “call from the 1980s” was answered after all – ooof)) is increasing retrenching toward disglobalization if not outright deglobalization and regional spheres of influence. It’s because the still strong U.S. dollar may be entering a prolonged period of weakening (is Jay Powell still Fed Chair right now? Lemme check). And it’s because there is a national security reason why the U.S. is poking around in places like Greenland and the Ukraine talking about “mineral rights” (the U.S. is not alone in poking around about “mineral rights” btw). It’s because commodities that may not have mattered in aggregate for quite a while are increasingly mattering as we continue through the 2020s. Does this mean that we run out and go all in on commodities today? Absolutely not. Instead, it means that we shouldn’t summarily dismiss the asset class because it was total return garbage over the past decade. After all, gold had the same “negative returns with high risk” look as commodities at the end of the last millennium following a prolonged bear market that stretched through the 1980s and 1990s (twenty years gone?) at a time when tech stocks were rocking. And in the quarter century that followed from 2000 to 2025, gold has outperformed U.S. stocks by a healthy margin. Could the same be setting up for the broader commodities space today? Only time will tell, but it will take time. Thus, any such portfolio allocations to the category are best made on the margins, which is another way of saying gradually and incrementally if at all. *“The guitar, the drums, the vocals – it all blended into something powerful”* *–Jimmy Page, Becoming Led Zeppelin, 2025* **Bottom line**. All of this highlights a broader important point. Just as a symphony orchestra may have 30 violinists or more performing the melodies, harmonies, and rhythmic support in making beautiful music, and just as Jimmy Page blended 14 guitar tracks in creating an instrumental masterwork for their sixth studio album, an investment portfolio is best served to draw on a variety of different asset classes, categories, and sub-categories that are largely uncorrelated but have the ability to independently generate positive results over time in achieving the powerful harmony of more consistent and predictable risk-managed returns over long-term periods of time. It’s about making beautiful investment music. And this may even include incorporating asset class instruments that may have been gathering dust for years until now. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 770889 **Categories:** Insights --- ### [2025 Second Half Outlook](https://clear-wealth.com/2025-second-half-outlook/) **Published:** July 9, 2025 **Author:** Clear Wealth Planning **Content:** The second half of 2025 is underway. And now that we’ve enjoyed our final Fourth of July festivities before the big Bisesquicentennial celebrations next year (250 years is hard to believe – I can still remember standing on the side of the road in back in 1976 watching the Bicentennial Wagon Train Pilgrimage roll by as it wrapped up its trip across the country to Valley Forge – apparently I’ve aged a bit since then), it’s a good time to reengage with the markets and what we can expect through the remainder of the year. **U.S. stocks – BULLISH**. Let’s get right to the good stuff. Barring the unexpected idiosyncratic and/or exogenous event happening along the way, the U.S. stock market as measured by the S&P 500 is set to move higher in the second half of 2025. Why? The U.S. economy remains resilient with Real GDP growth projected to continue at 2% or better through the third quarter. Yes, some are projecting U.S. economic growth will start to fade in 2025 Q4 with forecasts dipping into the 1% range, but it’s important to note that blue chip economists have been calling for an economic slowdown going all the way back to 2022 and it just keeps not happening. And instead of relying on the cloudy crystal balls of the various hit-or-miss economists, I prefer to continue to refer back to the collective earnings forecasts of the 500 companies (pretty good sample size as statistical samples go) that continue to project earnings growth in the range of +12% to +15% through 2026 Q1 tariffs be damned. With inflation expectations still firmly in check – repeat, tariffs be damned! – we have a tasty recipe for continued stock market gains (valuations be damned too! – sure stocks are salty to say the least at more than 28 times earnings, but history has shown that frothy valuations do not matter until they matter a lot, but this is typically when corporate earnings decline and the economy falls into recession, and neither of these conditions are imminent today). Before we go any further, it is important to caveat this bullish stock market outlook for the remainder of 2025. This is a six-month projection, but we must remember that stocks typically move in a “three steps forward, one step back” pattern. And where we stand today after a phenomenal upside burst to end a phenomenal quarter (particularly if you exclude the first five trading days in April) is an S&P 500 that is now well overdue for a measurable “one step back” pullback. This is evidenced in the chart below, as the S&P 500 is trading well above its short-term 20-day (green dashed line), medium-term 50-day (blue line), long-term 200-day (red line), and ultra long-term 400-day (pink line) moving averages at the same time that its Relative Strength Index is reading nearly 76 (anything over 70 means a pullback is overdue). As a result, we should not be surprised to see the S&P 500 fall back anywhere between -3% to -7% starting any day now, and this would be totally normal and healthy in the context of the continued ongoing uptrend in stocks dating back to October 2022. ![](https://clear-wealth.com/wp-content/uploads/secondhalf-1.png "secondhalf-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Beyond any short-term pullback and focusing on the longer-term market trend given the underlying positive fundamental backdrop, we should not be surprised at all to see the S&P 500 trading in the 6500 to 6700 range by the end of 2025, which is +4% to +7% higher than where it closed on Friday. Will tech continue to lead the charge? Potentially, but don’t be surprised if many of the other sectors increasingly join in on the upside as the year progresses. For as expensive as the broader market may be, the sectors that are not tech or tech adjacent (communication services, consumer discretionary) are trading at historically discounted valuations in many cases. **U.S. bonds – NEUTRAL**. I love the bond market. In fact, I find it more interesting than the stock market – so much bigger with so many differentiated categories and sub-categories. The bond market is a bad a$$ too – want to get the President to knock it off on tariffs? Call on the bond market. Want to start a financial crisis? Bond market once again. It is also has a great long term history of portfolio diversification given its low correlation with the stock market (assuming inflation is in check, of course). But with all of this being said, the outlook for U.S. bonds is neutral at best for the remainder of 2025. Not that it’s bad, but it’s not great either. Why? First, it’s important to note that the four-decade long bull market in bonds from 1981 to 2021 is now officially over. Forty years is a phenomenal run, but you gotta expect some consolidation is going to play out at least for the next few years in the aftermath. This is particular true given that inflation, while currently under control, is still sticking higher than it had been from 2008 to 2021 in the aftermath of the Great Financial Crisis in a world drifting toward disglobalization/deglobalization and onshoring of production. And given that the just passed Federal budget contains a lil bit of deficit spending over the next several years, these are the types of things that are not only economically stimulative (marginally bearish for bonds) but also weaken domestic fiscal health (marginally bearish for bonds) and potentially lead to higher borrowing costs (plainly bearish for bonds – as yields rise, bond prices fall). ![](https://clear-wealth.com/wp-content/uploads/secondhalf-2.png "secondhalf-2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting this all together, expect U.S. Treasuries to continue to oscillate in its 3.75% to 4.75% trading range on the 10-year for the remainder of the year just as it has since the summer 2023. If concerns about the economy slowing finally end up manifesting, expect yields to drift to the low end of this range. Conversely, if the economy accelerates more quickly than expected and brings inflationary pressures along with it, expect yields to push toward the high end of the range if not beyond. Overall, risks for the bond market are marginally tilted to the downside (higher yields). Nonetheless, bonds continue to offer attractive interest income north of 4% for prime quality lending, particularly for those that are inclined to operate on the shorter duration side of the market. **Commodities**. Only the facts here. Let’s start with precious metals. Gold has been on a tear for years now, having more than doubled since the October 2022 low in stocks. And since the start of 2024, gold has been very well behaved from a technical price perspective, finding consistent, repeated, and steady support at its 50-day moving average (blue line in chart below). At present, it is trading right at this technical support level, and the trend remains definitely to the upside to date. ![](https://clear-wealth.com/wp-content/uploads/secondhalf-3.png "secondhalf-3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") As for the rest of the commodities complex, it remains a mixed bag. Dr. Copper is trading at all-time highs – good classic predictor for the overall health of the economy, while coffee and cocoa have recently backed off scorchingly high prices. For all of the fuss about not being able to get a deck built during COVID, lumber prices have been back down to 2018 levels for some time. As for oil, it is still trading below 2006 levels even after the Israeli attack on Iran, hence the cost we pay at the pump for a gallon of gas is about the same as it was twenty years ago. Sugar? Trading today below levels first reached in 1990. Cotton? Less today than it cost back in the early 1980s. Why rattle off all of these commodities? Because if the prices for most if not nearly all of our raw materials are the same as they were twenty, thirty, forty years ago or more, it provides further confirmation that inflation pressures remain solidly in check despite understandable concerns otherwise. **Bottom line**. The second half of the year is underway, and the outlook for stocks beyond an overdue short-term pullback is favorable through the rest of 2025. The outlook for bonds is choppier, but is an asset class that is still well positioned do its diversifying, income producing job. As for the commodities space, the rise in gold has been steady and well behaved from a technical perspective. We wish you all a safe and prosperous second half of the calendar year! **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #: 765054 **Categories:** Insights --- ### [The Power Strain](https://clear-wealth.com/the-power-strain/) **Published:** July 2, 2025 **Author:** Clear Wealth Planning **Content:** The explosive rise of artificial intelligence has made semiconductors the new oil, but electricity may become the new constraint. As demand for data centers surges, driven by large language models and the companies that are building them, America’s power grid is being pushed to its limits. The U.S. is beginning to face a growing energy crisis, compounded by geopolitical tensions and a stalled transition to sustainable resources. **The AI Energy Drain** The rise of artificial intelligence is reshaping not just software and hardware; it’s shaking the very foundation of America’s energy grid. The average query typed into ChatGPT requires about 10 times as much electricity as a Google Search. This is according to Goldman Sachs who in a recent report cited that they expect overall electricity demand to rise approximately 2.4% from 2022 to 2030. AI workloads are extraordinarily power-hungry, and the data centers needed to support them are being built at a staggering pace. According to a recent report by the U.S. Department of Energy and the Lawrence Berkeley National Laboratory, data centers could consume up to 12% of all U.S. electricity by 2028, up from roughly 3-4% in 2022. That would mark a fourfold increase in just six years – a growth curve that rivals the early internet era but with exponentially higher power demands. ![](https://clear-wealth.com/wp-content/uploads/power1.png "power1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Globally, data centers consumed about 415 terawatt-hours of electricity in 2024, accounting for around 1.5% of total global power usage. This figure is comparable to the total consumption of Saudi Arabia. Advanced AI models like OpenAI’s ChatGPT-4 and Google’s Gemini require not only massive computational firepower to train, but also continuous electricity to run inference at scale. To put it in perspective, at the current growth rate, AI data centers could require over 20 GW of power capacity by late next year or early 2027. This is the equivalent to the output of 20 large nuclear reactors. Beyond national statistics, the demand is concentrated in particular regions. States like Virginia, Texas, Illinois, and Georgia have become major hubs for data center development due to tax incentives, access to land, and relatively low-cost electricity. Northern Virginia, dubbed “Data Center Alley” already hosts the highest concentration of data centers in the world and Dominion Energy, the state’s primary utility, has warned that demand is beginning to exceed what the local grid can reliably deliver. ![](https://clear-wealth.com/wp-content/uploads/power2.png "power2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") This energy crunch bears little resemblance to the internet boom of the 1990’s. Then, the bandwidth was the bottleneck. Now, it’s raw power. The leap from web hosting to running multi-trillion parameter AI models is a massive shift in scale. To put things in further perspective, ChatGPT currently has over 400 million weekly users, but there are around 5.3 billion internet users globally. Imagine if every internet user decided to start using the energy-intensive ChatGPT. Not to mention, ChatGPT servers are located primarily in the U.S. With 5,400 total data centers in the United States the constant uptime and immense cooling infrastructure are further problems that can’t be ignored. Unlike traditional software applications, which can often run efficiently on standard CPUs, AI applications lean heavily on GPUs and other high-performance semiconductors/chips that consume far more electricity per computation. In short, AI isn’t just consuming compute – it’s devouring electricity. If growth projections hold, the infrastructure built to support the AI revolution may become one of the largest single drivers of energy demand in the U.S. The question is no longer whether the need is real. The question is whether the United States has the power system to keep up. **America’s Aging Infrastructure** The answer is complicated. Much of America’s electric grid was built in the 1960’s and 1970’s and today, about 70% of the nation’s transmission lines are over 25 years old. According to the U.S. Department of Energy, many of these lines are approaching the end of their typical 50-80 year lifespan, putting the country at increasing risk of grid failures. Without major upgrades, the consequences could be severe – ranging from frequent blackouts, to cybersecurity vulnerabilities, to emergency level disruptions from aging, overloaded infrastructure. The growing electrification of everything – cars, homes, factories, and now AI infrastructure – adds to the urgency. Yet despite the bleak state of the current grid, there are signs of momentum. In October of 2024, the Department of Energy announced the second round of Grid Resilience and Innovation Partnerships Program (GRIP) funding, directing $4.2 billion in federal funding toward 46 projects across 47 states. Backed by bipartisan support, GRIP aims to modernize grid systems through investments in wildfire prevention, support for disadvantaged communities, and neighborhood resilience. Each of these areas are critical in a more electrified and weather-volatile future. Still, progress isn’t guaranteed. A number of these projects remain in limbo due to the current tax and spending bill stalled in the Senate. Delays in permitting, grid connection approvals, and interstate coordination also continue to hold back large-scale upgrades. The permitting process for transmission lines, in particular often drags on for years because of fragmented regulatory authority. Yet there’s a blueprint for how the U.S. can push forward. The Smart Electric Power Alliance (SEPA) outlines a four-step plan to shift toward a more modern, adaptive grid. First: maximize and optimize existing infrastructure, such as increasing capacity through advanced grid software. Second: protect and reinforce what we already have, including investments in climate and cyber-resilience. Third: improve system flexibility through the integration of distributed energy resources like microgrids and battery storage. Fourth: Align policy and stakeholder collaboration from utilities and regulators to retailers and end users, progress can’t be stymied by red tape or misaligned incentives. While grid modernization lays the foundation, it still begs the question: where will all this new electricity come from? Even the most sophisticated grid is useless without a reliable, scalable power supply behind it. As clean energy struggles to move into the limelight and the AI boom accelerates, the U.S. is being forced to reckon with a familiar reality that traditional energy sources are still very much in play. **Fossil Fuels & the Nuclear Pivot** As the United States races to meet the electricity needs of a more digitized economy, it finds itself relying on an uncomfortable mix of old and new energy sources. Natural gas, often referred to as the transition fuel in the clean energy shift, still plays a central role in supporting grid reliability. It is fast to dispatch, relatively abundant, and cleaner than coal. Nonetheless, there is growing debate over whether it can scale fast enough to meet the accelerating demand driven by artificial intelligence, electric vehicles, and industrial electrification. Pipeline permitting challenges and the slow development of new gas-fired generation plants have created a mismatch between availability and need. Meanwhile, global oil dynamics continue to cast a long shadow over energy markets. Prices have remained volatile due to tensions in the Middle East. In a span of just a few weeks, Brent Crude jumped from $59 to over $81 per barrel driven by heightened conflict between Israel and Iran. The surge sent a clear message to energy markets: even in a world pivoting towards other forms of energy, oil shocks carry enormous macroeconomic weight. ![](https://clear-wealth.com/wp-content/uploads/power3.png "power3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") In response to both short-term energy reliability concerns and long-term decarbonization goals, nuclear power is once again in focus. The resource offers consistent, carbon-free electricity that does not depend on weather or fossil fuel supply chains. Small Modular Reactors or SMRs are leading this renewed interest. These smaller, scalable designs promise shorter construction timelines and more flexible deployment compared to traditional nuclear power plants. Although widespread adoption is still years away, momentum is building. Corporate energy buyers are no longer treating nuclear as a legacy asset but as a critical part of future supply planning. In early June, Meta Platforms signed a 20-year agreement with Constellation Energy to power its Illinois-based data center using energy from the Clinton Clean Energy Center. Microsoft has struck a similar deal with Constellation to commission the historic Three Mile Island nuclear facility in Pennsylvania. Amazon is supporting the development of new SMRs in the Pacific Northwest through a partnership with Energy Northwest. These moves mark a shift from cautious interest to real capital commitments among the largest tech firms in the world. Despite this progress, nuclear power is still challenged by high costs, regulatory delays, and local opposition. Building new capacity often requires navigating both federal and state approvals, while maintaining public trust in nuclear safety remains a delicate task (If you’re not from PA, do some research into March 1979 at Three Mile Island). Even so, the growing alignment between public energy goals and private market demand is giving nuclear a new role in the next phase of America’s power strategy. **Market Implications** The growing energy strain is beginning to influence sector dynamics, investment flows, and long-term economic expectations. Utilities with strong regional footprints and exposure to fast-growing data center markets are positioned to benefit from rising electricity demand. Companies tied to nuclear energy are also gaining attention, especially those involved in small modular reactor development. Data center real estate investment trusts continue to attract interest as investors recognize the importance of power-secure facilities in the age of artificial intelligence. While many opportunities arise within capital markets, the risks are just as significant. Areas with limited transmission capacity or delayed infrastructure upgrades may struggle to attract new investment or retain existing businesses. Consumers and smaller firms could face rising energy bills as utility companies pass along the cost of new infrastructure and generation projects. These cost increases may feed into broader inflation, particularly for energy-intensive industries. This market environment is likely to drive a reallocation of capital across markets, with investors eyeing what could be the golden ticket solution to this energy shortage. Energy infrastructure is becoming a priority and investor interest is expanding to include grid modernization, utility-scale storage, and alternative energy solutions. As the relationship between power and innovation deepens, those who upgrade the infrastructure behind the digital economy may emerge as the next generation of market leaders. America’s technological ambitions risk outpacing its power capacity. The AI revolution won’t be stopped, but without energy to feed it, it may flicker instead of burn. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking** #762553 **Categories:** Insights --- ### [How Times Change](https://clear-wealth.com/how-times-change/) **Published:** June 24, 2025 **Author:** Clear Wealth Planning **Content:** It all seems very bizarre. I was born in 1973, so three ubiquitous kid fears were subconsciously ingrained into my adolescent and adult subconscious. One is an irrational feeling of alarm at the sight of nuclear power plant cooling towers (Three Mile Island accident in 1979). Another is the omnipresent threat that the world will be spontaneously obliterated by global thermonuclear war (the arms race between the US and USSR (the latter acronym still evokes a different time) with the Sunday evening in November 1983 spent watching The Day After along with the rest of the country on ABC serving as the cherry on top – uplifting stuff!). And the third was the understanding that Iran was a formidable enemy to be feared and reckoned with from an area of the world in the Middle East that could really make our lives difficult here in the United States (waiting in line on the highway to get gasoline during what I now know to be the Oil Embargo of 1979 with parody songs like Ayatollah by Steve Dahl (based on My Sharona from The Knack) and Bomb Iran by Vince Vance & The Valiants (based on Barbara Ann by the Beach Boys) playing on the FM dial in the car between updates on the Iran Hostage Crisis). So, following the news in recent days where the Israel/US bombing is seemingly bringing Iran to its knees with sympathizers to the regime largely muted is somewhat surreal to watch. Moreover, the fact that the situation is not only not spawning nighttime news shows (Ted Koppel, where are you now?), but the above the now virtual newspaper fold headlines are being shared with AI’s Biggest Threat: Young People Who Can’t Think shows how times and sentiments have dramatically changed over the last half century. Amid this bizarrely serene backdrop as geopolitical events continue to unfold, it is worthwhile to take a broad look across asset classes to see how the global stock market landscape is responding. **U.S. stocks**. Bombing in the Middle East? What bombing in the Middle East? Make an announcement about imposing unexpectedly high tariffs on our global trading partners, and markets go nuts. Dismantle the nuclear apparatus of a global military foe – whatevs. Has the S&P 500 been grinding lower the last few trading days after peaking at 6059 the Wednesday before last? Sure, but stocks had a far bigger reaction to questions about the U.S. fiscal budget back in May versus what we are seeing today. If anything, today’s U.S. stock market looks like one methodically working its way through a healthy consolidation following a strong rally since early April and gearing up for setting new all-time highs by the time 2025 Q2 earnings season gets started in July. ![](https://clear-wealth.com/wp-content/uploads/times1.png "times1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") But let’s keep going, as the S&P 500 often obscures what is going on with the markets underneath the surface. Let’s begin with a look at the S&P 500 Equal Weighted Index, which looks at all 503 companies in the S&P 500 at the same percentage allocation. A little less rosy but still rock solid. Indeed, we are still trading below the all-time highs from last Thanksgiving, but we have reclaimed upward sloping long term 200-day moving average support (red line in the chart below). And the Relative Strength Index (RSI) is still holding in bullish territory with a current reading at just over 55. Once again, this is an index that appears to be gearing up for its next move to the upside. ![](https://clear-wealth.com/wp-content/uploads/times2.png "times2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s take a look at mid-caps and small caps. Indeed, how times have changed when it comes to these areas of the market as well. It was not long ago in a pre-Great Financial Crisis world where mid-caps and in particular small caps were leading indicators of the eventual direction of large caps. Those days are long over outside of fleeting moments, but they still provide useful coincident indicators of the “reality” of market health outside of what the Mag 7 and friends may be doing at any given point in time. Referring to the charts below, we see a similar albeit more pronounced trend being presented by equal weighted large caps. Both mid-caps and small caps are still trading well below Thanksgiving era highs, and both are still battling key technical resistance levels. For mid-caps, resistance is the flattish 200-day moving average (red line in the top chart below) but the index enjoys support from the ultra-long term 400-day moving average (pink line in the top chart below), a combination implying that mid-caps are likely to eventually break out to the upside and confirmed with the RSI holding above 50. Battling, but bullish. ![](https://clear-wealth.com/wp-content/uploads/times3.png "times3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") As for small caps, a bit more challenged still, but grinding in the right direction. Here the index needs to overcome resistance at both its still upward sloping (good) ultra long term 400-day moving average and now downward sloping (not so good) long-term 200-day moving average, which are no small tasks to overcome. But recent trends remain constructive. ![](https://clear-wealth.com/wp-content/uploads/times4.png "times4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting this all together, the U.S. stock market remains strong despite the 2025 headlines that is still top heavy with the biggest names leading the way. The smaller the stock as measured by market cap, the more challenging and bumpier the road ahead all else equal. **International stocks**. Arguably one of the most attractive upside opportunities over the next 12-24 months is investing in markets outside of the U.S. And this is despite the geopolitical uncertainties playing out around the world. Wait a second. Haven’t U.S. markets been crushing both developed international and emerging markets on a cumulative return basis over the last 15 years? Yeah, non-U.S. markets have handily outperformed U.S. stocks so far in 2025 (see below), but didn’t we see the same thing coming out of the COVID crisis from May 2020 through February 2021, only to see U.S. stocks reclaim the throne? ![](https://clear-wealth.com/wp-content/uploads/times5.png "times5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") And isn’t the side of the investment highway over the past decade littered with analysts proclaiming the historically attractive relative value of non-U.S. Stocks versus the U.S. only to see this relative valuation become even more attractive? ![](https://clear-wealth.com/wp-content/uploads/times6.png "times6 | Great Valley Advisor Group - Clear Wealth Planning Solutions")Source Barclays Indices All of these things are indeed true. But here’s a few reasons beyond more attractive valuations and higher dividend yields why the long overdue rotation back to non-U.S. stocks might actually stick going forward. First, many major economies outside of the U.S. are not only in the earlier stages of their economic and earnings growth cycles, but they are also more focused on commodity-rich and manufacturing heavy business activities that stand to benefit from increased global infrastructure spending, disglobalization if not outright deglobalization, and stickier inflation pressures going forward. Also, the attractive interest rate differentials that once existed between the U.S. and the likes of Japan, the UK, Germany, and developed countries across the European Union throughout the 2010s have since neutralized, and non-U.S. countries arguably have more monetary policy flexibility for more sustained accommodative policy relative to the U.S. going forward. Next, recent policy initiatives from the U.S. have altered the perception of the U.S. being the global destination for safe haven and capital protection bar none. Lastly and arguably most importantly, we are emerging from a period dating back non-coincidentally to the immediate aftermath of the Great Financial Crisis where the U.S. dollar has gone from more than two standard deviations weak relative to global currencies to more than two standard deviations strong relative to global currencies. If you want a massive tailwind to drive U.S. stock outperformance relative to non-U.S., this alone will go a very long way of doing it. But just as we saw from the mid-1980s through the mid-1990s (international stocks meaningfully outperformed the U.S.) and during the 2000s (once again, international stocks led U.S. stocks), global currencies move in long-term secular cycles relative to one another. And the case can be made that we are on the precipice of a new prolonged phase of U.S. dollar weakness relative to the rest of the world. ![](https://clear-wealth.com/wp-content/uploads/times7.png "times7 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Bottom line**. It has been a surreal time monitoring the events across the world in recent months. But despite all of the geopolitical winds of change that continue to blow, global investment markets remain steady and full of upside opportunities. Next week, we’ll settle in to discuss the 2025 Second Half Outlook. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #: 759200 **Categories:** Insights --- ### [Jaws](https://clear-wealth.com/jaws/) **Published:** June 17, 2025 **Author:** Clear Wealth Planning **Content:** > “That’s some bad hat, Harry” – Chief Martin Brody, Jaws, 1975 It is the golden anniversary for the summer blockbuster. The movie that began the wave of packing theaters during the summer was Jaws, which is still the seventh highest grossing movie of all time on an inflation adjusted basis. The genius of the film that captivated audiences during the summer of 1975 is the direct antithesis of what we have come to expect from suspense and horror movies today. What had so many people afraid to go in the water that summer was not the shark itself – it does not fully appear until 1 hour and 21 minutes into the movie and is only shown on screen for a cumulative total of 4 minutes. It is the fear of what and where we think the shark could unexpectedly be. It is the unknown that we cannot see but can only imagine driven by the iconic soundtrack music literally dictating our heart rates to increasingly accelerate with fear (duuuunnnn duun, . . .). The same principles are playing out in financial markets fifty years later as I write. Ahead of last Friday’s market open, Israel launched surprise military strikes against Iran, badly damaging their nuclear and military apparatus. Financial markets understandably recoiled on the news, with the S&P 500 dropping by more than -1% on Friday while safe havens such as Treasuries and gold rallied. The market reaction is being driven by fear – fear of the unknown that we cannot see but can only imagine with the drumbeat of military fire and the notion that these attacks and counterattacks could lead to the outbreak of full-blown war across the Middle East and potentially the world. It is geopolitical risk playing itself out real-time. What is an investor to do? **It’s all psychological**. The fear is completely understandable. But financial markets do not have sympathy. Can they be emotional? Oh, hell yeah – ridiculously so at times. But emotions are not the same as sympathy. What drives stock market performance? Economic growth, inflation staying under control, corporate earnings, and abundant liquidity to keep the gears of the markets sufficiently lubricated at all times. A terrorist attack? The outbreak of war? People dying on the battlefield? Innocent civilians caught in the crossfire? All of these things are tragic and weigh on the human psyche. But financial markets aren’t human. And frankly they do not care rightly or wrongly. Is the economy going to be adversely affected? Most likely not. Is it going to spark an outbreak of inflation? Sure, oil prices spiked by over +7% on the news, but both West Texas Intermediate and Brent Crude had been trading lower virtually all year until Friday. The price spike on Friday did nothing more than bring oil prices back to even year to date. Another thing, the U.S. gets most of our imported crude from Canada, Central and South America – only a small fraction comes from Saudi Arabia, Iraq, and Nigeria. So unless we’re talking about a surprise attack on Alberta sometime soon, the answer here is also most likely no. ![](https://clear-wealth.com/wp-content/uploads/jaws-1.png "jaws-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Is this attack going to hit corporate earnings? If tariffs haven’t in any meaningful way so far, this almost certainly isn’t. Only 0.3% of domestically produced goods and services in the U.S. find their way to the Middle East. Less than 0.001% to Iran. Answer – nah. What about market liquidity? If anything, the outbreak of geopolitical conflict can be read as a positive sign by financial markets from a liquidity perspective. Why? Recognizing that the outbreak of a geopolitical conflict can create uncertainty, central bankers are often inclined to inject extra liquidity into the financial system to ensure everything keeps functioning properly. Putting this all together, financial markets on the margins may ultimately rally on net in the wake of this geopolitical news. Cue the Jabberjaw “I don’t get no respect!” catchphrase. **Amity**. But couldn’t the conflict escalate and eventually cause disruptions on all of these fronts listed above? Perhaps, but even if it does, remember that markets are driven by liquidity arguably more than anything else. And history has repeatedly shown that financial markets simply just don’t care if a war is going on, no matter how bad and bloody the conflict may be. To illustrate this point emphatically, let’s go big. The first example is the terrorist attacks of September 11, 2001. We’re not talking about a surprise attack in the Middle East here. Instead, we’re talking about an unprecedented military surprise attack on the United States of America that among other things demolished two of the tallest buildings in the world that literally resided at the heart of the global financial system. It is the World Trade Center after all. Markets were closed for four trading days in the aftermath of the attack, only to reopen the following Monday (9/17). Yet after five days of heavy selling, the market rallied for much of the next nine trading days to return to pre-9/11 levels. Stocks continued to rally in the weeks that followed, moving well above pre-terrorist attack levels. And this was a sustained rally that was taking place in the midst of the bursting of the tech bubble. What was the primary driver of this quick rebound at the time? The Fed and policy makers injected massive amounts of liquidity into the financial system immediately following the terrorist attacks to ensure that markets continued to function properly. ![](https://clear-wealth.com/wp-content/uploads/jaws-2.png "jaws-2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s go back even further in time to arguably the biggest geopolitical threat of all. On December 7, 1941 the Japanese bombed Pearl Harbor, thrusting the United States into World War II. This attack occurred as the U.S. economy was still struggling to make its way out of the Great Depression. Basically, we did not know at the time and would not know for years whether we would win or lose a world war. Did the Dow Jones Industrial Average initially pullback following the attack? Yes. Was it trading effective back at pre-Pearl Harbor levels by early January 1942? Notably, yes. Did stocks proceed to trade lower by over -18% over the next four months through the end of April 1942? Yeah, but remember our list above – the U.S. economy had to quickly shift to a wartime economy and corporate profits were squeezed in the short-term due to the rapid and massive resource reallocation. And oh yeah, there was that pesky Great Depression thing that still weighed heavily on investor sentiment (in contrast to today’s “buy the dip, the markets always go higher” sentiment, the investor mood in the early 1940s after more than a decade of repeatedly getting their teeth kicked in by stocks was decidedly more pessimistic). Nonetheless, by April 1942, US stocks bottomed. By October 1942, stocks were trading well above pre-12/7/41 levels. And by the end of World War II, US stocks had more than doubled. In short, we were on the brink of potentially losing our sovereignty in a global war, and the stock market was finding a way to rally strong. ![](https://clear-wealth.com/wp-content/uploads/jaws-3.png "jaws-3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Indianapolis.** An important “yeah, but” should be discussed before closing the book on veritable shark attack on financial markets. What about the Russian invasion of the Ukraine? Did US stocks fall into a bear market in the wake of the surprise attack starting on February 24, 2022? Yes, but we must remember the context. U.S. stocks had already peaked earlier in the year on January 4. More specifically, the tech stocks that had been driving the post COVID market euphoria had peaked several weeks earlier just before Thanksgiving 2021. The reason was that the U.S. economy was developing a scorching case of inflation that got started all the way back in February 2021 and kept getting worse and worse and worse despite the Fed’s repeated insistence that the burning would only be temporary. In short, we already had inflation bad in the US and the Russian invasion only piled on even more inflation bad. It was the veritable cherry on top of the US inflation sundae that was getting served with piping hot chocolate sauce for more than a year already before the Russians stepped a foot into Ukraine. ![](https://clear-wealth.com/wp-content/uploads/jaws-4.png "jaws-4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Even with all of this, US stocks still found the gumption to rally by 13% in the immediate aftermath to trade well above pre-invasion levels for a spell before persistent economic and corporate earnings realities further set in. What was the final dagger to push markets lower? The U.S. Federal Reserve finally stepping in to AGGRESSIVELY raise interest rates to combat the inflation problem left to fester for so long. In short, the Fed was rapidly draining liquidity from the financial system. Less liquidity – bad for stocks. While this is what was happening in 2022, this is not at all what is taking place today. **Bottom line**. Markets are understandably reacting to the latest outbreak of geopolitical conflict, this time in the Middle East. But history has repeatedly shown that any such short-term market reaction to the downside should be viewed as a potential buying opportunity going forward. Despite what the financial headlines may be signaling, it is still safe to go into the financial market waters. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #: 755313 **Categories:** Insights --- ### [Water](https://clear-wealth.com/water/) **Published:** June 17, 2025 **Author:** Clear Wealth Planning **Content:** > “The water understands Civilization well; It wets my foot, but prettily, It chills my life, but wittily, It is not disconcerted It is not broken-hearted: Well used, it decketh joy, Adorneth, doubleth joy:” – Water | Ralph Waldo Emerson (1867) It’s been an outcome that has been vexing many market analysts and investment pundits for much of the spring. The US economy had been showing signs of weakening going all the way back to last year. Then the trade wars came and the threat of economic recession and/or higher inflation escalated dramatically. In the months since, the potential cracks to the US economy are starting to build. Yet the US stock market, whose success is directly dependent on the strong economic growth and low inflation that so many investors are increasingly worrying about, continues to steadily surge its way back toward new all-time highs. What explains this apparent contradiction? It is not disconcerted, it is not broken-hearted: it is the continued abundance of liquidity in financial markets. **Joy**. Liquidity understands markets well. It has been the primary driver of higher stock prices since the day Ben Bernanke sat with Scott Pelley on 60 Minutes on March 15, 2009 talking about “green shoots” for the US economy as the US Federal Reserve was launching the first of its many future rounds of Quantitative Easing, which is a fancy way of describing the injection of liquidity into financial markets. How powerful was this steady flow of liquidity in the years that followed? Despite a chronically sluggish economy mired by the persistent threat of deflation for more than a decade through the 2010s and into the 2020s that saw the net outflow of more than $1 trillion from domestic equity mutual funds and ETFs according to the Investment Company Institute along the way, the US stock market as measured by the S&P 500 increased by more than seven fold from below 700 in 2009 to nearly 5000 by the end of 2021. Decketh-ing joy is an understatement. When retail and institutional investors are selling US stocks by more than a trillion dollars on net and the US stock market can register a seven bagger higher over the same time period, that’s septupleth-ing joy at a time when stocks should otherwise be getting gutted. That’s how powerful liquidity is to financial markets. **Still wetting our feet most prettily**. So where do we stand on the liquidity front today? While we could scroll our way through a variety of more esoteric measurements demonstrating that financial market liquidity, while off of its recent all-time highs on a marginal basis from late last year on various metrics, is still running about as wide and deep as ever in aggregate. But instead of getting into the weeds on this front, let’s instead turn our eyes to more commonly known or more easily accessible measures that show these same liquidity forces at work. First, consider US high yield corporate bond spreads, or the additional premium in yield required by investor to purchase a high yield corporate bond over a comparably dated US Treasury bond to compensate for the higher liquidity and credit default risk that comes with these riskier issuance. We see in the chart below that the current spread of just 3.18% remains near the tightest spreads we have seen since the calming of the financial crisis at the start of the last decade. What would cause these spreads to remain so tight despite concerns among many investors that an economic slowdown and/or higher inflation is looming around the corner? An abundance of liquidity. ![](https://clear-wealth.com/wp-content/uploads/water1.png "| Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s continue to another wittier measure of liquidity. This comes from the chart showing the correlation of price performance between the NASDAQ 100 Index and the price of Bitcoin. Why these two metrics? Because the primary forces that would cause investors to continue to pay more and more and more and more for assets that are either trading in many cases with valuations more than two standard deviations above their historical mean (NASDAQ 100) or have skyrocketed from four-digits to six-digits in price despite having no store of value, unit of account, medium of exchange, or intrinsic value for that matter (Bitcoin – backed by the full faith and credit of . . . Um) are liquidity related. Where do we stand on these two metrics? Continuing from lower left to upper right for years as shown in the chart below. ![](https://clear-wealth.com/wp-content/uploads/water2.png "water2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") In summary, financial market liquidity is an enormously powerful force, and the flow of this liquidity remains abundantly alive and well as we continue our way through 2025. > “Ill used, it will destroy, In perfect time and measure With a face of golden pleasure Elegantly destroy.” – Water | Ralph Waldo Emerson (1867) **Elegantly destroy**. All of this talk about liquidity is fantastic. But to a point. It is important to remember that liquidity is a powerful force, but is one that can cut powerfully both ways. While we remain awash in liquidity as we make our way through 2025, we did have a scary moment there in early April when financial market liquidity was suddenly drying up quickly with bid-ask spreads blowing out as retail and institutional investors were increasingly standing back amid the tariff announcement uncertainly until the 90-day pause was released (note that we are about 60 days into that 90 day pause right now – investment markets feelin’ alright like Joe Cocker in the meantime). Let’s go further back in time, if you will, to even more profound examples where the evaporation of financial market liquidity had investors running for their financial lives. This basically defined the 2022 bear market, as US policy makers had to quickly intervene and sop up much of the torrent of liquidity it had released into financial markets in 2020 in response to COVID because of the scorching inflation problem that it eventually started causing by 2021 and into 2022. Let’s keep going. The Great Financial Crisis? All about the evaporation of liquidity as nobody wanted to buy those “AAA-rated” (chuckle) subprime mortgage bonds because they didn’t know what was inside of them (once again from the “if it’s too good to be true” files, if the market is willing to pay you 200 basis points in yield premium over US Treasuries for a comparably dated security that has the *same credit rating*, something is probably not right) and eventually by late 2008 everybody was trying to sell everything to save their bacon as the global financial system was being sucked down a virtual black hole vortex. One more for the old timers out there. The Great Depression in the 1930s was not because the stock market crashed in October 1929. After all, you could have gotten out of the stock market with nearly all of your money still intact six months later in April 1930. Instead, it was the response to the worsening economic situation in the wake of a decade in the roaring 1920s where a redonkulous amount of liquidity ran wildly amok had US policy makers trying to apply the solutions that fixed the 1920-21 depression from just a decade ago by stubbornly *withdrawing* liquidity as the economy was contracting and plunging into deflation (turns out about the exact opposite of what most reasonable policy makers (or politicians seeking to get reelected) want to do). What was the thinking at the time? Accelerate the cleansing of the excesses out of the economy in getting to a new bottom that would form the foundation of the next great growth phase. Worked famously in the 1920s due to what in retrospect were unique circumstances. As for the 1930s, not so much. Keynesian shut out over the Austrians that continues to resonate to this day nearly a century later, and the score in the game basically all came down to liquidity. **Ill used, it will destroy**. This will be an important key to monitor for financial markets as we continue through the rest of 2025 and beyond. Liquidity well used by monetary policy makers at the US Federal Reserve and fiscal policy makers in the legislative and executive branches in Washington can help support a stock market to soar to new all-time highs even at times when arguably it shouldn’t otherwise. But the key is the careful and measured application of this liquidity. Too little, and the economy can descend toward recession pretty quickly if underlying conditions are weak. Conversely, too much and the economy can quickly overheat, resulting in a spiraling inflation problem reminiscent of the 1970s or 2021-2022 more recently. The latter liquidity evaporation is something that both stocks and bonds would recoil at just as they did throughout 2022. For this reason, arguably the best thing the US legislative and executive branch can do going forward is to let US monetary policy makers do what they feel they need to do on the liquidity front to help make sure we maintain the right balance. We’re already fast tracking back to new all-time highs, and the Fed has a ton of flexibility to lower interest rates if and when they need to (absolutely nobody is even talking about the Fed raising interest rates right now). The strong case can be made to let the Fed keep their powder dry while giving the economy and markets a chance to breathe and potentially upside surprise in the months ahead, as these are the outcomes that are already taking place. If the Fed does too much, too soon (see the market response following the September 2024 FOMC meeting – way too much, too soon from the prospective of this Chief Market Strategist), it could threaten to derail the positive momentum since mid-April. Depending on how the budget debate resolves itself, some strong liquidity forces may soon be coming on the fiscal policy side anyway. While many investment market participants continue to climb the stagflationary looming economic recession and renewed rise in inflation due to tariffs wall of worry, the good news is that economic growth remains solid, inflation expectations remain at cycle lows, and the underlying liquidity environment remains abundant. These are all forces that support continued economic resilience and further stock market (and bond market too) gains in the months ahead. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #: 751841 **Categories:** Insights --- ### [Summertime Playbook](https://clear-wealth.com/summertime-playbook/) **Published:** June 3, 2025 **Author:** Clear Wealth Planning **Content:** Although summer does not officially begin until June 20, my mental view of seasons is grouped by the months. Summer: June, July, August; Fall: September, October, November; Winter: December, January, February; Spring: March, April, May. So with summer already getting underway in this writer’s mind, it’s a good time to look ahead to the key themes to watch across the economy and markets between now and the end of August. **Fun With Fundamentals**. It has been a tumultuous year so far for the U.S. stock market, but the outlook is improving as we head toward the middle of the year. The much anticipated economic recession in 2025 is shaping up to be just as elusive as it was in 2022, 2023, and 2024. One look at the latest readings for 2025 Q2 GDP according to the Atlanta Fed GDPNow forecast shows an economy that if anything is picking up steam (see that green line spike on the right below – that’s approaching +4%), not losing it. ![](https://clear-wealth.com/wp-content/uploads/summer1.png "summer1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Then there is all of the understandable handwringing about the threat of inflation, particularly given the ongoing uncertainty associated with the pending tariffs being imposed on our global trading partners. But as I enjoy my ranch water and TACOs this summer (cheeky), I’m continually reminded that inflation expectations as measured by the 5-Year Breakeven Inflation Rate (average expected inflation over the next five years as priced by the market) remains subdued at well under 2.5%. Stay thirsty and ponder more dip buying this summer (maybe don’t hold the guac after all), my friends. ![](https://clear-wealth.com/wp-content/uploads/summer2.png "summer2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Then there’s corporate earnings growth as shown in the chart below. Have expected earnings for 2025 come down as we enter the summer months? Sure, but what else is new, as lofty expectations coming into any given calendar year more often than not give way to a more subdued reality. And even with some downward revisions and full knowledge that the threat of an economic slowdown, renewed inflation, and global trade wars are very much real, collective companies on the S&P 500 Index are still projecting solid low to mid-teens earnings growth through the rest of 2025 and into early 2026. *12-Month Earnings Per Share – As Reported Earnings – Annual Growth Rate (%) as of 5/30/2025* *History in BLUE, Forecast in Orange* *Source: S&P Global* ![](https://clear-wealth.com/wp-content/uploads/summer3.png "summer3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Summer Sun For Stocks**. This quick and clean fundamental summary sets up a sunny summer for stocks. That’s not to say that we won’t have a steady stream of financial news headline thunderstorms passing through the markets on any given day bringing with it periods of unexpected volatility (should we have expected anything different from the current administration – this is, after all, how they roll), but it should be repeatedly remembered amid any summertime stock market storm clean up that unless economic growth expectations take a hard turn south (they have not yet to date), inflation expectations suddenly heat up (they remain as cool as Great Lakes breeze), and/or corporate earnings growth forecasts are slashed (they remain robust), the key ingredients for further stock market gains remain fully intact. Widespread technical support for the headline benchmark S&P 500 also remains encouraging. Following the market correction that took place from February 19 to April 7, moving average lines have reconverged (in other words, excessive froth has been wrung out of the market) and multiple key support lines have now been retested and reestablished. Case in point – consider the recent three day cut lower in stocks at the end of the week before last amid the latest tariff chatter. Although the “markets crashing” narrative suddenly found its way back into the financial headlines for a hot minute until last Monday came again, we see in the chart below a stock market that is very well behaved from a technical perspective. Basically, the S&P 500 hit a short-term peak at 5968.61, fell back for three days into its 200-day moving average at around 5767 at the time (red line below), found support, and subsequently bounced higher. This is what a technically predictable and well behaved market looks like. ![](https://clear-wealth.com/wp-content/uploads/summer4.png "summer4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting the fundamental and technical picture together, this is a U.S. stock market as measured by the S&P 500 that appears poised to advance to new all-time highs by the Fourth of July if not sooner. Fireworks indeed. **Taking in the views**. So what should we be watching in the coming months as we go through the summer beyond the key data points already highlighted above. First, we have six big readings on inflation between now and the end of August. Three Consumer Price Index (CPI) readings for May, June, and July that will come in the middle of the next three months, and three readings on the Personal Consumption Expenditures (PCE) Price Index, which is the Fed’s preferred inflation measure, coming at the end of the next three months. Given that I continue to see a renewed rise in inflation as the primary downside risk facing financial markets at least through the summer, I will be watching each of these reports very closely, particularly since if we are going to see an inflationary impact from all of the tariff announcements in recent months, it should start showing up in earnest in the inflation data by the end of the summer (it’s been too soon for tariff related inflation to start showing up in the March and April readings that have been coming out as recently as last week – much like Fed rate cuts, tariffs take time to filter their way through the economy). Next, we can’t forget about our friends at the U.S. Federal Reserve (remember when investors would hang on the Fed’s every word – that’s so 2010s!). While rate cut expectations from the Fed remain measured, the market is still pricing in the likelihood of two quarter point rate cuts between now and the end of the year. When does the market currently think these rate cuts will happen? Right now, it’s September and December, but I’m betting this is two rate cuts too hopeful when it’s all said and done, as I predict we won’t see any further rate cuts by the end of December – if we don’t, that’s actually a good thing because it implies that the economy and markets were strong enough that we didn’t need the Fed support. But the bigger point than whether we get rate cuts or not for the remainder of this year or next for that matter is that the market is pricing in a 0% chance that the Fed will increase interest rates between now and the end of 2026. This is important because the primary reason that the Fed would be hiking interest rates is a renewed inflation problem. In short, the market is currently pricing in a 0% probability that the primary downside risk that I’ve mentioned above will come to pass between now and the end of December 2026. This is good stuff. Another thing that could squeeze stocks in the coming months is the potential continued rise in bond yields. Why does this matter to stocks? Because the valuation for stocks is in part set by bond yields. The lower bond yields, the higher the valuation investors can justify for owning stocks (remember TINA – there is no alternative). Conversely, the higher bond yields, the less investors can justify higher valuations for owning stocks (please meet TARA – there are reasonable alternatives). Example – can I justify owning a stock at 50 times earnings (2% earnings yield) when I can go buy a 10-Year U.S. Treasury with a shorter duration and return of principal at maturity yielding 5%? The case for stocks gets harder the higher Treasury yields go. But while Treasury yields have indeed risen from September 2024 and April 2025 lows below 4%, they still remain largely rangebound dating back to 2022. With that said, the more we hear “Treasuries” and “yields above 5%”, the more of an issue for stocks it will become. **Bottom line**. Summer is unofficially underway, and the good news is that despite all of the continued uncertainty, the outlook for financial markets remains highly constructive. Travel safely this summer, monitor downside risks when necessary, and enjoy the beautiful weather in the *months ahead.* **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking** #748328. **Categories:** Insights --- ### [Ulysses](https://clear-wealth.com/ulysses/) **Published:** May 28, 2025 **Author:** Clear Wealth Planning **Content:** *“The lights begin to twinkle from the rocks:* *The long day wanes: the slow moon climbs: the deep* *Moans round with many voices. Come, my friends,* *‘Tis not too late to seek a newer world”* *–Ulysses, Alfred, Lord Tennyson, 1842* For more than a decade, the U.S. stock market has resoundingly dominated its global developed international and emerging/frontier counterparts. But over the past six months since early November, the tide has turned with non-U.S. stocks surging into the lead. While such periods of relative outperformance has surfaced over the past decade only to prove fleeting, it is reasonable to consider whether this time investors will finally set sail from the U.S. stock market and venture back out more boldly across the rest of the world from a portfolio modeling perspective. ![](https://clear-wealth.com/wp-content/uploads/uly-1.png "uly-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") ![](https://clear-wealth.com/wp-content/uploads/uly-2.png "uly-2 | Great Valley Advisor Group - Clear Wealth Planning Solutions")uly 2*“I am part of all that I have met;* *Yet all experience is an arch wherethro’* *Gleams that untravell’d world, whose margin fades.* *For ever and forever when I move.”* *–Ulysses, Alfred, Lord Tennyson, 1842* **Experience**. It is a complex decision to assertively allocate to non-U.S. markets from a portfolio modeling perspective. From a theoretical modeling perspective, a strong argument can be made for the measurable inclusion of both developed international (UK, France, Germany, Japan, etc.) and emerging markets (Brazil, India, China, Indonesia, etc.) in a broad asset allocation strategy due to their diversification characteristics (EAFE and EMF have returns correlations to the S&P 500 of +0.86 and +0.74, respectively, over the past two decades). But the decision becomes more challenging from an applied perspective for a simpler reason. End investors primarily focus on the S&P 500, thus if one allocates to non-U.S. stocks, an active portfolio bet is being taken versus the U.S. markets that everyone follows. And if these non-U.S. allocations underperform the U.S., particularly in a meaningful way as they have dating back to 2010, it raises questions as to whether taking on such risk is worth it. But just because investors have been thriving in U.S. markets for more than a decade does not mean that prior heroic returns from far-ranging markets around the world can simply be ignored. For example, consider the prior period from 2000 through early 2011 when both developed international and emerging markets trounced the U.S. for more than a decade. ![](https://clear-wealth.com/wp-content/uploads/uly-3.png "uly-3 | Great Valley Advisor Group - Clear Wealth Planning Solutions")uly 3Let’s take a big step further and consider the period from 1970 to 1994 (yes, effectively a quarter of a century) when non-U.S. Stocks notched a cumulative near two bagger on U.S. stocks over this extended time period. So let’s tally it up. Yes, investors have been getting it done in the U.S. for a little over the last decade, but prior to that they were relatively killing it cumulatively traveling all around the rest of the world outside of the U.S. for all but about six years (1995-2000) in the four decades (read: four oh years) prior. No wonder Ulysses was itching to get back out on the boat after ruling at home in Ithaca for so long. Glory days, am I right? *“And the colors of the sea* *Bind your eyes with trembling mermaids* *And you touch the distant beaches* *With tales of brave Ulysses* *How his naked ears were tortured* *By the sirens sweetly singing* *For the sparkling waves are calling you* *To kiss their white laced lips”* *–Tales of Brave Ulysses, Cream, 1967* **Sirens**. So what exactly should compel investors to venture back outside of the U.S. today. After all, the bottom of the financial market ocean is littered with galleons of investors that were sucked in by the siren song of chronically cheap relative valuations for non-U.S. stocks that only became relatively cheaper, and relatively cheaper, and relatively cheaper, and . . . with each passing year. Why now? And how? First, let’s check the box. Both developed international and emerging market stocks remain at historical discounts relative to the U.S., even after the strong rally for non-U.S. versus U.S. since last November. Next, a key measure to consider is the expected future direction of the U.S. dollar. Let’s get right to the bottom line on this key point with reference to the chart below. Why have U.S. stocks performed so well relative to non-U.S. Stocks since early 2011? One has to look no further than the U.S. dollar index relative to global currencies, which strengthened by as much as 60% peak to trough over this time period. This is a MASSIVE tailwind for U.S. stocks relative to their non-U.S. counterparts, as the value of returns generated overseas have been being steadily chipped away upon repatriation back to our country for more than a decade. Not at all coincidentally, that prior period of non-U.S. outperformance relative to the U.S. came during the period from 2000 to 2011 where the U.S. dollar index weakened by more than -40% peak to trough over this previous time period. And with the U.S. dollar steadily trading more than one standard deviation above its long-term mean for the better part of four years now, the long-term path of least resistance for the U.S. dollar going forward is for weakening going forward. ![](https://clear-wealth.com/wp-content/uploads/uly-4.png "uly-4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") OK, but what might be the catalyst to not only potentially drive sustained U.S. dollar weakness relative to global currencies going forward but also provide justifiable fundamental support beyond simply valuations for non-U.S. stocks to start meaningfully outperforming the U.S. for a sustained period? For one, the U.S. Federal Reserve remains in a more flexible position versus the rest of the world to start lowering interest rates more assertively going forward. All else equal, monetary policy easing leads to a weaker domestic currency. This coupled with the fact that our global trading partners are kind of pi$$ed at us right now doesn’t inspire marginal net capital flows into the U.S. either. This coupled with growth characteristics accelerating in many parts of the developed and emerging world in ways that it previously hadn’t for years is also a big help. Another important characteristic point to emphasize is strategic approach to any such allocation. Much like the U.S. stock market as measured by the S&P 500 is a market of stocks with many different sectors, industries, and individual countries moving in their own distinct paths, the same is true of non-U.S. Investing. For example, international growth returns have more than doubled those of international value on a benchmark basis over the last 15 years, which implies avoiding allocations to the various bloated state supported banks across the world among many other things and instead focusing on the more innovative companies outside of the U.S. has provided measurable value over time. The same can be said from a country allocation perspective. Just because Japan makes up 22% of the market cap of all developed non-U.S markets according to the MSCI EAFE Index and China makes up nearly 30% of the MSCI Emerging Market Free Index does NOT AT ALL mean that a reasonable investor should simply take 22 cents on every dollar and throw it at Japan or 30 cents on every dollar and allocate it to China, particularly the latter where capital has a tradition of not being treated very well, as the better risk-adjusted return opportunities may lie elsewhere within other countries in non-U.S. markets. *“It may be that the gulfs will wash us down:* *It may be we shall touch the Happy Isles,* *And see the great Achilles, whom we knew* *Tho’ much is taken, much abides; and though* *We are not now that strength which in old days* *Moved earth and heaven, that which we are, we are–* *One equal temper of heroic hearts,* *Made weak by time and fate, but strong in will* *To strive, to seek, to find, and not to yield”* *Ulysses, Alfred, Lord Tennyson, 1842* **Bottom line.** With all of this being said, it’s important to note that we as investors have been at this for a very long time. And risks remain with any potential portfolio allocation shifts at the margins, even if the underlying investment thesis is compelling. Increasing an allocation to non-U.S. stocks relative to U.S. stocks may touch the Happy Isles in the near-term, and then again the gulfs may wash us down. Thus, any such marginal change in portfolio weightings to non-U.S. relative to U.S. should be undertaken deliberately and gradually to manage against potential downside risks. But in the steadfast spirit of not yielding and consistently striving and seeking to find the most attractive potential expected return opportunities in the marketplace today, the fundamental characteristics of non-U.S. Investing relative to the U.S. continues to become increasingly compelling on the margins. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* ***LPL Compliance Tracking** #745437.* **Categories:** Insights --- ### [Into the Mystic](https://clear-wealth.com/into-the-mystic/) **Published:** May 20, 2025 **Author:** Clear Wealth Planning **Excerpt:** Stocks are sailing.  It’s extraordinary to consider that in just six astral weeks, the U.S. stock market has transformed from cascading endlessly to the downside to magnificently floating to the upside. **Content:** > *“Hark, now hear the sailors cry* > > *Smell the sea and feel the sky* > > *Let your soul and spirit fly* > > *Into the mystic”* *Into The Mystic, Van Morrison, 1970* Stocks are sailing. It’s extraordinary to consider that in just six astral weeks, the U.S. stock market has transformed from cascading endlessly to the downside to magnificently floating to the upside. The headline benchmark S&P 500 Index has now traded higher in a remarkable sixteen out of the last nineteen trading days. And the last major obstacle in bringing to an end the ursa minor that stoned the markets from mid-February to early April heading into last week was 200-day moving average resistance (the red line in the chart below). But no sooner did the trading week get underway and stocks rocked right past it. What lies ahead for this suddenly mystical market? ![](https://clear-wealth.com/wp-content/uploads/mystic1.png "mystic1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Symmetry.** It is an interesting exercise when reflecting back through market history from a technical analysis standpoint, as major stock averages such as the S&P 500 show a remarkable symmetry in their movements through corrections over time. What does this mean? More often than not, we see a comparable amount of time traveled from a market peak-to-trough and the subsequent trough-back-to-peak. Let’s consider the current example shown in the chart above. It took the S&P 500 roughly seven weeks from February 19 to April 7 to endure a -21.3% decline, which some consider to technically be a bear market as measured by a -20% decline or more from a previous peak (hence the “little bear” reference above). Thus, we should reasonably expect, particularly given the underlying economic and corporate earnings fundamentals support, that it will take roughly seven weeks from the April 7 lows for the S&P 500 to reclaim its previous all-time highs. So where does that land us in terms of timing today? This implies that the S&P 500 could be pressing new all-time highs as soon as around Memorial Day. Now this timing may be a touch ambitious in the current market, as the S&P 500 is now arriving at overbought levels with a Relative Strength Index (RSI) now effectively at 70. This implies that we are now overdue for at least a short spell of consolidation before making the final roughly two hundred S&P 500 point push back to new all-time highs. Nonetheless, the current stock market remains solidly on this encouraging upward trajectory. **Caravan**. It is important to note that the U.S. stock market is not alone in its advance to the upside, as many of its friends across capital markets have already been turning it up. Leading among the group is developed international stocks as measured by the MSCI EAFE Index, which had been trading at all-time highs as recently as the middle of March before its own correction but has already delivered on the symmetry discussed above – the peak-to-trough correction took roughly three weeks through early April and the subsequently trough-back-to-peak rebound to new all-time highs played out over the three weeks after. ![](https://clear-wealth.com/wp-content/uploads/mystic2.png "mystic2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s run with this one a little bit more. While the S&P 500 has clawed its way back to flat for 2025 on a price basis, developed international stocks have been on a relative moondance virtually all year and are now trading higher by more than +12% on price alone (see below). Could this non-U.S. outperformance continue for the foreseeable future? Absolutely, as developed international stocks continue to collectively trade at a 40% discount to their U.S. counterparts at a time when the geopolitical growth and global trade landscape may be in the early stages of shifting at least marginally in favor of the world relative to the U.S. going forward (don’t worry, we’ll likely be exploring this topic A LOT in the coming months). This isn’t necessary a knock on the U.S., but more a recognition that non-U.S. stocks may finally be getting back in the game after years of languishing. **![](https://clear-wealth.com/wp-content/uploads/mystic3.png "mystic3 | Great Valley Advisor Group - Clear Wealth Planning Solutions")** **Come running**. Of course, it’s always important to remember that nothing is permanent when it comes to capital markets. Just when it seems like the upside dream will never end, the wind and rain catch the market again. What are the primary downside risks facing the markets going forward as we emerge from the tariff spring? **Inflation.** The biggest risk today is the same one born long before the tariff winds, which is the ongoing threat of a renewed rise in inflation. Yes, the 5-Year Breakeven Inflation Rate that measures the average expected inflation over the next five years as priced by the markets remains subdued as shown in the chart below (it has bumped higher by 17 bps from a recent low of 2.25% to today at 2.42%, but this is still low). And yes, the Fed Fund futures according to the CME FedWatch are pricing in the base case probability for two quarter point rate cuts by the end of the year (if the markets thought inflation was going to be a problem, they wouldn’t price in rate cuts but instead rate hikes). Nonetheless, the inflation tables can turn quickly, particularly in an environment where the talk of 10-15% tariff trade deals with global trading partners is the buzz du jour for financial markets. As a result, these readings are arguably as important as ever to monitor as we drift through the summer and toward the fall. This includes monitoring U.S. Treasury yields including the benchmark 10-year. If this starts pushing toward 5% driven in part by the threat of higher inflation, watch out. ![](https://clear-wealth.com/wp-content/uploads/mystic4.png "mystic4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Geopolitics.** The world is about as complicated as it has been in a long time. Global harmony continues to give way to spheres of influence, and signs of passive aggression are continuing to mount in many regions on both a micro and macro level. At least during the Cold War nearly all eyes were on the Soviet Union. Today, it’s a multi-player game, and the risk of assertive conflict is rising. While markets have always performed well in the medium-term to long-term in the wake of any geopolitical outbreak – the greatest historical example arguably remains the slow but sustained U.S. stock market rally from its bottom in April 1942 (outcome to WWII completely unknown at this point) all the way through to the end of World War II and beyond. With that said, this remains a critical short-term market shock risk that also warrants ongoing attention. **Unknowns.** While history is a highly instructive guide in working to understand the direction of capital markets going forward, it is important to also recognize that we live in an increasingly complex and rapidly moving environment that is riddled with risks that we are aware of and don’t understand the potential economic or market impact (attack on the U.S. energy grid, cyberattack on the U.S. financial system, etc.) as well as the risks we are not even conceptualizing nor understand the associated impact (???). **Not tariffs.** While the financial media is likely to continue wringing their hands about tariffs and their associated market impact in the months ahead, it is very likely that this downside risk game is over. In fact, international trade has the much greater potential to drive upside surprise going forward. Why? The tariffs announced against global trading partners on April 2 – so called Liberation Day – were so far above and beyond anyone’s expectations that the eventual trade deals that get announced with tariffs in the 10-15% range will provide a steady sigh of relief each time that have the potential to further nudge stocks higher. **Bottom line.** It feels like a brand new day for capital markets including U.S. stocks. And the reasons for ongoing optimism remain plentiful as we move toward the summer months. The latest episode reinforces once again the importance of remaining dedicated to your long-term investment plan. With that said, monitoring the markets and the potential downside risks remains as important as ever. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* ***LPL Compliance Tracking** #*738718*.* **Categories:** Insights --- ### [Getting In Tune](https://clear-wealth.com/getting-in-tune/) **Published:** May 13, 2025 **Author:** Clear Wealth Planning **Content:** > “I’m singing this note ’cause it fits in well with the chords I’m playing > I can’t pretend there’s any meaning hidden in the things I’m saying > But I’m in tune > Right in tune” – Getting In Tune, The Who, 1971 It is the unexpected beauty of the Liberation Day tariff announcements from just over a month ago. When you initially announce tariffs against trading partners all around the world that are so wildly beyond anyone’s expectations, pretty much anything that you say that follows about actually striking a deal with a trade partner provides capital markets with a jolt of euphoria. This includes terms that are something less than impossibly extreme, and this assumes that the market even knows what the terms are at all. Strike a deal with one of our best trading partners in the United Kingdom where we actually have a trade surplus. Cue the rally! Hint at a trade deal with China without providing any of the details. Buy, buy, buy! After a tumultuous early April where the word “tariffs” had markets plunging to the downside, markets are now right in tune with the mere rumor of any trade deal poised to send stocks surging to the upside. We’ve already come a long way from its post Liberation Day lows on the S&P 500. And the good news for investors is that what was once a massive trade headwind for stocks has suddenly become a gusting trade tailwind. Consider the S&P 500, which has already rallied by more than +18% since its April 7 intraday bottom and is already trading at pre-Liberation Day levels. When the trade deal with the UK was announced on Thursday, U.S. stocks surged by more than +1% to new post Liberation Day highs before settling back. And with rumors of a U.S.-China trade deal brewing coming out of the weekend, stock futures are once again up over +1% heading into the overnight. ![](https://clear-wealth.com/wp-content/uploads/getting1.png "getting1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") What does this mean for the U.S. stock market going forward? The S&P 500 had already reclaimed its medium-term 50-day moving average support, which is was a significant development. The next major obstacle to the upside for the S&P 500 resides roughly 90 points higher from its 5659 Friday close at its 200-day moving average currently at 5748. If U.S. stocks reclaim this key technical level, and there are good signs that suggest this may ultimately come to pass over the coming trading weeks, then the technical path is clear for U.S. stocks to continue advancing toward and potentially beyond February all-time highs by early to mid-June. This would be a welcome development heading into the summer months after a market that was careening to the downside just a month ago. Of course, stocks are well served to have a justified fundamental reason for making such an advance to new all-time highs. And the good news is that U.S. stocks are at no shortage of having a variety of fundamental signals working in their favor in the coming months. Consider the latest on corporate earnings, which arguably more than anything else is the primary driver of stock returns over time. Concerns heading into the quarter were that the barrage of tariff announcements and their associated uncertainty would cause many companies to downwardly revise their forward looking guidance through the remainder of the year. This had the potential to meaningfully weigh on stock prices as we headed toward the summer. But what has unfolded instead with roughly 86% of 2025 Q1 earnings season now completed has been remarkable. Not only is corporate earnings growth for 2025 Q1 on the S&P 500 set to come in higher than expectations coming into the quarter (this is unusual, for despite all of the “beat expectations” nonsense that we hear on a daily basis throughout earnings season (I’m a normal distribution guy, so how the hell can 75-80% of companies continuously beat consensus analysts’ earnings expectations each quarter on average? Either these analysts’ really chronically suck at their jobs (in a normal world, at what point do analysts finally adjust their model estimates higher recognizing that they are repeatedly underestimating how well companies are doing each quarter?) or there’s something going on here, just sayin’), this number usually gets steadily revised lower as earnings season progresses), but corporate earnings growth forecasts remain robust in the 14% to 18% range through the remainder of 2025. Sure, not as strong as the estimates coming into the quarter, but still impressively strong. ![](https://clear-wealth.com/wp-content/uploads/getting2.png "getting2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Perhaps just as importantly if not more so, inflation expectations continue to remain fully in check despite all of the financial news headlines and the underlying economy that remains stronger than what most analysts are giving it credit for at this point. On the inflation expectations front, the 5-year breakeven inflation rate continues to hover below 2.4%. Such a reading supports attractive and predictable real profit growth for corporations all day long. ![](https://clear-wealth.com/wp-content/uploads/getting3.png "getting3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Speculation also remains abundant across capital markets. Consider CCC-rated or lower spreads relative to U.S. Treasuries, which is a fancy way of looking at how much additional yield investors are requiring to own the worst of the worst quality credits in the U.S. corporate bond market today. This reading has already dropped by more than two percentage points since the peaks roughly a month ago (this is good from a speculative standpoint, as it implies that investors are requiring to be paid increasingly less for lending money to the lowest credit worthy borrowers in the marketplace today) and appear poised to continue tightening further in the days and weeks ahead. ![](https://clear-wealth.com/wp-content/uploads/getting4.png "getting6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The CBOE Volatility Index, or the VIX, which is a measure of investor “fear” in the marketplace at any given point in time, continues to descend. After peaking in early April at over 60, the VIX continues to break lower reaching below 22 in recent days and trending lower. ![](https://clear-wealth.com/wp-content/uploads/getting5.png "getting5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Lastly for now, the Bitcoin implied price of the tech heavy NASDAQ 100 suggests it could be trading about +10% higher from current levels assuming this historical relationship continues to hold. ![](https://clear-wealth.com/wp-content/uploads/getting6.png "getting4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Bottom line**: Overall, a variety of factors continue to align to support further advances in stock prices in the coming weeks and months. This includes an increasingly favorable technical view coupled with still strong underlying fundamentals that together suggest that U.S. stocks may be poised to continue on the straight and narrow to the upside in the coming months. And what was once a liability in the tariff related news has since become a tailwind in supporting bursts of higher stock prices. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* ***LPL Compliance Tracking** #*738718*.* **Categories:** Insights --- ### [April Showers](https://clear-wealth.com/april-showers/) **Published:** May 8, 2025 **Author:** Clear Wealth Planning **Content:** April was a turbulent month for global financial markets, characterized by heightened uncertainty and sharp price swings. Just three months into the Trump Administration, sweeping shifts in trade policy – most notably a 10% import tariff announced on April 2nd – rattled investor confidence. The announcement fueled concerns over rising inflation and increased borrowing costs, prompting sell-offs across both equity and fixed income markets. In an attempt to ease market jitters, President Trump announced a 90-day pause on tariffs exceeding 10% for all countries except China. This temporary relief reignited investor confidence and markets rebounded on the back of the tariff reprieve. Investor sentiment was tested once again on the final day of trading in April after first quarter GDP data showed a contraction of 0.3%, well below expectations of 0.4% growth. The report threatened to break a six-day market rally, but the index made a surge late to remain on the green streak. Trade tensions, mixed policy signals, and signs of slowing economic growth defined a month of intense volatility. The S&P 500 swung wildly throughout the month, with four trading sessions moving more than 3.5% either way and eleven days with swings over 1.5%. The index briefly dipped below 5,000 before rebounding in the final weeks on renewed hopes of a potential U.S.-China trade breakthrough and the affirmation of FED independence. Despite the late rally, the S&P ended the month 0.76% lower than its March close – a sign of lingering caution. ![](https://clear-wealth.com/wp-content/uploads/showers-1.png "showers-1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Commodities** Commodities did not escape the Spring storms. Oil prices faced significant downward pressure due to announcements in supply changes from OPEC+ and Saudi Aramco. Brent crude prices plunged to their lowest levels in over four years, dropping below $60 per barrel in early April amid concerns over a potential global supply glut. Although prices stabilized at around $63 per barrel following the postponement of tariffs, the market remains volatile as investors contend with uncertainties surrounding OPEC+’s production decisions. Gold also experienced significant volatility during the month of April. In the first two days, prices trended upwards, reaching $3,160 an ounce. However, starting on April 2, the commodity slid to $2,978 per ounce before surging to an all-time high of $3,434 on April 21st. By month-end, gold was trading at approximately $3,316, reflecting continued demand for safe-haven assets. ![](https://clear-wealth.com/wp-content/uploads/showers-2.png "showers-2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **The U.S. Dollar** The U.S. Dollar Index (DXY) plunged to 99.2391 on April 23, its lowest level since March 2022. While a weaker dollar can boost U.S. exports by making them more competitive abroad, it also raises the cost of imports, contributing to domestic inflation. More importantly, the greenback’s depreciation reflects declining global demand for U.S. assets, including Treasuries – a signal that international investors may be reassessing confidence in the U.S. economic outlook. At the time of writing the dollar sits at $99.66. ![](https://clear-wealth.com/wp-content/uploads/showers-4.png "showers-4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Fixed Income** Amid this backdrop of market-wide instability, few asset classes felt the ripple effects of April’s turmoil more acutely than fixed income. With inflation expectations in flux, central bank credibility in the spotlight, and investor appetite for risk sharply recalibrating, the bond market has become a key barometer for investor sentiment and macroeconomic trajectory. **U.S. Treasuries** U.S. Treasury yields swung wildly during the month of April. On April 1st the U.S. 10-year closed at 4.15%. A mere three days later it was down below 4.00%, hitting 3.86% during the April 4th trading session. Following this drop, from the 5th to the 11th the 10-year yield skyrocketed past 4.5%, hitting its highest point during the April 11th trading session at 4.59%. By April 16th it had come back down to earth to close at 4.29% and at the time of writing it sits at 4.162%. Investors experienced over a 60-basis point swing in 10-year treasury yields over the span of 6 days. So, what drove these drastic shifts? ![](https://clear-wealth.com/wp-content/uploads/showers-5.png "showers-5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Several factors contributed to the volatility. The ongoing trade discourse between the U.S. and its global partners, particularly the initial tariff announcement on “Liberation Day” and the ensuing retaliation sparked a market and media frenzy. Concerns over inflation and the long-term effects of a high-tariff environment caused consumer sentiment to plunge. The second factor is one of confidence in U.S. markets mentioned previously when discussing the dollar. The decline of the greenback along with a U.S. treasury sell-off has economists questioning whether investors are losing confidence in the U.S. Since tariff conversations have ramped up short term treasury notes have had week demand at auction furthering the idea that investors are sitting on their hands during periods of policy change. **Corporates** In early April, asset flows into ETFs that invest in corporate loans saw a significant slowdown, with a notable outflow. On April 4th, corporate bond ETFs experienced a record $1.3 billion in outflows, according to JPMorgan. While this may seem jarring, performance during the month of April whipsawed frequently but ended on a positive note. The Dow Jones Corporate Bond Index fluctuated, starting the month up 0.50% on April 3, before dipping to -2.70% by April 11. It regained momentum leading up to April 16, but dipped again to -2.17%, before rallying to finish the month +0.35%. ![](https://clear-wealth.com/wp-content/uploads/showers-6.png "showers-6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Spreads widened across the board within the corporate bond market. Investment grade bonds saw more modest movement compared to high-yield bonds, but more on that later. The ICE BofA US Corporate Index Option-Adjusted Spread, a common measure of investment-grade spreads over Treasuries, drifted wider by about 15-20 basis points throughout the month, but finished the month at around 8 bps higher than the beginning of April. The shift reflects a more cautious – but not panicked – investor stance in a volatile credit market. Issuance in the investment-grade market remained active, as many companies continued to tap the market ahead of potential further rate volatility. ![](https://clear-wealth.com/wp-content/uploads/showers-7.png "showers-7 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **High-Yield** According to the Barclays high-yield bond capitulation signal, high yield credit markets neared a tipping point in early April, leading up to the 90-day tariff pause. Barclays defines “capitulation” as the point where sharp and short-term selling pushes prices lower, triggering additional selling. The indicator jumped significantly since the end of March, peaking in the low 90’s in the days following “Liberation Day”. This was the highest reading since October 2023, when Treasury yields surged on inflation concerns. At 100%, the market is in full capitulation, which has only happened five times since 2000 – during the 2008-2009 financial crisis, the 2011 European debt crisis, the plummeting of oil prices in 2016, the start of the pandemic in 2020, and when interest rates surged in 2022. ![](https://clear-wealth.com/wp-content/uploads/showers-8.png "showers-8 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The rise in the capitulation signal coincided with the widening of high-yield spreads. The ICE BofA US High Yield Index Option-Adjusted Spread widened sharply due to investor uncertainty and a pause in bond purchases. High-yield spreads were relatively tight at the beginning of the month, hovering around 345-350 basis points over the U.S. Treasury. After the tariff announcement, spreads widened substantially, pushing toward 450-475 bps – a jump of about 100-150 basis points in just a few days. Some of the drivers leading to this blow out include the spike of the U.S. 10-year mentioned earlier, a general risk-off sentiment prior to the 90-day tariff pause, and broader growth concerns surrounding the economy which led to slower buying in fixed income. Nonetheless, spreads came back down to around 370 bps at the end of the month, only 20-25 bps higher from where we started at the beginning of April. The key range to monitor going forward will be whether high yield spreads reach territories that exceed the 800-1000 bps mark which were previously seen during the 2008 financial crisis and COVID. ![](https://clear-wealth.com/wp-content/uploads/showers-9.png "showers-9 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **May Flowers?** April’s turmoil has left investors on edge, and while some stabilization emerged late in the month, volatility is unlikely to vanish overnight. Key questions remain unanswered: Will U.S.-China trade negotiations produce meaningful progress, or will further tensions reignite market instability? Can the Federal Reserve maintain its independence amid growing political pressure? Will the bond market continue to signal deeper undercurrents of stress, or settle as clarity around policy direction emerges? Heading into May, market participants should brace for continued swings across asset classes. The bond market will likely remain a crucial barometer for sentiment around the future of U.S. growth, inflation, and global confidence in U.S. assets. Credit spreads, especially in the high-yield space, warrant close monitoring for any signs of deeper cracks in corporate credit health. Meanwhile, the equity markets may remain hypersensitive to the news cycle, Fed commentary, and geopolitical developments. Although risk appetite showed some recovery toward month-end, it will be critical to focus on what hard economic data and corporate earnings are signaling to markets and investors. Whether May brings true “flowers” for investors will depend on whether green shoots of stability can take hold – or if April’s clouds continue to linger. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 733543 **Categories:** Insights --- ### [Catch Bull At Four](https://clear-wealth.com/catch-bull-at-four/) **Published:** May 6, 2025 **Author:** Clear Wealth Planning **Excerpt:** Investors have been in search of a new bull market with stocks careening to the downside for more than two months.  **Content:** > *“I seize him with a terrific struggle > His great will and power are inexhaustible. > He charges to the high plateau far above the cloud-mists, > Or in an impenetrable ravine he stands.”* > **Catching the Bull, Ten Bulls, Kuoan Shiyuan, c. 12th century** Investors have been in search of a new bull market with stocks careening to the downside for more than two months. The footprints of the new bull market were discovered more than a week ago when stocks showed no inclination to retest April 7 lows even with the executive branch threatening the independence of the U.S. Federal Reserve. The new bull was perceived in the days that followed as the S&P 500 broke decisively above its short-term 20-day moving average for the first time since its mid-February highs. And as we enter the new trading week, investors are well served to catch the bull as it charges to its next high plateau potentially beyond new all-time highs. > *“Oh, I’m on my way, I know I am > Somewhere not so far from here”* > **Sitting, Catch Bull At Four, Cat Stevens, 1972** While many investors are still psychologically reeling from the tumultuous -21% peak-to-trough decline in the S&P 500 over a six week period from February 19 to April 7, the U.S. stock market has been surging inexhaustibly back to the upside. Over the past two weeks alone, the benchmark S&P 500 has posted its best daily winning streak in more than two decades at nine days in a row. In the process, the index now stands +18% above its April 7 lows and has effectively recouped all of its losses since so called Liberation Day on April 2 when the tariffs were first announced. While the magnitude of this bounce is impressive, the nature of how this rebound has unfolded has been all the more remarkable. ![](https://clear-wealth.com/wp-content/uploads/bull1.jpeg "bull1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Consider the above chart of the S&P 500. Not only did the S&P 500 make quick work of what had previously been stiff resistance in its short-term 20-day moving average (dotted green line in the chart above), but it proceeded to advance assertively over the next five trading days through the middle of last week toward its medium-term 50-day moving average resistance (blue line in chart above). Normally, it would have been reasonable to expect that U.S. stocks would take a breather and consolidate around the 5585 level on the S&P 500, as stocks had already traveled such a far journey so quickly to the upside already. But on Thursday and Friday of last week, stocks blasted definitively higher through this key resistance level with little hesitation. With the RSI back in bullish territory at 59 and rising and short-term momentum surging to the upside, the outlook for further gains in U.S. stocks at least in the short-term is decidedly positive. So what’s up next for U.S. stocks heading into the new trading week? The next and arguably last major resistance battle line for taming and riding the S&P 500 bull higher is its incrementally sliding long-term 200-day moving average (red line in the chart above) currently at 5746, roughly +60 points above where the S&P 500 closed on Friday. Although futures are lower heading into the overnight into Monday morning trading, U.S. stocks appear on a collision course with this key resistance level in the week ahead. And if stocks transcend above 5750 between now and the end of next week, the technical path is largely clear for a return to previous all-time highs in mid-February and potentially beyond. *“You’re gonna wind up where you started from”* **Sitting, Catch Bull At Four, Cat Stevens, 1972** Fortunately for U.S. stocks, the fundamental justification for a further upside move in stocks in the coming weeks continues to strengthen. ![](https://clear-wealth.com/wp-content/uploads/bull6.jpeg "bull6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Consider the chart above showing the 2024 historical and 2025 forecasted per share corporate earnings growth on the S&P 500 Index. We are now more than half, just over 55% to be exact, through the 2025 Q1 earnings season, and the results have been highly encouraging so far. Have earnings growth projections coming into the quarter (dark red bars in the chart above) come down a bit through the first half of earnings season? Sure, but it would have been extraordinary if companies hadn’t revised their outlooks lower at least somewhat given the supposedly cataclysmic uncertainty associated with the tariff rollout just over a month ago. And the fact that corporate earnings growth is still holding in the +13% to +16% range for the rest of 2025 is decidedly encouraging (remember, we had less than 10% earnings growth throughout 2024 as shown by the blue bars in the chart above, and the U.S. stock market was up over +20% last year), as it implies that even after all of the tariff hubbub that underlying economic fundamental conditions remain strong. What about inflation? The financial news headlines, after all, continue to alert us on a real time basis that the associated price increases from all around the world are soon coming to our our shores at a popular retailer near you. These price hikes may indeed come to pass, but even if they do, will they be sustained price increases? The market itself clearly does not think so. For unlike 2021 and 2022 when the 5-year breakeven inflation rate was picking up steam for well over a year, this same reading that estimates the projected average inflation rate for the next five years continues to languish at a very disinflationary 2.3%, down more than 30 bps from where we were before the tariffs were announced. ![](https://clear-wealth.com/wp-content/uploads/bull5.jpeg "bull5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") This largely unspoken in the financial media lately strong growth with low inflation backdrop is not only encouraging for investors hoping for a further asset price rebound, but it also provides the U.S. Federal Reserve with the flexibility to lower interest rates if they deem necessary in the months ahead. And although the U.S. President and the Federal Reserve Chair have been locking horns lately over the future direction of interest rates, the reality remains that the Fed’s gonna Fed at the end of the day. More simply, if the Fed perceives that the economy may be facing potential weakness in the months ahead at a time when inflationary pressures are subdued, they will act to lower interest rates if deemed necessary. And according to the CME FedWatch tool that measures the probabilities of future Fed monetary policy actions based on 30-day Fed Fund futures prices, the market is predicting at least one quarter point rate cut by mid summer and as many as three interest rate cuts by the end of 2025. And even if these rate cuts never come to pass, a U.S. stock market that even thinks it might just maybe get some interest rate cuts is one that can rally strongly simply on the anticipation. **Enlightenment:** Putting these and many other indicators together (further narrowing high yield spreads, U.S. Treasury yields holding steadily in range, Bitcoin prices back on the rise) signal a strong fundamental foundation for a U.S. stock market whose path of least resistance, ceteris paribus, remains not only to the upside but returning to new all-time highs in the months ahead. But what about the tariffs? Indeed, this was big market moving deal in early April, but a 90-day pause was announced, which means the current administration gave themselves a lot of room to make this story gradually fade away. Will some trade deals be announced between now and early July when the 90-day window technically closes? Undoubtedly, but they will be signs that the trade imbroglio is increasingly coming to an orderly and perhaps relatively quiet resolution. Perhaps more significantly, what people are talking about is likely to change two or three times over by the time we reach early July. After all, the current occupant of the White House can change the narrative fairly decisively in 90 hours, so a 90-day pause will seem like an eternity from a relevant news flow perspective. **Bottom line:** The outlook for risk assets remains increasingly favorable as we move into the first full trading week of May. Risks remain to be certain, but the risk-reward balance remains tilted to the upside at least at the present time. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. LPL Compliance Tracking #734974 **Categories:** Insights --- ### [War Is Over (If You Want It)](https://clear-wealth.com/war-is-over-if-you-want-it/) **Published:** April 28, 2025 **Author:** Clear Wealth Planning **Content:** Capital markets are finally making some constructive progress following two tumultuous months. After a gradual descent following its February 19 peak, the U.S. stock market accelerated to the downside once the calendar flipped to the second quarter and the Liberation Day trade war was underway. But following a series of steps by the U.S. to scale back their initial trade aggression, we appear to have reached the point where markets may be ready to put this whole April Fools Month for trade policy in the rearview mirror and try to start to get back to normal. Some big steps were made on the technical front for the U.S. stock market late last week. After a bleak start to trading on Monday, the S&P 500 spent the next four days rallying decisively to the upside. In the process, the headline index broke out decisively above its downward sloping short-term 20-day moving average (dashed green line in the chart below) for the first time in over two months when the stock market was at its all-time high peak. At the same time, the Relative Strength Index (RSI) for the S&P 500 moved above 50 (bullish-bearish crossover) also for the first time since mid-February, and momentum readings marking their greatest strength since the rally last August. These are all decidedly bullish signs that markets may finally be on the mend after a most difficult two month stretch. ![](https://clear-wealth.com/wp-content/uploads/War-Is-Over-If-You-Want-It.jpg "War Is Over If You Want It | Great Valley Advisor Group - Clear Wealth Planning Solutions") This does not mean that we are in the clear for U.S. stocks just yet by any means, as downside risks abound. First, we remain in a political environment where the next inflammatory comment for financial markets remains one headline away. After all, we’re not yet even one week removed from the “fire the Fed head” diatribes. Next, while the first breakout for the S&P 500 in some time has been a decisive advance to 5525, further work remains with futures lower heading into the overnight and the downward sloping medium-term 50-day moving average (blue line) looming ahead at 5636 and falling and the rolling over long-term 200-day moving average (red line) at 5746 just above it. Moreover, while the S&P 500’s breakout has exhibited some good pace, the breakouts for the equal weighted S&P 500, mid-caps, and small caps has been relatively more muted. In short, last week was a good start for U.S. stocks, but a challenging road still lies ahead. With that said, capital markets are offering no shortage of positive signs as we make our way toward the summer months. First quarter earnings season: We are now just over one-third of the way through the first quarter earnings season, and the results and guidance have been decidedly positive so far. Revenue and earnings results for 2025 Q1 have been rock solid, but more importantly has been the outlook. Not only are analysts still projecting corporate profit market expansion through the remainder of 2025, but the percentage of companies issuing positive earnings guidance exceeds those issuing negative earnings guidance at 55%, which so far is well above the 5-year average of 43%. Put simply, companies are delivering good results for the recently ended quarter, and are sounding a more optimistic tone about the remainder of the year despite all of the ongoing tariff noise. The VIX: The CBOE Volatility Index, or “fear” gauge, spiked over 60 in the days immediately following Liberation Day, which is another way of saying that investors were freaking out a few weeks ago. But in the trading days since, the VIX has steadily descended back lower. This includes a steady decline over the past four trading days to below 25 for the first time since the start of the month. If the VIX continues to fall into the low 20s or even better the high teens, this suggests an S&P 500 driving to reclaim some of those previous support lines (50-day and 200-day MAs) mentioned above, or put more simply the bounce is on like Donkey Kong. ![](https://clear-wealth.com/wp-content/uploads/War-Is-Over-If-You-Want-It-1.jpg "War Is Over If You Want It | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Bonds and the U.S. Dollar**: A building concern in the days following Liberation Day was the sharp spike in Treasury yields (reflected in the sharp drop in bond prices as shown by the blue line from April 4 to April 10 in the chart below) coupled with the sharp decline in the U.S. dollar that remained adrift along with thrashing U.S. Treasury yields through last Monday April 21 when the leader of U.S. fiscal policy was stalking the leader of U.S. monetary policy (bad look). This toxic combo was suggesting that foreign investors were selling their loans to the U.S. government and picking up their proverbial marbles to leave the U.S. and go back to their home countries. But since last Monday, we’ve seen U.S. Treasury yields falling (Treasury prices rallying strongly) at the same time that the U.S. dollar is clawing its way back. Capital flight, interrupted, at least for now. ![](https://clear-wealth.com/wp-content/uploads/War-Is-Over-If-You-Want-It-2.jpg "War Is Over If You Want It | Great Valley Advisor Group - Clear Wealth Planning Solutions") All of these signs are positive for capital markets as the new trading week gets underway. But what about the notion that investors are left feeling inexorably burned by the recent tariff fiasco and may place a more permanent ban on U.S. investment in favor of overseas markets. Undoubtedly, an attractive relative value opportunity exists outside of the U.S., so perhaps this long anticipated geographic rotation may continue to get its day as it has for the year-to-date so far. ![](https://clear-wealth.com/wp-content/uploads/War-Is-Over-If-You-Want-It-3.jpg "War Is Over If You Want It | Great Valley Advisor Group - Clear Wealth Planning Solutions") With that said, real talk. Investors on this planet can talk all day long about how they’ve had enough of the U.S. and its policy shenanigans. But here’s the reality. Sure, you as a foreign investor or maybe even a U.S. investor may be pissed about the recent tariff announcements and are waving your hands about the miscalculations and the travesty, but where are you going to go in aggregate as an alternative. The Euro Zone? Eight words – one shared monetary policy, twenty different fiscal policies. And no, the European Monetary Union is not like the United States of America where fifty separate states share the same monetary policy, as the big fiscal policy dogs stateside reside in Washington DC. Japan? The yen is a safe haven currency, but one word – demographics. Once the second largest economy in the world (when entering my first year at Dickinson College in the fall of 1992, my freshman seminar was titled “There’s a Japanese In Your Future” – great class, great professor, but turns out not so much), it is increasingly descending down the ranks having been surpassed by Germany and now India in recent years to become the fifth largest economy in the world and falling. Switzerland? The classic global safe haven story indeed, but their economy is about the size of North Carolina’s, and it’s not like they haven’t had their own challenges in recent years (remember one of their two major banks in Credit Suisse needing to be acquired by their other major bank in UBS from just over two years ago?). UK? Once the richest country in the world indeed, but Pax Britannica is well over a century ago for a reason (the U.S. is also its own country about to celebrate its semiquincentennial (250 years) in 2026 for a reason too). India? Too much red tape. China? C’mon. Put simply, investors may want to bolt from the U.S., but where are you gonna go? Sure, the *bon vivant* may be pulling up stakes and buying a chalet in Andermatt on a micro level, but there’s nowhere else in the world for the global elite to go on a macro level that has the same size, quality, and liquidity still on offer from the United States of America. Does this mean that U.S. stocks are going to continue to crush the rest of the world on a total return basis? Maybe, maybe not, as a period of non-U.S. relative outperformance is long overdue. But it also doesn’t mean that it’s all going to go to hell for U.S. markets either. I’ll close with two more positive notes for capital markets to put icing on the cake and a cherry on top. First, inflation expectations remain fully in check despite the recent market bounce. The 5-Year Breakeven Inflation Rate, which measures average expected inflation for the next five years, remains subdued at 2.32%. While this may be signaling greater concerns about a disinflationary economic recession looming in the second half of 2025, I counter this notion with corporate earnings and guidance that are still telling a decidedly different and far more optimistic story through the rest of 2025 and into 2026 so far this earnings season. ![](https://clear-wealth.com/wp-content/uploads/War-Is-Over-If-You-Want-It-4.jpg "War Is Over If You Want It | Great Valley Advisor Group - Clear Wealth Planning Solutions") Next, investor risk appetite appears to be on the mend. This is evidenced by CCC and lower spreads, which took a drop lower toward the end of last week and are now 150 bps below their April 7 highs. ![](https://clear-wealth.com/wp-content/uploads/War-Is-Over-If-You-Want-It-5.jpg "War Is Over If You Want It | Great Valley Advisor Group - Clear Wealth Planning Solutions") No shortage of downside risks remain for capital markets as we enter the new trading week, and extended bouts of volatility should continue to be expected. But the good news is that a variety of economic and market indicators are signaling a decidedly positive tone that the trade war impact on financial markets may be over and that further upside lies ahead. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #731311.** **Categories:** Insights --- ### [Economic & Market Report: Talk About the Passion](https://clear-wealth.com/economic-market-report-talk-about-the-passion/) **Published:** April 22, 2025 **Author:** Clear Wealth Planning **Content:** *“Combien, combien, combien de temps?”* *–R.E.M., Talk About the Passion, 1983* It has been a difficult stretch for capital markets for a couple of months now. And as we emerge from our Easter/Passover holiday weekend celebrations, investors are left to wonder how much longer will the turbulence that has enveloped capital markets persist as we continue through the spring and into the summer. To help answer this question, let’s begin with our customary look at the benchmark S&P 500 Index. The market has measurably bounced following the staggering post Liberation Day decline. As a result, we now have some clearly defined support levels to mark against as we move into the upcoming trading week. First, a short-term low has been set at 4835 that was set nine trading days ago on April 7. Perhaps more importantly from a long-term technical perspective, the S&P 500 has effectively reclaimed its ultra long-term and still upward sloping (this is important, as it indicates the ultra long-term uptrend remains intact) 400-day moving average (pink line in chart below) and has been holding this support for the last seven trading days now. Not braking again decisively back to the downside will be important to watch in the coming trading days, as it will indicate that the market is maintaining its footing and wants to eventually push back higher. ![](https://clear-wealth.com/wp-content/uploads/1.png "1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Despite these positives, the market continues to confront numerous challenges in working to collect itself following its recent decline at two months and counting. First, the short-term 20-day moving average (green dashed line in the chart above) has proven stiff resistance dating all the way back to when the market first starting pulling back in mid-February with the last weak failed attempt at a breakout coming on Tuesday and Wednesday of last week. With the 20-day moving average currently at 5453 steadily falling and the 400-day moving average at 5311 and steadily creeping higher, a technical trading battle will soon be joined around the 5320 level on the S&P 500. Technical forces historically favor the longer term trendlines (think aircraft carrier) overpowering the shorter term trendlines (think PT boat), thus supporting the idea of an eventual upside breakout in stocks above the 20-day moving average over the next two weeks, but the variable of unpredictable political and financial headline news flows can bring uncertainty to the final outcome this time around. These levels (4835, 5311, 5320, 5453) will be important to watch closely in the coming days. Let’s dig deeper into the markets for more answers on what to expect. We’ll begin with the disconcerting. While the headline S&P 500 remains in a technical fight, most other major indices underneath the market surface are already broken. For example, the equal weighted S&P 500 Index has been trading below its 400-day moving average for the last ten trading days and has failed on three different attempts to break back out above this key level. It will want to reclaim this support level soon or it will increasingly transition into resistance. ![](https://clear-wealth.com/wp-content/uploads/2.png "2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Worse yet is the S&P 400 Mid Cap Index, which has been trading well below its 400-day moving average for eleven trading days and now faces resistance at its 20-day moving average that has moved decisively below the 400-day moving average in its own right ![](https://clear-wealth.com/wp-content/uploads/3.png "3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") And in completing the barely good, bad, even worse, and downright ugly cycle, we have the S&P 600 Small Cap Index, which in retrospect foreshadowed the technical brakes we have seen up the size spectrum having fallen below its 400 day moving average all the way back in early March and has repeatedly failed in the seven weeks since to reclaim not only this ultra long-term trendline but even the short-term 20-day moving average. ![](https://clear-wealth.com/wp-content/uploads/4.png "4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Put simply, this is a U.S. stock market that remains challenged at the surface and downright sick underneath. The good news is that if any index is going to drag the entirety of the U.S. markets back to the upside, it is the headline S&P 500 Index that remains in the fight. This is why it is all the more important that the S&P 500 finds its footing and starts pushing its way back higher in the coming trading days. Let’s look beyond the U.S. stock market for even more answers. Fortunately, many of these readings offer encouragement that the worst may be behind us. First, consider the CBOE Volatility Index, or the VIX, which is a “fear gauge” for capital markets. In short, the higher the VIX, the more afraid are investors. Conversely, the lower the VIX, the less afraid. After peaking at just over 60 (this is a high reading – it’s only been higher three other times in its more than 30 year history (2008, COVID, last August during the yen carry trade unwind)) at the market lows on April 7, the VIX has fallen steadily lower in the eight trading days since, crossing back below 30 in recent days. Still high to be sure, but less than half of the “fear” the market was feeling just over a week ago and trending lower. ![](https://clear-wealth.com/wp-content/uploads/5.png "5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Another positive sign is coming from the spreads on CCC and lower rated corporate bonds. In 2024 and into early 2025, the additional yield that investors were requiring to own the debt of companies with the highest probability of default had fallen to historically low levels at just over 11%. But since the beginning of March and right around the same time that U.S. small cap stocks were breaking to the downside, CCC and lower spreads started blowing out. By April 7, these spreads had widened to well over 15%. But in the eight trading days since, these spreads have come back in by 80 bps and are trending back lower. ![](https://clear-wealth.com/wp-content/uploads/6.png "6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") An additional reassuring reading from the most speculative areas of the market comes from Bitcoin, arguably the most recognizable from the cryptocurrency set. Not only did Bitcoin find a bottom on the same day as the S&P 500 on April 7, it has been moving more boldly and definitively back to the upside. In the process, it held its 400-day moving average, and subsequently reclaimed its short-term 20-day moving average and medium-term 50-day moving average (blue line below) and is now pressing up against its still upward sloping 200-day moving average (red line below). Why does this possibly matter when it comes to capital markets? Because cryptocurrencies like Bitcoin are instruments driven by high speculation. Thus, the fact that Bitcoin is holding up so well means investor speculative appetite and willingness to take on risk remains alive and well. **![](https://clear-wealth.com/wp-content/uploads/7.png "7 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s finish this set with arguably the most important of them all, which is the the yield on U.S. Treasuries. It was intermediate-term and long-term U.S. Treasury yields surging to the upside that got the executive branch to finally back down on tariffs, and a subsequent return back to earth was necessary in order to restore calm and confidence in recently shaken financial markets. After continuing to stretch higher for a few trading days after the stock market bottom to a high approaching 4.6% on April 11, the 10-Year U.S. Treasury yield fell back to it’s various trendlines between 4.23% and 4.33%. Rates are ticking marginally higher toward 4.35% during the overnight into Monday’s trading, and we will want to watch the direction of yields closely over the coming week for signals of what may ultimately spill over into the stock market for good or for bad. For good? the 10-Year Treasury yield breaks below 4.23%. For bad? the 10-Year starts pushing its way back up toward 4.6% and beyond. Why is this bad? Because the higher the Treasury yield, the less attractively stocks are valued all else equal, thus putting downward pressure on stock prices. Stay tuned. ![](https://clear-wealth.com/wp-content/uploads/8.png "8 | Great Valley Advisor Group - Clear Wealth Planning Solutions") When turning to the fundamentals, we actually find some more surprising good news. We’ll start with the attention grabber on the corporate earnings front. We are now roughly 10% through the first quarter earnings season, and some of the early results have been notable. In addition to reporting yesterday’s news on how companies performed during 2025Q1, companies are updating their outlooks for the remainder of the year incorporating all that they know and are anticipating will come to pass with tariffs and any other recently man made uncertainties. And despite all of the consternation and handwringing, projected corporate earnings for the remainder of the year have been revised meaningfully *higher* so far, not lower. Now it is important to interject right away that we still have 90% of the companies in the S&P 500 that still need to report in the coming weeks, so the final number could still change quite a bit. Nonetheless, this is a decidedly positive development at least at the start of earnings season. ![](https://clear-wealth.com/wp-content/uploads/9.png "9 | Great Valley Advisor Group - Clear Wealth Planning Solutions") What about the inflation front, which this Chief Market Strategist repeatedly notes is still the #1 downside risk confronting capital markets today. Tariffs are inherently inflationary, but the markets are signaling expectations of something entirely different – fears of a recession with disinflationary/deflationary forces. Overall, the 5-Year Breakeven Inflation Rate that measures average expected inflation over the next five years, continues to drop from over 2.6% just before “Liberation Day” on April 2 to as low as 2.26% and falling during the overnight heading into Monday’s trading. In short, this is a bond market that is signaling that it not only doesn’t think that tariffs are going to stick in any meaningful way AND that all of the damage from the recent tariff rigmarole may be enough to tip the economy into a mild recession. Nonetheless, if inflation expectations are fading, this means the Federal Reserve is gaining increasing flexibility to cut interest rates if needed. And this is the rocket fuel that can eventually put giddy up back into the U.S. stock market. ![](https://clear-wealth.com/wp-content/uploads/10.png "10 | Great Valley Advisor Group - Clear Wealth Planning Solutions") It promises to be another interesting trading week ahead. The good news is that despite the ongoing volatility, a number of factors continue to work in the U.S. stock market’s favor. It may not materialize right away, but the underlying fundamentals remain solid and arguably marginally improving despite any continued market turbulence. *Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* *LPL Compliance Tracking #728048.* **Categories:** Insights --- ### [Economic & Market Report: Battle Lines](https://clear-wealth.com/economic-market-report-battle-lines/) **Published:** April 15, 2025 **Author:** Clear Wealth Planning **Content:** It has been a tumultuous second quarter so far. After only nine trading days, we have seen U.S. stocks as measured by the S&P 500 plunge by more than -15% peak-to-trough in the wake of the “Liberation Day” tariff announcements, only to find their footing and battle their way back since. Although the tariffs for most countries have been paused for 90 days, market volatility remains elevated and investors on edge. What is the set up for capital markets for the week ahead? And what are the implications for the longer term outlook. ![](https://clear-wealth.com/wp-content/uploads/battle1.jpg "battle1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The technical battle lines have been set for the U.S. stock market as measured by the S&P 500. The current cycle low is in at 4835 as shown in the chart above. Why is this important? Because stocks in the midst of a correction will often retest a short-term low before setting a final bottom and pushing their way higher. We are already trading +11% above this low set at the open last Monday, which is constructive. And it is conceivable that stocks may forgo retesting this low before it’s all said and done. This is due to the fact that the S&P 500 has reclaimed its ultra long-term 400-day moving average (pink line in chart above) after thrashing back and forth over a wild five day stretch last week. Thus, the key support level to watch in the coming days is 5302 and rising on the 400-day moving average. Although the Relative Strength Index (RSI) is now well off of deeply oversold levels at 44.21, it still has room to the upside before hitting the bull/bear crossover line at 50. For technical analysis fans out there, an advance in the S&P 500 that pushes the RSI above 50 would be a particularly constructive development for further gains in the days ahead. What about the technical obstacles to the upside in the days ahead? Another constructive point for the S&P 500 is that despite the recently strong bounce, considerable room still exists to the upside before the S&P 500 reaches its downward sloping 20-day moving average (dashed green line in the chart above) currently at 5517 and falling. This implies that stocks have open space for another +2% to +3% advance before running into resistance. And if they can advance assertively above this short-term 20-day moving average resistance dating back effectively to late February, the next key levels to watch are both the 50-day and 200-day MAs currently in the 5750 to 5760 range, which is more than +7% above current levels. Assuming that the worst is almost certainly already in for the short-term tariff news at least for now, the bias remains to the upside for U.S. stocks in the holiday shortened trading week ahead (the markets are closed on Friday for Good Friday). ![](https://clear-wealth.com/wp-content/uploads/battle2.jpg "battle2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Looking closer at the intraday charts on the S&P 500 provides further support for the short-term upside breakout thesis. Focusing on the intraday trading channel dating back to April 8 in particular (before the 90-day pause was announced), we see that stocks have been picking up momentum with notably higher lows versus only the marginal lower highs dating all the way back to April 3. This implies that buyers are advancing far more assertively in recent trading days since sellers are likely to seek to defend in the coming trading days. And with futures already trading solidly higher heading into the overnight into Monday’s trading, an intraday breakout appears in the cards and is a bullish way to kick off the new trading week. So the short-term technical set up is positive, but what about the latest on the fundamentals. After all, the economic and financial implications associated with the recent tariff announcements have been jarring to say the least. Let’s begin with the latest look at the economic forecasts. For this, we will focus on the latest readings for U.S. GDP growth for 2025 Q2 from the New York Fed Nowcast, which will be the quarter that will start to incorporate the full brunt of the tariffs as they are implemented. While it remains early in the data cycle, the latest forecast for GDP growth for the current quarter is 2.6% as of Friday, April 11. While this number could still change quite a bit over the coming months, this latest reading remains rock solid. ![](https://clear-wealth.com/wp-content/uploads/battle3.jpg "battle3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") What about the latest on corporate earnings, which are driven by GDP growth and are a primary determinant of stock market returns? The latest forecast is in through April 8 with the first few companies having reported their earnings and their outlook. We have already seen some deterioration in the earnings forecast for the remainder of 2025, which is expected, but nonetheless the earnings forecast remains robust. How much of this collective expected earnings growth the S&P 500 will be able to sustain in the coming weeks remains to be seen, but the good news remains that we are starting from a high bar. ![](https://clear-wealth.com/wp-content/uploads/battle4.jpg "battle4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Arguably just as important is the inflation outlook, particularly since tariffs are widely and rightfully regarded as inflationary. Despite all of the headlines about “inflation” and “stagflation”, the market continues to price in a decidedly different outlook on the inflation front. After ending last quarter at 2.61%, the 5-year breakeven inflation rate that measures expected average inflation over the next five years has plunged in the wake of the tariff announcements and have remained low at 2.33% through Friday. Put simply, a near 30 bps drop in five-year inflation expectations signals a market much more worried on the margins about disinflationary/deflationary economic recession in the second half of 2025, not looming inflation or stagflation. And this implies continued flexibility for a potential Fed surprise of more accommodative monetary policy in the form of interest rate cuts in the months ahead. The market is already pricing in a quarter point rate cut by June and three quarter point cuts by December. ![](https://clear-wealth.com/wp-content/uploads/battle5.jpg "battle5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Putting this all together, the fundamental and technical backdrop for stocks remains constructive as the new trading week gets underway. The political and financial news flow remains relentless and unpredictable, however, so the market remains well served to be braced for what latest breaking news headline might jar capital markets. Nonetheless, volatility as measured by the CBOE Volatility Index, or the VIX, continues to slowly drift in the right direction from their April 8 peaks at over 57 to 37 by the end of last week. Watch for a move in the VIX back below 30 in the early part of the trading week, which would signal that the worst may be behind the stock market at least in the short-term. Of course, the arguably more important story that merits watching not only for the short-term but for the intermediate-term and long-term through the remainder of the year and beyond is the bond market. After all, it was the dramatic surge in Treasury yields including the 10-Year from below 3.9% during the overnight heading into Monday’s trading last week to over 4.5% by Wednesday coupled with the precipitous drop in the U.S. dollar was the very likely catalyst for the 90-day pause (forget about trade wars – a swift capital flight out of the U.S. evaporating Treasury market liquidity while sending borrowing costs soaring and the dollar precipitously declining is an effective way to tame the U.S. tariff impulse really fast). Yields moved relentlessly and sharply higher all last week, and it will be important to watch to see if this recent surge starts to level out to start the new trading week. ![](https://clear-wealth.com/wp-content/uploads/battle6.jpg "battle6 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The look on the 30-Year U.S. Treasury is even worse, as yields punched new highs for 2025 at just over 5% during the weekly surge. ![](https://clear-wealth.com/wp-content/uploads/battle7.jpg "battle7 | Great Valley Advisor Group - Clear Wealth Planning Solutions")battle7Why does this surge in bond yields and the associated decline in the U.S. dollar matter? Because the U.S. has been the almost exclusive destination for global capital dating back to the beginning of last decade in the immediate aftermath of the Great Financial Crisis. This has powered the U.S. bias that has benefited so many domestic investors for so many years. The U.S. has not made any new friends with the global community with the ongoing tariff drumbeat, and these moves in bond yields and the dollar are signaling that the rest of the world may be pulling up stakes and moving out of the U.S. in a meaningful way. Perhaps this is a fleeting development and everyone will settle back down into business as usual. But if these trends continue in the weeks and months ahead, it not only potentially increasingly puts the U.S. economy and its financial markets into a bind as the year progresses, but it may ultimately result in the manifestation of the long anticipated rotation out of overvalued U.S. stocks and into relatively undervalued developed international and (selected) emerging markets. Stay tuned. The new trading week appears to be getting off to a good start. Keep an eye on the financial headlines in the days ahead. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 725181 **Categories:** Insights --- ### [Economic & Market Report: Liberation Day](https://clear-wealth.com/economic-market-report-liberation-day/) **Published:** April 4, 2025 **Author:** Clear Wealth Planning **Excerpt:** Liberation Day has arrived for the United States.  Unlike in most other countries where it is celebrated in reflection of the end of a past war or the dawn of a new revolution, Liberation Day in the U.S. as it has come to be known is the declaration of promised tariffs to free the country from the import of foreign goods. **Content:** > *“In truth the prison, unto which we doom* > *Ourselves, no prison is: and hence for me,* > *In sundry moods, ‘twas pastime to be bound* > *Within the Sonnet’s scanty plot of ground;* > *Pleased if some Souls (for such there needs must be)* > *Who have felt the weight of too much liberty,* > *Should find brief solace there, as I have found”* *-William Wordsworth, Nuns Fret Not at Their Convent’s Narrow Room, 1807* Liberation Day has arrived for the United States. Unlike in most other countries where it is celebrated in reflection of the end of a past war or the dawn of a new revolution, Liberation Day in the U.S. as it has come to be known is the declaration of promised tariffs to free the country from the import of foreign goods. As we have seen since the prospect of tariffs were first reintroduced to the American public, gallons of ink have and will continue to be spilled dissecting the minutiae of how the various tariffs might impact every corner of the economy and financial markets. I look forward to my future evenings and overnights filled with such reading. But when it comes to evaluating the implications of what has culminated in Liberation Day from the current administration, I continue to prefer to paint the economic and financial market picture with broad brush strokes. For it is general, and not the specific, where the true answer of what we may ultimately and reasonably expect most likely resides. **Doom**. Let’s get right to it. The current administration final revealed their much ballyhooed and long anticipated tariffs on Wednesday. Put simply, they were much bolder and far reaching than generally expected. The already beleaguered U.S. stock market recoiled on the news, plunging by more than -4% at the start of the trading day on Thursday and setting a new peak-to-trough low of -12% dating back to the February 19 highs on the S&P 500 Index. ![](https://clear-wealth.com/wp-content/uploads/ld1.jpeg "ld1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The relentlessness of the headline stealing news flow on a day-to-day basis from the current administration has been head spinning. But nearly all of us do not manage our investment portfolios on a day-to-day basis, as we instead dedicate ourselves to a long-term plan to achieve our financial goals. So what, if anything, should we take away from this latest news bombardment emerging from Liberation Day. **Solace**. With no shortage of unsettling headlines for you to continue to read, my focus in these remaining pages is to focus on the constructive. And for that, I will be relying not on conjecture and perception, but instead will remain focused on what the hard data is telling us today. Has the probability of an economic recession risen in the U.S. between now and the end of the year in the wake of Liberation Day? Sure, but this assume the tariffs that were just announced actually stick (or if they are even implemented at all). I’ll leave speculation for another day. Today, it’s best to stick to the facts. Yes, the U.S. stock market as measured by the S&P 500 is down once again today. But not all of the stocks in the market that makes up the S&P 500 are down. The previous highfliers that are most directly exposed to what may come with tariffs? Yeah, they’ve been on the receiving end of the monkey hammer as would be expected. Energy? Down -6% so far today. Industrials? Down -4 but off the lows. Consumer Discretionary? Down -5% but well off the lows. Tech? Oof – Down nearly -6% and falling still. In short, the usual cyclical subjects that are not only sensitive to the idea of an economic recession but also do business all around the world are down bigly so far today (yes, I still view tech as a cyclical sector despite the notions in recent years that it has become this invincible third category that will never go down – heard that one back in 2000 too – didn’t buy it then, don’t buy it now). But what about some of the other sectors? Is it all bad today? Consumer Staples? Up more than +1% and continuing to streak to the upside since March 26. Health Care? Marginally higher through mid-day and holding its ground and trading meaningfully higher from where it opened yesterday. Utilities including those that are going to power the AI revolution? Also marginally higher through the mid-day and continuing to streak higher since March 25. Putting this all together, is this a market in turmoil in the wake of the tariff announcements? Or is this a market that is in orderly rotation in the wake of a phenomenal tech run after so many years that needed a good reason to take a breather to regress valuations to the mean? This Chief Market Strategist remains in the latter camp. **Sundry moods**. OK. But what about the rising risk of an economic recession? We absolutely need to continue to monitor for this risk. But according to the economic projection models from both the Atlanta Fed GDPNow and the New York Fed Nowcast, the U.S. economy continues to hum along at a solid growth rate. Could this change by the second half of the year? Absolutely. But changing your investment course because people think something might happen (soft data) is very different than changing your investment course because conditions are signaling that something is actually going to happen (hard data). ![](https://clear-wealth.com/wp-content/uploads/ld2.jpeg "ld2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") ![](https://clear-wealth.com/wp-content/uploads/ld3.jpeg "ld3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Let’s take this one step further. Consider the aggregate corporate earnings forecasts from the 500 companies that make up the S&P 500 (503 stocks in the index, but 500 companies). The following is the latest projection for earnings growth for the companies that make up the S&P 500 from S&P Global dated Monday, March 31 at the start of this week. Despite all of the headlines and uncertainty and handwringing and speculation about what will ultimately come to pass with tariffs or anything else for that matter from a fixed investment and capital budgeting perspective, U.S. corporations are collectively still forecasting mid- to high teens earnings growth through the remainder of 2025. ![](https://clear-wealth.com/wp-content/uploads/ld4.jpeg "ld4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Now it must be noted that the data and forecasts can change. New economic releases come out on a daily basis, and we are about to start into first quarter earnings season next week where companies will be updating their outlooks for the remainder of the year. But from where we stand today, the hard economic and corporate earnings data remains sound. But what about inflation? I’ve been proclaiming repeatedly after all since the summer of 2023 that the number one downside risk for capital markets is a renewed rise in inflation. And tariffs are directly and inherently inflationary (despite the pretzel twisting logic suggesting otherwise I’ve been hearing from some economists lately). Won’t the implementation of tariffs lead to a renewed outbreak in inflation? Perhaps, but only time will tell. In the meantime, I remain focused on what the market is actually pricing in for inflation expectations over the next five years. Just prior to Liberation Day, 5-year average breakeven inflation expectations remained firmly entrenched in the 2.5% to 2.7%, which is arguably right in the 2% to 3% sweet spot in support of strong and sustainable economic growth. ![](https://clear-wealth.com/wp-content/uploads/ld5.jpeg "ld5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") So where did the breakeven inflation rate that closed at 2.51% on Wednesday before the tariff announcements go once the news hit the headlines? 2.60%, or a whopping 9 basis points higher and still below the near 2.70% short-term peak reached back in mid-February. In a word, yawn. **Sauce for the goose**. All of these forces remain good for the equity market goose long-term, and the same can be said for the bond market gander. And we are seeing this reflected in the movement in bond yields today. For example, the 10-Year U.S. Treasury yield closed on Wednesday at 4.20%, and following the tariff news it dropped as low as 4% (lowest levels since early October) during the trading day on Thursday. If you’re a bond investor, you’re lovin’ the tariff news, as the long bond is up over +1% today. These are not the moves of a bond investor that is worried about inflation. To the contrary, it’s more of the move of a bond investor that might be thinking about a recession. But the lower bond yields go, the higher the equity risk premium and the greater the support for stock prices. Moreover, if the market isn’t worried about inflation, this means the U.S. Federal Reserve would have increasing flexibility to cut interest rates if needed. And anyone investing since 2009 knows how much the stock market loves it some Fed rate cuts. **Bottom line**. Today’s stock market moves are certainly jarring, but greater volatility is what comes with a new administration moving at lightning speed in breaking stuff. The good news is that the underlying economic and financial hard data remains sound and the markets are continue to move and behave in an orderly way despite all of the noise. **Disclosure:**I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 719275 **Categories:** Insights --- ### [Economic & Market Report: Deja Vu](https://clear-wealth.com/economic-market-report-deja-vu/) **Published:** March 24, 2025 **Author:** Clear Wealth Planning **Content:** *“And I feel like I’ve been here before”* *-Deja Vu, Crosby, Stills, Nash & Young, 1970* It’s been a tough time for the U.S. stock market as of late. Over the last four weeks, the headline benchmark S&P 500 Index has fallen by just over -10% peak to trough. And the bounce that has emerged over the past five trading days has been weak at best. With words like “crash” and “panic” being thrown around both in the financial media and around the watercooler as the ticker tape rolls across the screen all day long, it’s reasonable for investors to ponder “I should do something”. But when it comes to investing, often the best solution is to resist the urge to take action. We have all been here before with financial markets, and a properly constructed long-term investment strategy should be ready to weather these short-term pullbacks on the path to long-term prosperity. ![](https://clear-wealth.com/wp-content/uploads/Slide1-1.jpeg "Slide1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") *“It’s like Déjà vu all over again”* *-Deja Vu, John Fogerty, 2004* **Seen**. Yes, the S&P 500 has fallen by -10% in just over four weeks. But it is important to put the current decline into context. Prior to the recent drop, the S&P 500 had rallied by more than +50% since the Halloween before last. Along the way, the U.S. stock market did virtually nothing other than go straight up. If anything, it’s not the fact that the S&P 500 has fallen by just over -10% in recent weeks that is all that unusual. Instead, it’s the fact that it took nearly a year and a half before we saw a -10% drop in the S&P 500, particularly following such a phenomenal run. After all, the stock market historically does not go up or down in a straight line. Instead, it typically moves in a “three steps forward, one step back” oscillating pattern to the upside (and the opposite to the downside unless it’s a full blown crisis). What have we seen since late 2023? A stock market that’s effectively taken 15 steps forward and virtually no steps back until about a month ago. In short, this pullback is loooooong overdue. *“I swear we been here before”* *-Deja Vu, Post Malone featuring Justin Bieber, 2016* **Already seen**. As alluded to above, history is a useful guide in understanding what to expect from the stock market going forward. Of course, this is not the first time we have been confronted with potential bad news and raging financial newsflow on a daily if not hourly (if not continuous) basis. Let’s reflect back only a few years ago when we had similar executive leadership in the United States. The chart below shows the S&P 500 Index over the period from 2017 to 2019. ![](https://clear-wealth.com/wp-content/uploads/Slide2-1.jpeg "Slide2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") During this time period, the S&P 500 went virtually straight up outside of an interlude during the first quarter of 2018 from Election Day in 2016 below 2300 (brief aside: the S&P 500 is trading over 5600 today – 2x!) through early October 2018 approaching 3000 (four steps forward, one step back, two steps forward – still very good). Yet following this very strong run, U.S. stocks suddenly started careening to the downside. Over the next 12 weeks, the S&P 500 Index dropped by more than -20%, which is the technical definition of a bear market in some investment circles. *“And it feels like deja vu”* *-Deja Vu, Roger Waters, 2017* I remember the impulse at the time was the same as it is today. “We need to do something!” Despite the fact that the U.S. economy was still growing at the time with corporate earnings growth surging at a +20% rate with inflationary pressures completely subdued, so called financial market experts were pounding the table for the Fed to abandon hiking interest rates and turn to rate cuts instead as the financial media trumpeted “Markets In Turmoil” headlines across our screens. Sigh. So what took place starting around Christmas 2018? What would have been reasonably expected given the fundamental backdrop. Stock prices bottomed and proceeded to rally to new all-time highs by the end of April 2019 only a few short months later. What was the right move in that 2018 market environment? The same move that was right in the summer of 2011, the spring of 2013, mid-2015 to early 2016, the COVID crisis of 2020, and the 2022 bear market – resist the impulse to react, stay the course, and remain committed to your long-term discipline. For if a broadly diversified asset allocations strategy is constructed properly, it is prepared to withstand these types of inevitable market episodes that surface almost every year. Could today’s market go down more sustainably like we saw during the Great Financial Crisis of 2007-09 (I’m not including the bursting of the tech bubble from 2000-02 here, as many market segments performed really well outside of TMT – technology, media, and telecom (FWIW today’s tech, consumer discretionary, and communications services sectors)? Anything is possible. But we do not have the rumblings of a financial crisis today like we had back in the mid-2000s. And while we’ve seen some weakening on the economic outlook in recent weeks, the corporate earnings growth outlook remains robust in +15% to +20% range for 2025 with inflationary outlook still in check despite all of the tariff worries. Continue to monitor the situation closely as always (I have no shortage of things that I’m concerned about and monitoring about with the markets every single day), but stay the course in remaining committed to your long-term plan. **Dream comfort memory to spare**. This is also not the first time that the headline S&P 500 Index has been falling to the downside at the same time when many other areas of financial markets are performing well. After all, this is the whole principle of broad diversification and managing correlation risk within a portfolio at work. ![](https://clear-wealth.com/wp-content/uploads/Slide3-1.jpeg "Slide3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") *“Solamente un déjà vu que nunca llega a su final”* *(Only a déjà vu that never comes to an end)* *-Deja Vu, Prince Royce & Shakira, 2017* Consider the current market environment. While the U.S. stock market is lower so far in 2025 following its recent -10% decline over the last four weeks, long forgotten developed international stocks are *higher* by more than +10% year to date. Precious metals? Gold is higher by +15%. Bonds? Treasuries are higher by +3% on price alone not counting the yield. All good stuff in a market where U.S. stocks are falling for the first time in a long while. ![](https://clear-wealth.com/wp-content/uploads/Slide4-1.jpeg "| Great Valley Advisor Group - Clear Wealth Planning Solutions") What about within the stock market itself? Similar to what we saw a quarter of a century ago, today’s TMT in general and the Magnificent 7 in particular are leading to the downside. But outside of two trailing sectors that had done so remarkably well over the past eighteen months previously, we see that many other major market sectors are doing well. This includes health care, energy, and consumer staples, each of which are solidly higher so far in 2025. *“Do you get déjà vu, huh?”* *-Deja Vu, Olivia Rodrigo, 2021* **Bottom line**. Stock market declines can be scary, and market risks should certainly been heeded at all times. But it is important to remember that market corrections like the one we are experiencing right now are part of a long-term experience going all the way back to the buttonwood tree in 1792. We’ve seen declines like this before, and we’ll see them again in the future. Continue to monitor risks as always and make adjustments at the margins when warranted while staying the course with your long-term investment plan. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 713171 **Categories:** Insights --- ### [Economic & Market Report: The Bright Side](https://clear-wealth.com/economic-market-report-the-bright-side/) **Published:** March 17, 2025 **Author:** Clear Wealth Planning **Content:** > *“Some things in life are bad, they can really make you mad* > > *Other things just make you swear and curse.* > > *When you’re chewing on life’s gristle, don’t grumble, give a whistle* > > *And this’ll help things turn out for the best”* *-Always Look on the Bright Side of Life, Monty Python, 1979* The U.S stock market has certainly been bad lately. Since setting a new all-time high on February 19, the S&P 500 has fallen by more than -10% peak to trough in the fifteen trading days since. In the process, this headline index is now lower by more than -5% for the year-to-date and has fallen below its long-term 200-day moving average trendline for the first time since October 2023. Amid the economic gristle of potentially slowing economic growth and the looming threat of tariffs, many investors are understandably unsettled. But the good news is that markets are providing many reasons to whistle, including important reminders about the virtues of broad portfolio diversification and maintaining a long-term view. ![](https://clear-wealth.com/wp-content/uploads/brightside1.jpeg "brightside1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **The gristle**. Indeed, the market has been moving relentlessly lower over the last few weeks. So where has the downside been particularly acute? For many investors, the exact places they might expect. ***Tech***. Leading the plunge to the downside is the Information Technology sector. Now this is an area of the market that has been relentlessly leading the charge to the upside for nearly a decade now. So even a brief interlude of weakness for this steaming sector is arguably long overdue. ![](https://clear-wealth.com/wp-content/uploads/brightside2.jpeg "brightside2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") What is notable is that this tech weakness has been simmering for a few months now. After peaking the day after Christmas at the end of 2024, the tech sector as a whole has dropped by as much as -16%. In the process, it is now pressing toward its ultra long-term 400-day moving average support (pink line in chart above), which is still another -5% lower from where the sector is collectively trading today. As a result, while the underlying earnings growth fundamentals remain strong for this long leading sector, we should not be surprised to see further weakness ahead in the immediate term. ***Consumer Cyclicals***. Joining tech to the downside recently are the usual suspects. Leading (or should I say lagging) among these is the Consumer Discretionary sector in general and the tech adjacent highflyers of Amazon and Tesla in particular that make up one-third of the weighting to the entire sector. ![](https://clear-wealth.com/wp-content/uploads/brightside3.jpeg "brightside3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") After peaking the week before Christmas on December 18, the Consumer Discretionary sector has dropped into its own bear market territory, down more than -21% to date. And much like tech, this cyclical sector may have further to go to the downside still hovering more than 3% above its ultra long-term 400-day moving average support. Sounds dramatic, right? It should be noted that in the case of both sectors, these recent declines have done nothing more than bring them back to levels where they were trading a few short months ago in September and October of last year. Not so much to swear and curse about in this context. **The whistle**. So now that the bad stuff that’s currently making investors mad is out of the way, let’s talk about the bright side of the market. For right underneath the surface of the declining market headlines are a lot of reasons to be constructive. ***Broadening***. Let’s lead with some particularly good stuff. Remember all of the hand wringing in 2023 and 2024 about market concentration where only a select few stocks were responsible for driving the stock market higher (cough, NVIDIA, cough, Mag 7, cough, ahem), with a remarkable only 19% of stocks within the S&P 500 outperforming the Index last year (the historical average is right around half at 49%, which is what one would reasonably expect)? Well, if the first few months of 2025 are any indication, this is no longer a problem and then some. Year-to-date, more than 57% of stocks in the S&P 500 are outperforming the Index. Moreover, while the S&P 500 is down more than -5% so far in 2025, more than 41% of the 503 stocks in the S&P 500 are trading higher year-to-date (yes, there are 503 stocks in the S&P 500, you can thank Google and two other companies with two share classes in the Index for this anomaly). In short, the U.S. stock market despite all of its headline turbulence as of late is experiencing some healthy broadening and solid returns performance beneath the surface. ***Shining sectors***. Let’s now dig further by breaking the U.S. stock market into its component parts. Yes, the Information Technology and Consumer Discretionary sectors have been getting drubbed so far in 2025. But once you get past these two lagging sectors, the rest of the market is not only holding up much better but is performing quite well. Consider that six of the eleven major sectors within the S&P 500 – health care, energy, consumer staples, utilities, real estate, and materials – are trading higher for the year to date. And for three of the five sectors trading lower that are not tech and consumer discretionary in industrials, financials, and communication services, these are all only down by just over -1%. In short, what we’re seeing play out in the U.S. stock market right now is not a crash or even a broad-based decline. Instead, it is effectively a correction in tech and friends, with the money spreading its way across the rest of the market. This is a positive development for long-term investors in the view of this Chief Market Strategist, not a negative. ![](https://clear-wealth.com/wp-content/uploads/brightside4.jpeg "brightside4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Focusing more on the winners so far for 2025, leading the charge to the upside is the health care sector, which is higher by more than 4.5% this year. The fact that health care had the second-best earnings growth fundamentals across all sectors coming into the year (tech is still number one in this regard) coupled with its most deeply discounted valuations in more than a decade (unlike tech that was trading at its highest multiples in more than twenty years toward the end of last year) help justify such strong performance so far in 2025. Another notable leader to the upside this year has been the energy sector. Having long occupied the bottom of the sector return table over the past decade since the exploration and production crash from the mid-2010s, energy suddenly finds itself rising to the top of the stack in 2025. Notably, the two years when the energy sector blew away its sector peers were 2021 and 2022 when we were amid the big inflation wave at the start of the decade. With all the concerns about tariffs and the potential inflation associated with these measures (not to mention the increasing focus on global mineral rights), energy remains a worthwhile sector to monitor from a macroeconomic perspective going forward. And with sector valuations (both absolute and relative to the S&P 500) still at their lowest levels in at least the last few decades outside of the depths of the Great Financial Crisis, it will be interesting to see whether recent outperformance is part of a more sustainable trend going forward. > *“Always look on the bright side of life* > > *Always look on the light side of life”* *-Always Look on the Bright Side of Life, Monty Python, 1979* **Bottom line**. It is easy to get caught up in the news flow associated with financial markets, particularly when the headline indices are declining. Regardless of the market environment whether good or bad, it is always important to take a deeper look underneath the surface to broaden our perspectives. While the recent stock market headlines so far this year have been jarring, much of the market outside of the previously high-flying sectors is performing quite well in 2025. This highlights once again the importance of broad diversification within an investment portfolio strategy. Not only will such diversification more often than not provide a more consistent and less volatile returns experience over time with less risk, but it also helps ensure that you are participating in the potential upside that different segments of the market have to offer at any given point in time. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 709592 **Categories:** Insights --- ### [Economic & Market Report: Tariffs: Listen to the Music](https://clear-wealth.com/economic-market-report-tariffs-listen-to-the-music/) **Published:** March 10, 2025 **Author:** Clear Wealth Planning **Content:** Talk about tariffs continue to pound the news headlines day after day. Taxing imports on goods from other countries such as Canada, Mexico, and China have potential economic impacts that can be troubling for financial markets. These include slower economic growth and the potential for recession as well as rising prices and the threat of high inflation. Amid the turbulence, we have no shortage of experts talking with alarming tones on the details and nuances of exact how these tariffs will turn markets upside down from autos to avocados. It is understandable for many investors to get caught up in the maelstrom of the daily tariff news flow, particularly when it comes with wider financial market swings as of late. But instead of becoming overwhelmed in the talk about tariffs, investors are better served to listen to the music being played by the market itself to best understand how things will ultimately play themselves out. *“Don’t you feel it growing, day by day* *People getting ready for the news* *Some are happy, some are sad* *Oh, we got to let the music play”* *-Listen To The Music, The Doobie Brothers, 1972* **The music of the markets**. “Price is truth” is a saying associated with financial markets. What does this mean? That the market price of an asset such as stocks or bonds is the most accurate reflection of its true value that includes all of the talk and noise that may be surrounding these assets at any given point in time. In short, instead of comparing and contrasting the views of the so many “experts” about tariffs and what they mean, the most reliable measure of the true impact is to focus on market prices themselves. So what is the “truth” that stock prices are telling us today about tariffs. The good news is that financial markets remain far more sanguine about the tariff news than what the headlines might suggest. Let’s start with a look at the headline benchmark S&P 500 Index. Have tariffs caused price swings to pick up on the S&P 500 recently? Sure. But we must pull back from the “tree” of whether the S&P is swinging sharply up or down on any given trading day and instead look at the broader “forest” of how the S&P has performed over the last many weeks and months that have led us to this point. And a broader visual look at prices reveal a far more reassuring picture about how markets are viewing the tariff situation so far. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Slide1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Yes, the S&P 500 has fallen by more than -6% peak to trough over the last couple of weeks. But this last “couple of weeks” period started with the S&P 500 hitting fresh new all-time highs on February 19 at 6147. So while the recent price decline feels sharp and kind of panicky, it has done nothing more than bring stocks back to levels that represented all-time highs as recently as September. And this is in the context of a market where if you asked investors this time last year whether the S&P 500 would be trading within striking distance of 6000 much less more than 100 points above it along the way, most would have considered this a stretch. Let’s dig a little deeper into the above chart. The recent decline in the S&P 500 has been nothing more than a long overdue garden variety pullback amid a still persistently strong bull market in stocks. And recent declines have been very orderly from a technical perspective. Why overdue? Because prior to the recent stock price volatility that stretches back to last Thanksgiving despite hitting new all-time highs less than two weeks ago, stocks had been doing nothing other than going straight up for a long, long time. After bottoming at around 4100 around Halloween in 2023 (repeat – 2023), the S&P 500 jumped by roughly +50% over the next year with only two minor blips along the way – a tough first two weeks in April and a few bumpy days at the end of July and the beginning of August. Otherwise, stocks were rising relentlessly. This is not how a normal market behaves, as typical bull markets move in a two to three steps forward, one step back oscillating manner. So the fact that stocks have been enduring some turbulence not only in recent weeks but since Thanksgiving is actually a healthy thing, as it means some of the froth accumulated during the recent rise in stocks is being worked off of the market. How orderly? Let’s zoom in and focus on the smooth red line in the chart above. This is the 200-day moving average for the S&P 500, which is a long-term trendline for the headline index. This has been rising with a notably steep slope for well over a year. Over time, prices typically will either rise up or fall back to these moving average trendlines like gravity. And since the last market peak on February 19, the S&P 500 has done nothing more than fall back to its 200-day moving average. This is referred to as “support” and is where we look for stock prices to bounce after a recent fall. And no sooner did the S&P 500 fall to its 200-day moving average support at around 5730 then it subsequently bounced by more than 110 S&P points through Wednesday’s close. Could the S&P 500 go on to eventually fall below this key 200-day moving average support level in the coming trading days? Absolutely, and investors remain well served as always to monitor market events closely as they unfold. But to this point, markets have been behaving very well and orderly so far amid all of the recent tariff turbulence. *“What the people need* *Is a way to make ‘em smile”* *-Listen To The Music, The Doobie Brothers, 1972* **What about the fundamentals?** OK. That’s fine and good that the market music still feels good. But what about the fundamentals. Are conditions deteriorating? Is it only a matter of time before stocks succumb to a more disconcerting underlying reality that may be accumulating because of what is taking place with tariffs? Once again, prices is truth. Let’s revisit the key worries associated with the various tariffs being thrown around lately. Let’s start with inflation. Indeed, tariffs are something that often will cause prices to go up. But while many pundits may be pontificating about the inflationary effects, prices in the market think otherwise. Consider the chart of the 5-Year Breakeven Inflation rate shown below. This is a measure of what the market is pricing in for average inflation over the next five years. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "Slide2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The good news here is that inflation expectations remain in check despite all of the tariff news. While they are a bit elevated, particularly compared to where we were last September, at 2.56% today they remain largely subdued. Moreover, it’s notable that inflation expectations have actually recently fallen from a recent peak of 2.66% when the market was peaking a couple of weeks ago. Put simply, if the recent market pullback had anything to do with concerns about tariffs causing inflation, the market is telling the exact opposite story. This is one way to make investors smile. Let’s move on to the next key topic, which is economic growth. Here we see a notable recent bump in the road. According to the Atlanta Fed GDPNow forecast, which is a statistical model based on most recent economic data, the forecast for 2025 Q1 has plunged from solidly positive above +2% to decidedly negative approaching -3%. Yikes! But let’s take a beat and consider this a bit further. First, the technical definition of an economic recession is two consecutive quarters of negative GDP growth. While the precipitous drop in the chart above does grab the attention, a one week drop in the forecast for one quarter’s GDP is a far cry from actually putting two negative quarters (six months) of real economic contraction officially in the books. Should we continue to monitor this recent development? Absolutely. But it’s not anything that should signal the alarm bells at this time. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "Slide3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Next, we return to our notion that price is truth. The Atlanta Fed GDPNow forecast is a quantitative model based on economic data, not market prices. So what are market prices telling us right now. That’s is all pretty much good. Consider as just one of many examples the yield spread that investors are requiring above comparably dated U.S. Treasuries for taking the extreme risk of owning CCC or lower rated high yield corporate bonds. In short, these are the bonds that are most likely to evaporate first with the onset of any future recession. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "Slide4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The good news here is that CCC spreads remain near their lowest levels in more than three years, indicating that investors are comfortable with being paid less to take on the risk of owing the worst quality bonds in the marketplace today. This suggests that the market is not pricing in recession risks, at least right now. Have CCC spreads creeped up recently? Sure, but they remain percentage points below where they were back a few months ago in August, and the economy has certainly held up fine in the months since. Let’s go one more for good measure. And for this closing song we will take a look at the latest forecast for S&P 500 corporate earnings. Is this based off of market prices? It is not, as it is instead based on the latest collective earnings forecasts from the companies that make up the S&P 500 Index. But since corporate earnings are the key factor upon which stock prices are based, it is still worth a closer look. So where do we stand today on the corporate earnings front? They are currently forecasted to rise at a mid to high teens double digit rate throughout 2025, which is greater than the high single digit earnings growth rate we saw in 2024, which was a notably strong year for stock market returns. Perhaps more notably, corporations collectively have meaningfully *increased* their profit forecasts for the coming year amid all of the tariff news. ![](https://clear-wealth.com/wp-content/uploads/Slide5.jpeg "Slide5 | Great Valley Advisor Group - Clear Wealth Planning Solutions") **Bottom line**. The financial news headlines remain inundated with the noise of tariffs. And this is likely to continue for the near-term future. Amid the noise, continue to be mindful of what expert pundits are saying and the associated potential downside risks. But when considering the related impact to your investment portfolio, stay focused on the longer term picture and listen to the music that market prices are playing. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **LPL Compliance Tracking #:** 705678 **Categories:** Insights --- ### [Economic & Market Report: The Drag 7](https://clear-wealth.com/economic-market-report-the-drag-7/) **Published:** February 25, 2025 **Author:** Clear Wealth Planning **Content:** The so called ‘Magnificent 7’ is the latest grouping of tech and tech adjacent companies that have dominated the stock market in recent years. Its members include the following names in order of market cap: Apple, NVIDIA, Microsoft, Amazon, Alphabet (ne Google), Meta Platforms (ne Facebook), and Tesla. Together they make up a staggering +32% of the entire weighting of the headline benchmark S&P 500 Index. The question as to whether these are great companies largely speaks for itself; you don’t become a +$1T to +$3T market cap company by being a competitive slouch. But perceived corporate greatness does not necessarily imply future stock investment greatness. *“That was the greatest shot I’ve ever seen. -The worst, I was aiming at the horse.”* *-Chico (Horst Buchholz) and Britt (James Coburn), The Magnificent Seven, 1960* **Magnificence in context**. The ‘Magnificent 7’ stocks have certainly dominated the financial news headlines in recent years, and with good reason. Consider that over the last two years, the Magnificent 7 stocks have generated a +129% return that has outperformed the S&P 500’s +54% return by two and a half times. Magnificent indeed! But defining greatness is also time frame dependent. Let’s extend further back into history for those longer term focused investors in the reading audience. Instead of the last two years, let’s consider the time period of the last three and a half years dating back to late 2021. All of the sudden, magnificence turns to mediocrity, as only three of these much ballyhooed Magnificent 7 stocks – NVIDIA, Meta, and Apple – managed to even beat the S&P 500 over this longer term time period. As for the remaining four, they not only underperformed the S&P 500 over this time period, but they did so by double-digits. And one in particular in Tesla has actually generated a negative cumulative return over this time period to date. Not so ‘mag’ in this longer term view. This highlights a key point associated with blue hot meme stocks at any given point in time throughout market history whether it is the Magnificent 7 today or the Nifty 50 stocks from half a century ago. Risk is a double edged sword. In order to generate the magnificent returns to land your company name in the latest group of hot stocks today comes with the trade off that you have the potential to generate equally wretched returns over some past or future time period. There is a reason after all that FAANG (Facebook, Apple, Amazon, Netflix, Google . . . note those stocks missing from this past group) became the Magnificent 7 became the Fab Four (Meta, Amazon, NVIDIA, Microsoft) reverted back the Magnificent 7. Blazing mega cap stock market leadership is a capricious game, even in the most supportive and liquidity fueled market environments like we’ve enjoyed in recent years. *“A fella I once knew in El Paso, one day he just took all his clothes off and jumped in a mess of cactus. I asked him the same question, Why? – And? – He said it seemed to be a good idea at the time.”* *-Vin Tanner (Steve McQueen), The Magnificent Seven, 1960* **Mag or drag?** Before we go any further, what about the recent performance of these Magnificent 7 stocks in recent months. A must own as we continue through 2025, right? Not necessarily. Indeed, the returns performance of the Magnificent 7 stocks particularly during the period from October 2022 through June 2024 was absolutely an unequivocally off the charts fantastic. But given that most investor time horizons stretch beyond twenty months, we must remain nimble with our thinking and viewpoints even in the most disciplined asset allocation portfolios. Consider 2025 year to date. Through February 20, the S&P 500 Index is higher by nearly +4% versus less than +1% for the Mag 7 stocks. Moreover, four of these names are trading negative year-to-date including Tesla that is down double-digits. So no FOMO if you own but haven’t necessarily backed up the BelAZ 75710 truck to these names your portfolio. Let’s go back further to July 2024. Yes, these stocks have collectively outperformed the S&P 500 by a solid margin over this time period, but our Magnificent 7 references should be supplanted by the Highlander “there can be only one”, for without Tesla blasting the doors off in the five weeks immediately following the 2024 U.S. Presidential election (a discussion about managing non-market related idiosyncratic event risk in this specific instance could fill pages in an article on an entirely different news platform), the Mag 7 would also meaningfully underperform the S&P 500 over this time period, as the six other stocks in the group have trailed the broader market over this seven month time period (yes, NVIDIA, you have too by more than seven percentage points)(what was that Telsa? Yeah, as mentioned a few sentences ago, your still down -13% YTD). *“It shows you, sooner or later, you must answer for every good deed.”* *-Calvera (Eli Wallach), The Magnificent Seven, 1960* **The other side of the sword**. With all of this being said, it’s still hard to imagine these gigantic tech stock leaders running afoul of investors and the markets. Indeed. But we must remember the old investment adage – a great company is not always a great stock. And as alluded to above, a stock that has the ability to rise so far above and beyond the market at any given point in time has the equivalent ability to fall below and beyond the market in another past or future point in time. To illustrate this example, let’s take a closer look at the stock of NVIDIA. None of what will follow here is a recommendation to buy, sell, or hold the shares of this second largest company in the world by market cap that is a member of the Magnificent 7. That is for each individual investor to research and decide. Instead, it is simply being used for illustrative purposes only. Let’s dive in by focusing on risk. NVIDIA stock has an annualized standard deviation of 61.07%. This is nearly four times the annualized standard deviation of the S&P 500 at 15.16%. What does this mean? Not to overly simplify, but NVIDIA’s stock price has, at any given point in time, experienced average price swings that have been four times that of the broader S&P 500 Index. Put simply, NVIDIA stock has a history of being very volatile in comparison to the broader market. Now, when the broader stock market is rising, investors have been rewarded for this amplified risk. For example, during the period from March 6, 2009 when the market bottomed following the Great Financial Crisis to February 19, 2020 when the stock market peaked right before the outbreak of COVID, NVIDIA stock was cumulatively higher by +4,000% versus just +500% for the S&P 500. Undoubtedly magnificent. Samesies for the period from March 23, 2020 to November 21, 2021 during the fiscal and monetary policy liquidity deluged aftermath of the COVID crisis – NVIDIA up +540% versus the S&P 500 up +105%. When the winds of risk are at your back, the returns can be absolutely fabuolous. Alas, it is important for investors to always remember that these risk winds can also blow fiercely in your face, and a stock with higher risk as measured by annualized standard deviation can disproportionately feel the effects. Consider the period of the Great Financial Crisis from July 19, 2007 to March 9, 2009. The S&P 500 was down -54% peak to trough, while NVIDIA shares were down as much as more than -80% over this same time period. Or more recently, consider the 2022 bear market from November 21, 2021 to October 14, 2022 driven by the sharp outbreak of inflation fueled by the aforementioned fiscal and monetary policy deluge. While the S&P 500 fell by -26% peak to trough over this episode, shares of NVIDIA cliff jumped by more than -65%. But has NVIDIA been bulletproof in the age of AI since May 2023? Not so fast. Consider the Japanese yen carry trade unwind last summer. Whereas the broader S&P 500 dropped by less than -8% during this blip in the broader stock rally, NVIDIA shares fell by as much as -28% from July 11 to August 7, 2024. And memories are still farm fresh of the -22% decline in NVIDIA shares from January 23 to February 1 of this year, with -18 percentage points of this decline coming on one day alone on January 27. The S&P 500 fell by a cumulative less than -3% over this same time period. Once again, none of this historical review is an endorsement or an indictment of NVIDIA shares. All of these previous declines were staggering, but they all proved to be great buying opportunities as the shares subsequently advanced to new great heights. Instead, it provides an important illustration for investors to persistently keep in mind that with extraordinary upside semivariance in any given stock or market segment comes with staggering downside semivariance at any given point in time. For those investors with the courage to weather the downside swings in stocks with such price volatility, the long-term rewards can be dramatic. But for some investors, the downside swings may be too much to bear at any given point in time. *“The graveyards are full of boys who were very young and very proud.”* *-Chris Adams (Yul Brenner), The Magnificent Seven, 1960* **Parting shot.** Before drawing to a close, one final point is worth mentioning. And for illustration purposes only, we will build on our historical look at NVIDIA from above. NVIDIA is widely touted as the company that is the gateway to Artificial Intelligence. The simple notion – If you want to incorporate AI into your enterprise, you’ll need NVIDIA semiconductors for your computers to do it. And the revenue and profit growth that the company has produced through the year 2025 as a result has been astounding. I recall a past time in history when another company occupied a similar exalted investment perch. In the late 1990s with the advent of the Internet, Cisco Systems was widely touted as the company that was the onramp to the Internet. The simple notion – if you wanted to get your company on the Internet, you needed Cisco’s routers and switches for your network infrastructure solutions to do it. And the revenue and profit growth that the company was producing through the year 2000 was astounding. But as the well documented story goes, the events that followed over the next few years from 2000 through early 2003 for Cisco and the many other of the best and most profitable tech highflyers of the day (including current Mag 7 member Microsoft in its initial heyday along with NVIDIA and Amazon in their infancy as well as slowly recovering Apple before the transformational introduction of the iPhone in 2007 – no publicly traded Facebook, Google, or Tesla just yet) not only took their stocks down from their previous peaks by as much as -80% or more, but it took years if not decades for them to return to their tech bubble peaks. Keeping with Cisco Systems, it took more than two decades until late 2021 before its shares finally climbed back to their 2000 highs for the first time, and it was still trading -20% below its 2000 peak as recently as last August before its recent surge to the upside. All of this highlights an important point for investors to keep in the back of their minds going forward. Indeed, weathering the short-term volatility associated with these higher risk names has proven repeatedly rewarding for long-term investors. And it is very possible that such impressive rebounds will continue to prove just as much if not more rewarding to investors in the future. These are great companies with strong revenue and earnings growth, after all. With that said, historical precedent reminds us that events can unfold where these high risk stocks can smash up against the rocks and not rebound right away but instead spend years if not decades clawing their way back. This is a reality that all investors regardless of their risk appetite are well served to be mindful of going forward. *“The odds are too high. -Much too high. -Then we go? -No. We lower the odds”* *-Chris Adams (Yul Brenner) and Harry Luck (Brad Dexter), The Magnificent Seven, 1960* **Bottom line**. The Magnificent 7 stocks have generated returns that have been highly rewarding for investors in recent years. But it is important to emphasize that these impressive results must be viewed in context and may not be as overwhelmingly impressive upon closer examination, particularly over longer term periods of time. Also, while they may continue to be among the best companies in the world for the foreseeable future, it does not necessarily mean they represent the best stock investment opportunities all along the way. History has shown that with higher risk comes the potential for higher reward but also much greater potential downside. Moreover, we have also seen instances of past giants that fell to the downside sword and spent long-term investment time horizons crawling their way back to previous peaks. So as we continue to pursue the abundant upside return potential of today’s investment market place, it is just as important if not more so to never lose sight of the commensurate downside risks. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 699437** **Categories:** Insights --- ### [Economic & Market Report: The Rhythm of the Heat](https://clear-wealth.com/economic-market-report-the-rhythm-of-the-heat/) **Published:** February 17, 2025 **Author:** Clear Wealth Planning **Content:** It has been the primary downside risk confronting financial markets for the last few years: the persistent threat of a renewed rise in inflation. The kindling continues to be placed to reignite a new inflationary blaze. Only time will reveal how high the flames will reach if and when the next fire starts to burn. *“Often is the case of these sudden transformations one can prove that an archetype has been at work for a long time in the unconscious, skillfully arranging circumstances that will unavoidably lead to a crisis.”* *Carl Jung, Symbols and the Interpretation of Dreams, 1961* **The Heat**. We’ve seen this story before. For many of us, it dominated our introductory macroeconomics curriculum in college two or more decades ago. It recurred repeatedly during The Great Inflation from the late 1960s through the early 1980s. And after nearly four decades of lying dormant, it returned with a vengeance just a few years ago. It is the heat of high and rising inflation. The forces can accumulate gradually over a period of time, only to suddenly ignite from an unexpected spark. The 1973 OPEC Oil Embargo. The 1979 Oil Crisis following the Iranian revolution. The 2022 Russian invasion of the Ukraine. The kindling for all of these inflation outbreaks had been laid in the months if not years prior – overly easy fiscal and monetary policy, sporadic supply chain disruptions, an excessive policy focus on supporting economic growth to avoid recession. And once the event catalyst finally struck, the inflationary flames suddenly burned hot. Both stock and bond prices were left to struggle mightily in the heat. But why? For bonds, it’s a straightforward explanation. If you are receiving a fixed interest rate on money that you have lent to a borrower and the inflation rate in the surrounding economy is increasing, it means that the inflation adjusted, or “real”, interest rate on your bond is not only shrinking but may even turn negative. Quick illustrative example for you Silicon Valley Bank fans out there – you lend money to high quality borrows to go out and buy houses at an interest rate of say 3%. If the inflation rate is only 1%, it’s all good, as you’re getting a real interest rate of effectively 3% nominal minus 1% inflation equals 2%. But suppose the inflation rate suddenly spikes to 9%. Not so good, as you’re now getting a real interest rate of effectively 3% minus 9% equals -6%. Add on the fact that the mortgages that people were refinancing every two years or so on average so you’d get your money back fairly quickly anyway suddenly remained locked and loaded for decades into the future (do you know anyone that wants to refinance their roughly 3% fixed rate 30-year mortgage with mortgage rates at 5.5% today? Me neither), and you’re left with a bond asset that is likely worth a lot less in price versus what you may have initially paid for it. But what about stocks? Simple. In order to justify the additional risk of owning stocks in a rational world, investors need to receive a higher premium in terms of their relative expected total return. This is known as the equity risk premium (ERP), which in its most basic form is the expected return on stocks less the expected returns on risk-free bonds, or the amount of net interest you are hoping to receive for putting your money at risk. In the zero interest rate world of 2009 to 2021 where the Federal Reserve was struggling in vain to get the inflation rate up to its 2% target, the expected return on risk-free bonds was virtually nil, so investors could justify owning stocks at virtually boundless valuations as measured by the price-to-earnings ratio, as they were receiving a positive equity risk premium for owning stocks. But suppose the inflation rate suddenly spikes toward 9%, and the Federal Reserve has to respond to the problem by jacking the Fed funds rate (and subsequently the risk-free rate) from 0% to 5.5%. Now all of the sudden, only the stocks that you own with a price-to-earnings ratio of 18.1 less are providing you with a positive equity risk premium all else equal (why a P/E ratio of 18.1? Compute the earnings yield = E/P = 1/18.1 = 5.52% minus the risk-free rate of 5.50% = +0.02%). Of course, not all else is equal, and your stocks with a P/E ratio well north of 18 can be justified as long as their future earnings growth (the “E” in the P/E ratio) is sufficiently strong to shrink the P/E ratio in the future to something toward 18 or below in this scenario (if the “E” denominator gets bigger at a faster rate than the stock price “P” rises, the P/E ratio will shrink), but nonetheless it is much easier for stock investors over time to step over a bar laying on the floor (2009-2021) than to vault over a bar 18 feet off the ground (since 2022). Put simply, the higher the inflation, the worse for stocks, the worse for bonds. (Huzzah for precious metals, commodities, and managed futures, but such is the topic for another article on later potential day). *“The rhythm is below me* *The rhythm of the heat* *The rhythm is around me* *The rhythm has control”* *Peter Gabriel, The Rhythm Of The Heat, 1982* **The rhythm of the heat**. So what is the latest kindling that could potentially ignite the next inflationary fire? On Wednesday, the U.S Bureau of Labor Statistics released their latest Consumer Price Index report on inflation for the month of January. The report, in a word, was HOT. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Slide1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") The headline inflation rate moved higher for the fourth consecutive month and is now back at 3%. As for core inflation that excludes the more volatile food and energy components, this also ticked higher to 3.3% after having flatlined since May of last year. It should be noted that while these readings are indeed higher, they remain at levels that would still be considered more than reasonable. These aren’t chronically low post Great Financial Crisis (GFC) readings to be sure, but there was a time not that long ago before the GFC where a 3% inflation rate was considered textbook average inflation rate for an economy with pricing pressures under control in the Principles of Macro classes I was teaching upwards of three times a day, three days a week. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "Slide2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") With that said, a closer look underneath the surface of these headline inflation readings reveals a potentially troubling development for the months ahead. Pricing in our economy can be divided into two primary baskets – goods and services. Now, the reason we were seeing the headline and core inflation rates dropping toward 2% for so long was not because of the services side of the economy. In fact, services inflation has been holding persistently hot in the post-2022 period at well above 4% even when excluding rent of shelter costs. Instead, the disinflationary forces were coming from the goods side of the economy, as goods prices have been in chronic deflation since the end of 2022. But this goods deflation has been quickly evaporating over the last few months, and with the need to replace a wide variety of goods in the wake of the California wildfires coupled with a wave of tariffs that may be imposed on imported goods across a broad spectrum of the economy, it seems only a short matter of time before goods inflation potentially turns meaningfully positive (note that durable goods inflation was pushing toward 20% back in 2022 before finally peaking out). This screams of potentially growing inflationary flames in the months ahead. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "Slide3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") A look at the month-over-month increase across these four pricing measures adds to the inflation concerns. Not only did headline and core inflation generate their hottest monthly increases in inflation in nearly a year, both services and goods inflation were running even hotter in the most recent report. Now it should be noted that a month does not a trend make. After all, we saw similar monthly developments arise in September only to cool off somewhat in subsequent months. Nonetheless, the broader trends remain hotter, and it will be as important as ever to keep a laser sharp eye on the next CPI readings for February when they are released in mid-March. **Fanning the flames**. Of course, investors wishing to monitor whether the increasingly dry pricing conditions might ultimately spark an inflationary wildfire, waiting an entire month for a handful of data points is woefully insufficient. Fortunately, we have a real-time indicator in the 5-year breakeven inflation rate that is available each day that the bond market is open. Based on the spread between the comparably dated nominal and inflation adjusted Treasury bond yields in order to derive an expected average annual inflation rate over the next five years, this reading has been generating increasingly troubling signals with each passing trading day as of late. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "Slide4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") After bottoming below 2% in September, the 5-Year breakeven inflation rate started surging higher simultaneously with the Federal Reserve announcing their first rate cut since before the outbreak of inflation in 2021 and 2022. And in recent weeks, 5-year breakevens have surged above the key 2.5% level to as high as nearly 2.7% as of Wednesday’s close. If inflation expectations turn back lower in the coming weeks, the market will likely be all good. Conversely, if inflation expectations continue to surge beyond 3% or higher, both the stock and bond market are increasingly likely to recoil amid the expectations that the Federal Reserve may not only have to abandon cutting interest rates any further but may instead have to turn toward raising interest rates, potentially meaningfully. **Bottom line**. The inflation fire that so many investors thought was over is showing signs of rekindling itself. The situation continues to appear under control today, but each new successive data point as of late is adding fuel to the idea that the inflation fires may burn anew. These are developments that remain as important as ever to continue monitoring closely in the days and weeks ahead. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 696685** **Categories:** Insights --- ### [Economic & Market Report: The Fast & The Furious](https://clear-wealth.com/economic-market-report-the-fast-the-furious/) **Published:** February 11, 2025 **Author:** Clear Wealth Planning **Content:** Another storm rolled across capital markets to start this week. This time, it was the shock headlines over the weekend that the United States would be instituting tariffs against its close neighbor trade partners Canada and Mexico, which cast doubt on the sustainability of economic growth across the region as well as the potential inflationary impact of such measures. But no sooner had countless gallons of virtual ink were subsequently spilled dissecting the specific implications of these tariffs than a delay was announced on implementation so that further negotiations could take place. This latest tariff shock highlights an important theme that analysts and investors should keep firmly in mind as we progress through the next two years. The noise is likely to continue coming fast and furious for the foreseeable future, but it’s much less about the details behind each and every headline. Instead, it remains all about the big picture. **Market check**. The U.S. stock market is a capriciously emotional beast. For example, a start up AI company in China effectively drops a Chat GPT knock off app in the Apple Store, and suddenly the largest company in the world by market cap and friends are shedding one-fifth of their value. Fickle and unpredictable to say the least. But in the current and foreseeable market environment, assessing the magnitude and sustainability of such emotional stock market swings can be useful in determining whether the financial media fuss is real or mostly bluster. And when it comes to the headline deluging new administration in Washington, the stock market is on net exuding a collective shrug at least so far amid the steady and sometimes shocking news flow. ![](https://clear-wealth.com/wp-content/uploads/ff1.jpeg "ff1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Consider the headline benchmark S&P 500 Index, which is shown in the chart above. While market volatility as measured by the CBOE Volatility Index, or the VIX, has indeed crept up slightly to the mid to high teens, the U.S. stock market has largely held it’s ground. And from a technical perspective, it remains very well behaved. This includes maintaining its post inauguration breakout above the downward sloping trendline dating back to the beginning of December and holding support at its short-term 20-day (green dotted line) and medium-term 50-day (blue line) moving averages. This is all good stuff despite the collective handwringing and AI related shocks in recent weeks. So while the market and political headlines are coming at a rapid fire pace, the overall stock market is taking the news fully in stride at least so far. The bigger picture. At the end of the day, the forces driving today’s stock market in early 2025 are no different than those dictating its direction since the calming of the Great Financial Crisis more than 15 years ago. The bottom line is all about the flow of financial market liquidity. If stocks are getting the liquidity oxygen they need, they will show the resilience to rise regardless of what Cabinet nominee may or may not be getting confirmed by Congress, what global land mass may or may not be annexed, or what trading partner may or may not be hit with tariffs. And by most measures including the recently lowered Fed funds rate and the still soaring prices of many leading cryptocurrencies, investors are finding no shortage of liquidity to redeploy into purchasing ever more financial assets. This leads to the key point that we as investors are well served to continue monitoring most closely in the days, weeks, and months ahead. What, if anything, are the forces that could stunt or altogether reverse this flow of liquidity in the months ahead. For if and when we arrive at such a juncture, it will be at this point that asset prices recoil in a more sustainable and portfolio damaging way. The most recent sustained example of such a liquidity drain was 2022. Following the flood of liquidity injected into the financial system in response to the COVID crisis, monetary policy makers spent the entirety of 2021 proclaiming that the eventually resulting inflationary signals were simply transient and would eventually go away. That is, of course, until they weren’t transient. For by early 2022 and by the time that Russia invaded Ukraine, the inflationary powder keg finally exploded and the U.S. Federal Reserve was forced to take swift and decisive action. This included swiftly draining liquidity by jacking interest rates by more than five percentage points and starting to shrink the balance sheet (Quantitative Tightening, or QT) that they had previously spent so many years expanding (Quantitative Easing, or QE). ![](https://clear-wealth.com/wp-content/uploads/ff2.jpeg "ff2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") How did stocks respond to this sudden liquidity drain in 2022? None too well, as the S&P 500 fell by as much as -28% from peak to trough. And it wasn’t until the Fed and the U.S. Treasury had to get back into the game of injecting emergency liquidity once again in response to a sudden banking crisis in March 2023 that markets finally rediscovered their giddy up and resumed their climb to the upside toward new all-time highs. Putting this all together leads to the following overly simplistic but still relevant conclusions. Looking past all of the headlines and noise on a daily basis, if the financial system is receiving a net increase in liquidity, then stock prices are likely to rise all else equal. Conversely, if the financial system is experiencing a net decrease in liquidity, then stock prices are likely to fall all else equal. Quod erat demonstrandum (this is how mathletes talk trash when knocking out a bad a$$ proof – chalk drop). Monitoring the plug in the drain. So what then would be the primary culprit that could result in such a liquidity drain that could compromise the ability of stock prices to further their ascent at best and descend stocks into another bear market or more at worst? It would be the primary downside risk confronting capital markets for some time now. It is a renewed rise in the same inflationary pressures that pushed stocks into their most recent bear market a couple of years ago. So where do we stand on these inflation readings today as the new administration gets underway in Washington DC? The good news is that so far, so good. Roughly every two weeks we receive a latest monthly reading on inflation. The latest came just last week with the release of the Personal Consumption Expenditure (PCE) Price Index, which is the inflation reading that is most favored by the U.S. Federal Reserve when setting the course of monetary policy. The good news is that both the headline (blue line in chart below) and core excluding food and energy (orange line) inflation readings remain consistently below 3% on an annualized rate of change basis. This is the type of price stability in which the economy and financial markets can really thrive. However, it should be noted that the headline PCE inflation reading has been moving steadily higher since September and the core PCE inflation reading has been slowly drifting higher since May. Neither have risen to date with any magnitude that would cause any semblance of alarm. Nonetheless, these readings merit close attention in the coming months to see if they start to pick up in any meaningful way. ![](https://clear-wealth.com/wp-content/uploads/ff3.jpeg "ff3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Another useful reading worth ongoing monitoring on an ongoing basis in this regard is the 5-year breakeven inflation rate. This is a daily reading that measures the expected average annual inflation rate over the next five years implied by the spread between the 5-Year U.S. Treasury yield and the 5-Year U.S. TIPS yield. ![](https://clear-wealth.com/wp-content/uploads/ff4.jpeg "ff4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") It is here where we are starting to see some potential cause for concern. After bottoming below 2.0% during the third quarter of last year, the 5-year breakeven inflation rate has since spiked higher to just above 2.6% in recent days, which is the highest reading since early 2023 when inflationary pressures were still coming down from 2022 peaks. While 2.6% average expected inflation is still a highly manageable number, if this reading starts spiking to levels north of 3%, then the concerns around potentially rising inflation are likely to start seeping into financial markets in a measurable way in the form of higher Treasury yields and lower stock prices. **Bottom line**. While the headlines out of Washington are likely to continue to come fast and furious for the foreseeable future, continue to monitor developments but resist succumbing to the noise. A well-constructed and broadly diversified asset allocation strategy is likely build to withstand any related short-term volatility. Instead, investor focus should remain on the bigger picture, and in the current environment the biggest picture remains monitoring developments on the inflation front. While these readings remain more than manageable today, risks are rising that pricing pressures could increasingly build to the upside. And if they rise far enough, it could start to pull the liquidity plug on financial markets. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 693274** **Categories:** Insights --- ### [Economic & Market Report: Thunderstruck](https://clear-wealth.com/economic-market-report-thunderstruck/) **Published:** February 3, 2025 **Author:** Clear Wealth Planning **Excerpt:** A storm thundered through the U.S. stock market on Monday. **Content:** A storm thundered through the U.S. stock market on Monday. Amid revelations that Chinese artificial intelligence firm DeepSeek has developed a new application to rival ChatGPT at a small fraction of the cost, investors freaked their freak by dumping the shares of some of the leading tech shares at a breath-taking double-digit rate in just a single trading day. In the aftermath of the lightening strike to AI stocks on Monday, what are the key takeaways investors should take as they look ahead to the rest of the trading week and the months ahead? **Weather check**. Monday’s thunderstrike was indeed shocking. But before going any further, it is important to look past the staggering headlines to put what took place in context. First, it is important to note that Monday’s jolt was a high-flying tech and tech adjacent only issue. Case in point: while the tech heavy NASDAQ plunged a staggering -3%, the broader and more sector balanced Dow Jones Industrial Average posted a solid +0.65% gain for the day. Moreover, seven of the eleven sectors in the S&P 500 Index traded higher including consumer staples and health care that were both up over +2%. The fixed income complex was also strongly higher on Monday including long-term U.S. Treasuries, which rallied over +1%. Next, while the tech bloodletting for the day looked staggering on our financial news network screens, it was much less dramatic when considering it in the context of what has taken place in the recent trading days leading up to today. For example, in falling by just over -3% on Monday, the NASDAQ Composite Index “plunged” to levels last seen on, wait for it, less than two weeks ago on Tuesday, January 14. Where is the Fed with emergency interest rate cuts, am I right?![](https://clear-wealth.com/wp-content/uploads/t1.jpeg "t1 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Don’t get me wrong, I’m not wild about the technical set up on the NASDAQ oozing from the chart above. The tech heavy index has repeatedly failed to break out above December 16 highs with a modest downside trend bias in the weeks since that has included what is now the second break of its medium-term 50-day moving average. None of this is great. But Monday’s pullback was nothing more than the latest move in a back-and-forth sideways grind dating back for more than a month now. OK, so what about the so white hot their blue AI stocks that got obliterated by as much as -20% or more on Monday? We’ll begin with a look at the biggest dog of them all in NVIDIA, which coming into the trading week was the largest company in the U.S. by market cap (it was not the largest company in the world by market cap coming out of today, as it lost more than a MasterCard in market cap, which is the fifteenth largest company in the U.S. by market cap in its own right). ![](https://clear-wealth.com/wp-content/uploads/t2.jpeg "t2 | Great Valley Advisor Group - Clear Wealth Planning Solutions") Yeah, NVIDIA was down -17% on Monday, which is some stock market crash of 1987 kind of declines. And it did break below its long-term 200-day moving average for the first time since the midpoint of the Biden administration in the process. Nonetheless, Monday’s drop only brought the stock back to levels NVIDIA was trading in early October. The stock was not even considered officially oversold on a Relative Strength Index (RSI) basis coming out of Monday’s trading despite the extraordinary magnitude of the decline. Basically, if your stock price quindecuples, or increases by fifteen times, in just over two years, then a -17% single day pullback is like a mere flesh wound in an ongoing uptrend. Let’s go one more for emphasis. Broadcom, which is another top ten in the U.S. market cap company even after Monday, was also a member of the dubious -17% decline club on Monday. So what was the damage? Broadcom still closed trading on Monday at levels that are roughly +10% higher than levels that were all-time highs for the stock less than seven weeks ago. Quel dommage! ![](https://clear-wealth.com/wp-content/uploads/t3.jpeg "t3 | Great Valley Advisor Group - Clear Wealth Planning Solutions") So while the trading carnage across the AI segment on Monday was certainly notable, it was not nearly as bad when stepping back from the tree and looking at the forest. Do these defenses effectively signal the all clear? Is it now time to back up the truck and buy the latest in so many tech sector dips? Not so fast. **Respecting the ozone**. It cannot be ignored that the behavioral finance vibe of this latest tech sell-off has a decidedly different feel to it versus anything that we’ve seen in the recent past. Let’s break it down. Check it. A company on the other side of the planet in China (repeat . . . China) that didn’t even exist when the current AI bubble got started less than two years ago puts out an AI app that it says that it created with the equivalent of chips from some old Commodore 64s lying around along with a dose of good old fashioned elbow grease and moxie, and it sends the world’s largest AI giant and friends lower by one-sixth of their entire value if not more. Really? It is just me, or did Monday’s news have a bit of a Fleischmann and Pons cold fusion scent about it? Just sayin’ that it’s probably not that easy at the end of the day. Let’s take this premise one step further. The Federal government is actively considering banning a Chinese app in Tik Tok where users post funny pictures of their cat among other mindless things, yet we’re going to be good with our country and all of the corporate behemoths that call it home scrapping their AI capex plans and outsource it to a company in China (repeat once again for emphasis . . . China) that most of us never even heard about less than 24 hours ago to support the accelerated growth of their businesses and the broader economy over the next decade? No security issues here? Hmmm. 1. We’ll go one more. Suppose the premise that DeepSeek’s new app has raised questions about whether corporations may be able to achieve their AI goals for significantly less spend than what has been projected up to this point. Um, really? Are you telling me nobody across the investment landscape was chewing on this idea until Monday? I’ve actually heard this idea actively discussed on financial television for months now, particularly given how richly valued these semiconductor companies that effectively make commodity products at the end of the day are, and I almost always have my TV on mute. Nah. I’m not buying any of these narratives. Monday’s sell off had that classic feel of an Icarus-ish segment of the market that was just itching for a reason to sell off bigly, and DeepSeek was the arbitrary headline that showed up to do it. Why does this matter? I can remember like yesterday when past gorillas like Cisco Systems were just as awesome in April 2000 when they were getting obliterated for no clear apparent reason other than they were trading at extraordinary valuations than they were in February 2000 when they themselves were still flying toward the sun. Another example comes from the biotech industry from roughly a decade ago in 2015. Just as AI stocks have been killing it in recent years, biotech stocks were having a phenomenal upside run of their own from 2013 to 2015 when investors were touting a “biotech revolution” to justify boundless valuations. But following a seemingly endless meteoric rise, it was the proclamation on September 21, 2015 by then Presidential candidate Hillary Clinton that she would be delivering a plan to address “skyrocketing drug prices” that sent biotech shares plunging by -28% over the next six trading days. A benign headline to say the least – Clinton was more than a year away from assuming office in a presidential race that she eventually didn’t even win – yet it took biotech stocks more than five years afterwards and a global pandemic along the way to eventually return to their 2015 highs. And a decade later in 2025, they are still trading effectively flat to these 2015 highs. ![](https://clear-wealth.com/wp-content/uploads/t4.jpeg "t4 | Great Valley Advisor Group - Clear Wealth Planning Solutions") I’m not saying that the same fate will befall the high-flying AI industry in the tech sector this time around. We’ve seen so many tech pullbacks since late last decade, and each time they have found their footing and eventually rebounded to new highs. Thus, the tech sector in general and AI stocks in particular should not be counted out until they are officially out. But given how extremely concentrated the U.S. stock market has become in a select few high flying AI titans, a prudent approach for investors remains keeping a focus on a long-term investment philosophy of broad portfolio diversification that can certainly include a meaningful allocation to these popular areas of technology but are complemented with exposures to a variety of other sectors that may be poised to assume stock market leadership in future phases of the market cycle whenever they may finally come. Monday was a good illustration of why such diversification makes sense. **Bottom line.** Monday’s pullback in AI related technology stocks was staggering to say the least, but it is important to keep these declines in context. When viewed more broadly, the declines to start the trading week were not as dramatic as the headlines might suggest. With that said, investors should exercise caution in rushing in to buy this pullback. Just as with most any stock related pullback, it is worthwhile to watch developments closely in the coming days to determine whether the recent sell-off may be fleeting or could be only the beginning of something more pronounced. Given still extreme valuations across the AI stock space, the possibility of further declines should not be ruled out going forward before a bottom in these shares is finally reached. In the meantime, other long overlooked sectors that performed well on Monday may also be poised to continue to follow through to the upside. Stay tuned. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 688600** **Categories:** Insights --- ### [Economic & Market Report: Winter Came Early This Year](https://clear-wealth.com/economic-market-report-winter-came-early-this-year/) **Published:** January 21, 2025 **Author:** Clear Wealth Planning **Excerpt:** In this week's Economic & Market Report, winter has come early this year. Early Market Weakness in December ❄️ The U.S. stock market posted a rare December decline, marking only the fifth negative performance for the month since 2000. ❄️ Stocks faced a long-overdue pullback after a linear climb since late 2023. ❄️ U.S. Treasury yields surged over the past four months, driven by persistent inflation concerns. Uncertainty in Market Recovery ☃️ Despite Wednesday's strong market response, key resistance levels in equities remain unbroken, leaving recovery uncertain. ☃️ Sustained declines in Treasury yields are needed to improve equity risk premiums. ☃️ Inflation risks linger due to seasonal data noise, rebuilding efforts from Los Angeles fire damage, and elevated 5-year breakeven rates above 2.50%. **Content:** Capital markets had a rousing day on Wednesday. Not only are the initial earnings reports from the nation’s leading banks coming in strong, but a better-than-expected reading on inflation for December sent both stocks and bonds surging to the upside. But Wednesday was a rare moment of warmth in what has otherwise been a cold and dreary winter so far for investors. Is the worst of the recent pullback now behind us, or is further downside in store in the weeks ahead? **Winter came early this year**. Traditionally, it is the most wonderful time of year for stock investors. After surging almost continuously to the upside for more than a year since Halloween 2023, U.S. stocks were set to cap off a great 2024 by storming through one of the most consistent upside returning months of the year in December. Santa Claus rally, here we come! ![](https://clear-wealth.com/wp-content/uploads/winter1.jpeg "winter1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") In the end, it was not to be. For only the fifth time since the start of the new millennium, the U.S. stock market traded lower for December. And the downside pressure has continued into the New Year. At first glance, the chart above does not look so bad. The market managed to push to the upside for a couple of weeks into December before relenting with a downside slide. But a closer look underneath the hood at a broader range of stocks reveals the magnitude of the recent downside pressure. For example, one has to look no further than the S&P 500 index itself and its equal weighted counterpart. No sooner did December get underway and stocks more broadly were moving relentlessly to the downside. ![](https://clear-wealth.com/wp-content/uploads/winter2.jpeg "winter2 - Great Valley Advisor Group - Clear Wealth Planning Solutions") So what has been behind this sell off to date? First, a pullback in stocks has been long overdue. Stocks typically do not go up in a straight line, but that is what had been effectively happening dating back to late 2023 save fleeting declines in April and July. Conditions had become overbought and a bit frothy in certain pockets of the equity market, so skimming the foam off the top of the stock market has arguably been a healthy thing in recent weeks. Next, worries about a renewed surge in inflation have also weighed. Only a few months ago in September, the narrative focused on the looming threat of recession coming in 2025 and the Federal Reserve, buoyed by fading inflationary pressures, was poised to come to the rescue with long anticipated interest rate cuts. Fast forward only a few months later, however, and the theme had shifted sharply to a persistently strong economy with stubborn inflation pressures that threatened to ignite anew with the kindling of anticipated tariffs and pro-growth fiscal policies. What a difference a couple of months make, as it helps to explain why U.S. Treasury yields have been surging to the upside for much of the last four months now. ![](https://clear-wealth.com/wp-content/uploads/winter3.jpeg "winter3 - Great Valley Advisor Group - Clear Wealth Planning Solutions") **The price is right**. Clearly, the latest reading on inflation came as welcome news given the pricing pressures overhanging the markets in recent weeks. Although the headline Consumer Price Index actually pushed higher toward 2.9% on a year-over-year basis in December, the fact that the more stable Core CPI edged lower to 3.2% and recently stickier services inflation also cooled further on an annual basis was more than enough to send both the stock and bond markets cheering. ![](https://clear-wealth.com/wp-content/uploads/winter4.jpeg "winter4 - Great Valley Advisor Group - Clear Wealth Planning Solutions") **The price may not yet be right**. Despite the strong market response on Wednesday, the stock market may not yet be out of the pullback woods. First, it is important to note that while economic data in any given month is based on estimates and seasonal adjustments, it should be noted that the December data is particularly noisy in any given year. This is due to any number of reasons including forces related to the holiday season and the timing of when Thanksgiving and Christmas fall on the calendar. Thus, while the latest CPI readings were certainly positive, we’ll need to see how the data comes out for January and February before we can draw any meaningful conclusions. Second, while the Treasury bond market rallied bigly on Wednesday following the inflation news, it is still only the first bounce in a while in a market that up until recently was moving chronically higher in yields for weeks now. Seeing more sustained follow through to the downside in Treasury yields will be important in the coming days and weeks. Otherwise, the ever shrinking equity risk premium is likely to present an increasing problem for stocks. Third and speaking of stocks, while the rally in the S&P 500 has been impressive throughout the week including Wednesday, it should be noted that the headline index has only now returned to the convergence of several key resistance levels. This includes its short-term 20-day moving average (green dotted line in chart below), its medium-term 50-day moving average (blue line in chart below), and its downward sloping trendline dating back to the end of November. It will be critical to see whether the S&P 500 can advance beyond these various key resistance levels. ![](https://clear-wealth.com/wp-content/uploads/winter5.jpeg "winter5 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Fourth and supporting the idea that stocks may have the power to break out to the upside, the S&P 500 equal weighted index is providing constructive signals. Not only has it already broken out above its downward sloping trendline since Thanksgiving, it has also advanced above its short-term 20-day moving average. In a potentially notable change in roles, the equal weighted index may be leading its market cap weighted counterpart out of the pullback woods. ![](https://clear-wealth.com/wp-content/uploads/winter6.jpeg "winter6 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Lastly, investors should be prepared for the inflation outlook ahead. Notably, the 5-year breakeven inflation rate that measures the average expected inflation over the next five years remained above 2.50% on Wednesday despite the positive CPI news. ![](https://clear-wealth.com/wp-content/uploads/winter7.jpeg "winter7 - Great Valley Advisor Group - Clear Wealth Planning Solutions") In addition, we cannot overlook the potential economic implications of the tragedy that continues to unfold in and around the second largest metropolitan area in the U.S. in Los Angeles. It is estimated that more than 12,000 buildings and automobiles have been destroyed by the fires to date. This damage will need to be replaced, and such forces are inherently inflationary all else equal. As a result, we should be braced for the potential for stronger than expected inflation readings in the months ahead as rebuilding and replacement begins. **Bottom line**. The stock market has been in pullback since Thanksgiving. While the recent news on inflation may be supporting the potential bottoming of the market, we are not yet clear in resuming the advance to the upside. Further upside will be important in the coming days in transitioning this recent bounce into a full-fledged bottom instead of a fleeting bounce. Stay tuned. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 683760** **Categories:** Insights --- ### [2024 Stock Market Recap](https://clear-wealth.com/2024-stock-market-recap/) **Published:** January 13, 2025 **Author:** Clear Wealth Planning **Excerpt:** 2024 Stock Market Review video with Chief Market Strategist Eric Parnell. **Content:**  - **Concentrated Performance:** Only three sectors (financials, communication services, consumer discretionary) outperformed, driven by a few key stocks. - **Sector Insights:** Financials rebounded in 2024 after 2023’s banking crisis; technology lagged the S&P 500 in 2024. - **Why It Matters:** Only 27% of stocks outperformed the S&P 500, highlighting elevated market risks and limitations of the S&P 500 benchmark. - **Key Takeaway:** Avoid chasing short-term market trends. Stick to your long-term strategy, focus on sustainable returns, and manage downside risk. Great Valley Advisor Group is excited to present the latest episode of our video series featuring our Chief Market Strategist, Eric Parnell, CFA. At under 3-minutes each, these bi-weekly videos are meant to provide concise observations on relevant economic indicators to strengthen your knowledge and understanding of current market trends. Eric Parnell is solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by Eric Parnell are his own and are not those of LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted. **LPL Compliance Tracking #: 679843** **Categories:** Insights --- ### [Economic & Market Report: 5 for 2025](https://clear-wealth.com/economic-market-report-5-for-2025/) **Published:** January 7, 2025 **Author:** Clear Wealth Planning **Excerpt:** The New Year is officially underway. Following an exceptional 2024 for stocks that ended with an oof and included a surprise election sweep along with lingering inflation concerns that just won’t quit as evidenced by the uneven year for bonds, what are the key indicators to watch for what to expect as we move freshly into 2025. The following are five indicators to watch for 2025. **Content:** The New Year is officially underway. Following an exceptional 2024 for stocks that ended with an oof and included a surprise election sweep along with lingering inflation concerns that just won’t quit as evidenced by the uneven year for bonds, what are the key indicators to watch for what to expect as we move freshly into 2025. The following are five indicators to watch for 2025. 1. **Corporate Earnings**. Profits are the mother’s milk of rising stock prices. And this is borne out by more than 150 years of stock market history. If corporate earnings growth is rising, stock prices are also very likely to rise all else equal. This has historically been true regardless of valuations, which at 26 times earnings on the S&P 500 today is about as expensive as stocks have ever been. And if corporate earnings growth is falling, stock prices are at high risk of falling, often precipitously when valuations are expensive. For these reasons, keeping a laser sharp eye on the state of corporate earnings will be critical in 2025. Here is where we stand heading into the New Year. Corporate profits have been rising on an operating earnings basis at a steady mid-single digit pace since 2023 Q3. And looking ahead through the end of 2025, they are currently projected to accelerate toward a mid-teens growth rate. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Slide1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Needless to say, profit expectations are robust. And if corporations can hit this high profit bar as they have for the last couple of years now, then stock prices should respond accordingly to the upside. However, if corporate profits fall short of these lofty targets as we progress through the year, this is likely to have a dampening effect on the S&P 500 furthering its strong advance dating back to Halloween 2023. And if profit growth were to actually fall toward turning negative along the way, which is a long way off from current projections but is not unheard of in past episodes, then hang on for potentially bruising downside. We’ll learn a whole lot more in this regard when fourth quarter earnings season gets started in earnest the week after next in mid-January. 2. **The Yield Curve**. The inverted yield curve over the last few years has been well documented. This upside down world condition where investors are getting paid a higher yield for lending money to the U.S. government for a shorter period of time (3 months, 2 years) than a longer period of time (10 years, 30 years) historically occurs because investors are willing to receive less in yield now for owning longer dated bonds so they can lock in these rates for a longer period of time. Why would they want to do this? Because they likely think the economy is going to fall into recession, and the Fed will need to cut short-term interest rates to revitalize the economy. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "Slide2 - Great Valley Advisor Group - Clear Wealth Planning Solutions") How useful is this indicator? It has predicted 13 out of the last 13 recessions. What haven’t we had yet since the yield curve first inverted in 2022? A recession. What tends to fall during economic recessions? Corporate earnings growth. Just sayin’ Maybe it’s different this time. After all the yield curve has been steeping sharply since last summer. Perhaps we’ll emerge from this latest inversion finally unscathed. Maybe, as we have seen many financial market “firsts” in recent years and the yield curve indicator may be no exception. Nonetheless, it is important to note that many of the past recessions that the inverted yield curve has predicted finally took place once the yield curve was steepening toward normality. Why? Because the Fed was in the process of cutting short-term rates in anticipation of the recession that may lie ahead. What has the Fed been doing in recent months? Cutting interest rates. Once again, just sayin’. Stay tuned. 3. **Inflation Expectations**. It has been a primary downside risk for capital markets for the last two years now. The sudden and sharp rise in inflation emerging from the COVID crisis sparked a bear market in both stocks and bonds in 2022. And while inflationary readings have been steadily on the mend in the more than two years since, pricing pressures continue to linger under the surface that could rekindle into another larger inflation problem if policy makers aren’t careful. If inflation rises anew, both stocks and bonds are not likely to be pleased. Thus, watching pricing readings closely will be important in guarding against a renewed inflation outbreak. Now one could wait for the once-a-month readings that come from the likes of the U.S. Bureau of Labor Statistics (Consumer Price Index (CPI)) or the U.S. Bureau of Economic Analysis (Personal Consumption Expenditures (PCE) Price Index, which is the Fed’s preferred inflation measure), but having a more real time daily reading is more useful when navigating financial markets. This is where the 5-Year Breakeven Inflation Rate from the Federal Reserve Bank of St. Louis comes in handy. This is a daily reading that provides a measure of expected average inflation over the next five years based on the spread between the yield on the 5-Year U.S. Treasury note and the 5-Year TIPS note. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "Slide3 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Where do we stand today with inflation expectations? Overall, this reading remains firmly in control at 2.38%, which is not far above the Fed’s target inflation rate of 2%. Good stuff. But it does remain elevated well above the 1% to 2% range that marked much of the post Great Financial Crisis period where the Fed had the monetary policy luxury to pin interest rates at 0% and engage in quantitative easing like a drunken sailor. In other words, don’t expect the Fed to go to zero and start buying assets the next time the stock market sneezes. Moreover, the key line to watch on the 5-Year Breakeven Inflation Rate is 2.5%. If we break meaningfully above this level over the course of the next year, it may suggest that the inflation beast is breaking back out of its cage, and neither stocks nor bonds are likely to like that none too much. 4. **CCC Spreads**. It’s not good enough to simply hear that markets are flush with liquidity. As an investor, you want to see it. And the additional premium that investors require to lend money to the borrowers that are most likely at risk of default with credit ratings of CCC or lower is a good way to gauge the abundance of liquidity in the marketplace. Why is this the case? Because if money is hard to come by, you are going to take extra measures from a risk control perspective to protect it. Conversely, if money is easy to come by, you are increasingly willing to take a flyer on higher risk investments to capture a little extra yield. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "Slide4 - Great Valley Advisor Group - Clear Wealth Planning Solutions") So where do we stand today with CCC and lower spreads, or the additional premium that investors are requiring in yield over comparably dated U.S. Treasuries to take on the risk of lending money to these most at risk borrowers? These spreads remain near historically tight levels, which means that investor risk appetite and the liquidity that feeds it remains highly abundant. This is a resoundingly positive sign for risk assets as we enter the New Year. It also remains an important indicator to watch closely as we progress through 2025. This is due to the fact that it is among the leading-est leading indicators that a turn in broader market fortunes may be coming. As a prime example, CCC spreads bottomed and started rising in May 2007, a full five months before the S&P 500 peak in October 2007. And we all know what followed in 2008 and 2009. 5. **Cryptocurrencies**. Yeah, I know. There’s two schools here. Either you love it and think its going to change the world – relentlessly long – or you think it’s a nonsense quasi ponzi scheme where “investors” try to sell an asset that’s backed by nothing to the next investor that’s willing to pay even more for this currency that really isn’t a currency (no store of value, no unit of account, no medium of exchange except for maybe some goods that you don’t want to bring home to grandma) – relentlessly avoid. Regardless of what you may think about cryptocurrencies, the fact remains that it is another highly useful barometer of market liquidity, particularly for the biggest and baddest tech stocks that have ruled the stock market school for the last several years. Although the magnitude of the price movements are decidedly different, the correlation of price performance between cryptocurrencies and the Mag 7 heavy NASDAQ 100 Index is very high. When cryptocurrencies skyrocket, the NASDAQ 100 typically rises. When cryptocurrencies are crashing, the NASDAQ 100 typically falls. And when the two are traveling divergent paths for a period of time, they typically eventually reconverge. And more often than not, cryptocurrencies will start moving in a direction first ahead of the NASDAQ 100. As a result, if cryptocurrencies continue to soar, expect that tech leaders will continue to reign over the stock market. Conversely, if cryptocurrencies start taking the elevator to the downside, beware what may befall these long established market tech leaders along the way. **5 for 2025**. These are just a few of the key indicators worth watching as we make our way through 2025. The capital market environment remains healthy and the outlook is strong. But risks remain that could derail these positive expectations. Stick to your long-term investment plan, but also keep a close watch on the risks that may require adjustments to the course along the way. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 675652** **Categories:** Insights --- ### [Economic & Market Report: Mad Men](https://clear-wealth.com/economic-market-report-mad-men/) **Published:** December 30, 2024 **Author:** Clear Wealth Planning **Excerpt:** It is a debate that has confounded investors in capital markets for the last few decades now. What is the true identity of this market? Is it really the strong and confident marketplace reflected by the S&P 500 streaking boldly to new all-time highs as 2024 draws to a close? **Content:** It is a debate that has confounded investors in capital markets for the last few decades now. What is the true identity of this market? Is it really the strong and confident marketplace reflected by the S&P 500 streaking boldly to new all-time highs as 2024 draws to a close? Or has the mirage of endless stimulus obscured a vulnerable and troubled marketplace that could suddenly careen to the downside once these policy supports are finally stripped away? Investors are approaching a latest crossroads in this ongoing debate as we enter the new calendar year at the midpoint of the current decade. What should we reasonably expect going forward. > *“Dissatisfaction is a symptom of ambition. It’s the coal that fuels the fire.”* – Trudy Campbell, Mad Men **Economy**. The “wall of worry”. Investors are forever confronted with the challenge of climbing it when allocating capital in the public marketplace. And boldly climb it they have over the last two years. After the Federal Reserve raised interest rates at a breakneck pace starting in 2022 to combat the worst inflation outbreak in more than four decades, it was all but a forgone conclusion that the U.S. economy was going to tumble into recession. But 2023 came and went (with a banking crisis along the way, no less), and no recession came. Then 2024 steamed past with recession worries increasingly on the fade. Thus, the economy is as strong as ever as we enter 2025, with Q4 GDP projected to come in robustly north of 3% according to Atlanta Fed GDPNow estimates. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Slide1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") > *“People will show you who they are, but we ignore it because we want them to be who we want them to be”* – Don Draper, Mad Men Despite this polished U.S. economic veneer that has market participants increasingly dismissing what seemingly has become the “sky is falling” worries of a recession that is always looming on the horizon but never seems to come, a variety of troubling indicators continue to hang over this economy that should not be ignored as we make our way through 2025. For example, consider the US ISM Manufacturing PMI, which historically has a high correlation not only with overall economic activity but also movements over time in the U.S. stock market. This has been consistently signaling a contraction in manufacturing activity since 2022 with a reading stubbornly below 50. Yet the headline U.S. economy that everyone sees continues to expand. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "Slide2 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Building on this point is trends in Industrial Production, which has been steadily grinding lower on a year-over-year basis for nearly two years now. While we have not definitively lurched into negative territory on this reading, past instances of decline have been accompanied by periods of economic and market difficulty. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "Slide3 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Then there is the copper-to-gold ratio, which has long been a bellwether for the health of the global economy. Whenever this ratio has steadily declined in the past, economic and market turbulence has almost always followed. In the current cycle, this reading has been persistently declining since the start of 2022, suggesting that investors are increasingly allocating away from expected economic growth and toward hedging and protection. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "Slide4 - Great Valley Advisor Group - Clear Wealth Planning Solutions") The economy and capital markets have made an impressive practice of defying past precedence in recent years, and perhaps the U.S. economy will do so once again despite these readings among many suggesting fundamental weakness persisting underneath the surface. But what developments could converge in 2025 to push this economy over the edge? > *“That’s life. One minute you’re on top of the world, the next minute some secretary’s running you over with a lawn mower.”* – Joan Harris, Mad Men **Bonds**. Investors have had good reasons to be fans of the bond market for decades. After peaking in 1981 following the brutal inflation/stagflation from the late 1960s to the early 1980s, the bond market entered into one of the greatest bull runs of all time (S&P 500, eat your heart out!). For more than four decades, the benchmark 10-Year U.S. Treasury yield steadily declined from a high of nearly 16% (!!) in 1981 to a low well below 1% during the depths of the COVID crisis. But all good things come to an end, and the bull market in U.S. bonds is no exception. For starting in 2022, the 10-Year U.S. Treasury yield broke out definitively to the upside (as bond yields rise, bond prices fall) and are showing no signs of turning back lower any time soon. ![](https://clear-wealth.com/wp-content/uploads/Slide5.jpeg "Slide5 - Great Valley Advisor Group - Clear Wealth Planning Solutions") We interrupt this market outlook for an important aside. If someone is a stock investor, why in the world should they care about what’s happening in the bond market? They should care bigly, in fact. Why? Because the bond market sets a variety of variables that determine stock prices and the underlying fundamental performance of the companies that underlie these stocks. For example, bond yields help determine the valuation that investors are willing to pay for stocks (if the 10-year Treasury yield is high, I may be less inclined to take on the additional risk of owning stocks, particularly if stock valuations are expensive). Bond yields also play a big role in setting the interest rate that companies have to pay to borrow money to finance capital expenditures and fixed investment to grow their business. In short, the higher bond yields go, the more tempered our expectations for the stock market should be. Back to our regularly scheduled market outlook. Recent developments in the bond market suggest potentially more difficult times ahead as we enter 2025. Not only is the long-term bond bull market over, but the downtrend in bond yields dating back to the fourth quarter in 2023 has also been broken to the upside in recent weeks in December. ![](https://clear-wealth.com/wp-content/uploads/Slide6.jpeg "Slide6 - Great Valley Advisor Group - Clear Wealth Planning Solutions") This move is not without fundamental justification. Not only is the Federal Reserve gradually stepping back from promises to lower interest rates much further in the coming year, but lingering concerns over a potential economic slowdown are now being overshadowed by the anticipated cumulative inflationary impact from increased fiscal spending and nationalist shifts toward tariffs and reduced immigration. In short, risks for bond have meaningfully tilted toward the upside in yields and thus the downside in prices. This has important implications for the bond market in the year ahead. Not only does this imply downside risk for U.S. Treasuries, but perhaps even greater uncertainty for the various spread product that populate the broader bond market. Consider investment grade corporate bonds, which are now trading at their tightest spreads relative to comparably dated U.S. Treasuries since before the start of the new millennium. Today, you’re only getting paid one additional percentage point for taking on the added liquidity and default risk of owning a BBB-rated bond versus a AAA-rated U.S. Treasury backed by the full faith and credit of the U.S. government, where historically you would get paid a whole lot more. ![](https://clear-wealth.com/wp-content/uploads/Slide7.jpeg "Slide7 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Same goes for the high yield corporate bond market, which is only paying investors an additional 2.5% for taking on the risk of owning a companies that have a measurable chance of actually going bankrupt over time. Only right before the onset of the financial crisis in 2007 (dubious company to be certain) were high yield spreads tighter. ![](https://clear-wealth.com/wp-content/uploads/Slide8.jpeg "Slide8 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Put simply, investors today are not being well compensated for taking on the added risk of owning bonds outside of U.S. Treasuries at a time when Treasury yields are starting to once again streak to the upside. This implies a potential double whammy for corporate bonds with not only yields rising but spreads relative to Treasuries widening, particularly if the economy indeed starts to slow in 2025. ![](https://clear-wealth.com/wp-content/uploads/Slide9.jpeg "Slide9 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Looking ahead to 2025, base case expectations is for further yield curve steepening. Although the curve has already steepened meaningful on a 2/10 basis (10-Year U.S. Treasury yield minus 2-Year U.S. Treasury yield) among many others, we may have only scratched the surface so far from a historical perspective with another 250 basis points potentially to bring today’s markets back to recent peaks over the past quarter century. And if we see such steepening actually play out over the next two years, its very possible that the rise may be less focused on the short end of the curve falling in yields and more concentrated in the long end of the curve rising in yields. So what then is a bond investor to consider doing to navigate what is setting up to be a potentially challenging year in the bond market in 2025 (and perhaps into 2026)? Stay nimble with spread product, focus on the Treasury market, and shorten overall duration to protect against price risk and collect potentially higher yields at the shorter end of the curve if inflationary pressures indeed reignite. As mentioned above, this bearish outlook for bonds also has important spillover implications for stocks. > *“Young men love risk because they can’t imagine the consequences.”* – Bert Cooper, Mad Men **Stocks**. A generation of investors have been conditioned to a simple premise. “Stock prices always go higher”. “Buy any and all dips”. “Lather, rinse, repeat”. And with an S&P 500 that has skyrocketed from 667 in early 2009 to over 6000 as 2024 draws to a close, it’s easy to understand why any stock investor under the age of 40 feels vindicated by this relentlessly aggressive and to date rewarding pursuit, particularly given the recent steady ascent since late 2022. ![](https://clear-wealth.com/wp-content/uploads/Slide10.jpeg "Slide10 - Great Valley Advisor Group - Clear Wealth Planning Solutions") But there was a time when stocks actually journeyed in a direction other than up for an extended period of time. And with the bond bull market that helped foster this environment for so many years now definitively over at a time when economic growth may be softening, investors may find themselves becoming reacquainted if not introduced for the first time to the less forgiving side of the risk sword in the coming years. In the short-term, the broader stock market outlook remains strong. Investors are hopped up on the promise of pro-growth fiscal policies and deregulation coming from the new leadership in Washington DC, and this optimism has the potential to carry investors well into the New Year. But if economic growth does start to weaken and/or bond yields start to meaningfully rise, it will almost certainly have a deteriorating impact on corporate earnings. And this would matter immensely for stock prices. Stocks are highly correlated with underlying corporate earnings. If earnings are rising, so too are stock prices more often than not. Conversely, if corporate earnings growth turns south, stock prices typically fall. And a U.S. economy descending into recession and/or higher borrowing costs are primary factors that would cause corporate earnings to shrink instead of expand. ![](https://clear-wealth.com/wp-content/uploads/Slide11.jpeg "Slide11 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Even if corporate earnings continue to expand, stocks are still grappling with a fundamental problem that is a byproduct of their recent resounding success. The S&P 500 today is trading at 27 times operating earnings and 30 times GAAP earnings. These are historically VERY expensive multiples that have only been reached once or twice in the past if ever. This is reflected in the gap that now exists in the relationship between the S&P 500 and underlying corporate earnings in the chart above. The S&P 500 could fall by more than 1000 points, and it would be doing nothing more than coming back into line with the price implied by underlying corporate earnings. And this is without a recession or rise in bond yields. Yikes! > *“If you don’t like what’s being said, change the conversation.”* – Don Draper, Mad Men Of course, it is always important to remember that the U.S. stock market is a market of stocks. Just because the S&P 500 may be out over its skis right now does not mean that all of the stocks that make up the S&P 500 or the other stocks in the mid-cap S&P 400, small cap S&P 600, developed international MSCI EAFE, or emerging market MSCI Emerging Market indices are in a similar state. And if it has indeed been the case that an exceptionally small number of stocks (Magnificent Seven, Fab Four, etc.) have been primarily responsible for driving the stock market higher these last couple of years, it is equally important to remember going forward that a vast majority of the 493 stocks that make up the S&P 500 along with those beyond the index may have a lot of room to catch up to the upside even if the headline index is falling to the downside. But why anything other than the mega caps heading into 2025? Why now? Because the underlying macro environment is changing. This is not to say that the very largest companies in the stock market cannot continue to perform going forward. They are the undisputed kings until they are not. But here’s the thing – they are massive, global growth stocks collectively trading at a forward P/E of more than 31 times earnings (my fingertips just blistered as I typed – these are scorching hot valuations, particularly in a market where the 10-year U.S. Treasury yield is threatening 5% – negative 2% equity risk premium anyone?). But a macro environment of higher fiscal deficits, potentially higher inflation, a steepening yield curve, a stronger dollar, increasing protectionism, and retaliatory trade policies resulting from higher tariffs are not the stuff for massive, global growth stocks trading at beyond historically high valuations, particularly those whose customers may not be coming back for even more AI spend after having already backed up the truck over the last 18 months but are not yet reaping the profits for their capital expenditures in an economy that may be on the fade. In fact, it is quite the exact opposite. Who then benefits on net in such an environment? Value over growth stocks. Domestically focused cyclical mid-caps and small caps (and many S&P 493ers) over multinationals. Energy and materials over technology (energy and technology spend extended periods trading the top and bottom spots of the sector table over time). Deeply discounted consumer staples including food and health care including pharmaceuticals. Bread and butter domestic commercial banks, particularly in an environment where regulatory pressures are likely to be meaningfully eased. In short, a good portion of the rest of the stock market outside of TMT (technology, media, and telecom) for you old school tech bubble fans out there. Many of these segments performed exceedingly well during the 2022 bear market, and this may have been a foreshadowing of what could come through the remainder of the decade in fits and starts if the macroeconomic environment continues to unfold accordingly. Let’s take this one step further down the road. If the U.S. dollar does indeed strengthen meaningfully as would be expected under such a scenario, this would create a potentially considerable tailwind for long overdue developed international and selected emerging market stocks to finally start to catch up on a deeply discounted relative valuation basis once the U.S. dollar inevitably starts to mean revert. > *“You’re painting a masterpiece, make sure to hide the brushstrokes.”* – Betty Draper, Mad Men **The bottom line**. When it comes to investing in capital markets, the key to painting a masterpiece with your portfolio is proper asset allocation. No investor will ever get every call or decision right when it comes to allocating their capital, thus the beauty of a well constructed and diversified long-term portfolio strategy. For even if any seemingly strong and polished segment of the market is revealed to be actually troubled and weak, the many other uncorrelated segments of the asset allocation that are all being strategically managed along the way can provide the support and resilience to provide more consistently returns with less risk across all market environments. The most ideal asset allocation strategy is one that is prepared in advance to withstand a variety of market outcomes both good and bad over time. Maintaining this discipline over time is a key to long-term investment success. Overall, the market outlook for 2025 is one that is filled with strength and optimism but is not without vulnerabilities and risks. It will be as important as ever in the year ahead to resist complacency, for the potential exists that the opportunity set could change meaningfully from what we have come to know in recent years. Stay broadly diversified and prepared to adjust depending on how market conditions unfold. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 675652** **Categories:** Insights --- ### [Economic & Market Report: Cruising Altitude](https://clear-wealth.com/economic-market-report-cruising-altitude/) **Published:** December 17, 2024 **Author:** Clear Wealth Planning **Excerpt:** It has been a phenomenal year for the U.S. stock market in 2024. The S&P 500 was still trading below 4800 emerging from what had been a strong 2023, and while a good year ahead was anticipated, the idea of the benchmark index cresting 6000 to close out 2024 seemed a long shot at best. **Content:** It has been a phenomenal year for the U.S. stock market in 2024. The S&P 500 was still trading below 4800 emerging from what had been a strong 2023, and while a good year ahead was anticipated, the idea of the benchmark index cresting 6000 to close out 2024 seemed a long shot at best. But as we move through the final three weeks of December, the S&P 500 managed to notch its first 6000 reading more than a month ago now and has 6100 if not 6200 in its sight by the time the ball drops in Times Square. With such a steadily robust performance throughout 2024, what could possibly go wrong as we enter 2025? **Santa Claus is coming to Wall Street**. First, it is important to remember that we are now entering what is seasonally the most wonderful time of the year for stocks. If one scrubs what took place in late 2018 from their memory, this is a time when institutional traders start to close their books on the calendar year and trading volume starts to lighten. At the same time, retail traders filled with yuletide cheer and stockings stuffed with bonus cash from their employers among other things take to their brokerage accounts and search for stocks to buy. While the true “Santa Claus effect” trading period is typically runs from the last few trading days in December through early in the New Year, overall the period from right around Thanksgiving through the start of the second full week in January has historically been a stock market friendly time of year. And with economic estimates for GDP growth continuing to steadily climb supporting forecasts for double digit corporate earnings growth in the year ahead at a time when inflationary pressures remain in check and the U.S. Federal Reserve is cutting interest rates, we have good reason to believe that the 2024 holiday season will be no exception in this regard. (Why was 2018 an exception as noted above? Because by contrast the U.S. Federal Reserve was raising interest rates at a time when the U.S. economy was slowing and most of the rest of the world was already well into a bear market – not at all so today). **Flying high again**. This is all good news so far for seemingly the next month or so, but what about once the traditional holiday stock buying binge period subsides come the first or second week of January 2025. What then should we reasonably expect? First, it is important to remember that while the economic and corporate earnings outlook is as rich as pecan pie, stock valuations have also risen beyond nosebleed levels. For example, the S&P 500 that historically has traded around 16 times GAAP earnings throughout its history and toward 22 times earnings during the “Fed put” era since 1987 is currently trading just north of 30 times earnings today. This represents a near 40% premium to its four decade average and nearly double its long-term multiple. In short, stocks today remain priced beyond perfection. Now this is all fine and dandy as long as net positive liquidity continues to flow into financial markets (see the price of Bitcoin as a good barometer for indiscriminate liquidity inflows among other readings). But the give back can be ruthless for premium valued stocks once the liquidity tide turns to the negative (stock valuations do not matter until they suddenly do . . . A LOT). This principle will be a key theme that we will be monitoring as we enter and throughout 2025 in future GVA Economic & Market Reports. Next, it is important to note even if liquidity flows remain positive into financial markets that U.S. large cap stocks are long overdue for a correction. There was a reason for skepticism entering 2024 that the S&P 500 could reach much less surpass 6000 by the end of this year. That’s because stocks typically don’t rise in a straight line. Instead, they usually advance in an oscillating two-steps-forward-one-step-back pattern where strong advances are followed by periodic pullbacks. But the periodic pullbacks have been absent this year outside of very brief stints in April and the start of August. As a result, the S&P 500 has elevated into a cruising altitude well above its various price trend lines. Knowing that the laws of gravity have not been repealed, it is only a matter of time before investors collectively find some sort of excuse to take at least some profits off the table for a stretch following what has been a tremendously strong run. ![](https://clear-wealth.com/wp-content/uploads/cruising1.jpeg "cruising1 - Great Valley Advisor Group - Clear Wealth Planning Solutions")cruising1**Air pockets**. Putting this all together, we should not be surprised at all despite all of the underlying positive economic and market fundamentals to see the S&P 500 enter into some sort of correction in the first quarter of 2025 into the early spring that could last anywhere between four to twelve weeks and take a solid slice off the S&P 500 in the process. What would the depth of such a correction likely look like under current conditions all else equal (in other words, assuming that some exogenous shock or idiosyncratic event does not pop up along the way)? The S&P 500 stock price trendlines provide a reasonable guide. For example, the S&P 500 that closed on Wednesday at 6084 could drop by more than -3% to its medium-term 50-day moving average currently at 5892 (the blue line in the chart above) and would have simply regressed to upward trendline support (notice how the S&P 500 has repeatedly bounce off of this trendline in May, September, and November of this year in continuing its rise. Next, the S&P 500 could drop nearly -10% from current levels – the technical definition of a stock market correction in many corners – to currently 5496 and have done nothing more than regressed to its long-term 200-day moving average trendline (the red line in the chart). Put simply, we could lop a solid -10% off the S&P 500 today and the broader bull market uptrend in stocks would remain fully intact. ![](https://clear-wealth.com/wp-content/uploads/cruising2.jpeg "cruising2 - Great Valley Advisor Group - Clear Wealth Planning Solutions")cruising2Let’s go one final step further. Let’s suppose the S&P 500 dropped by nearly -18% from current levels to its 400-day moving average (pink line in the charts above) that just crossed above 5000 for the first time a few days ago. This is more than 1000 points coming off of the S&P 500 Index in this scenario. Despite what looks like a staggering and potential worrying decline, such a move would represent nothing more than the stock market regressing to its ultra long-term trendline that is trending decisively higher in its own right. Yes, we could drop -18% over a four to twelve week period in early 2025, and the bull market in stocks dating back to its October 2022 lows would still be very much intact. Buying opportunity on the dip anyone? **Bottom line**. It’s been a phenomenal year for stocks throughout 2024, and the fundamental economic and market set up remains highly constructive as we enter 2025. But risks do remain, and we as investors should remain prepared for the fact that we remain overdue for another inevitable periodic pullback that takes place in even the most raging bull markets. At such great heights today, such a correction in early 2025 could prove measurable in excess of -10% before its all said and done. But barring some unforeseen development along the way, any such short-term decline in stock prices should be viewed as a potentially attractive buying opportunity and not a reason to sell. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 670636-1** **Categories:** Insights --- ### [Economic & Market Report: Giving Thanks](https://clear-wealth.com/economic-market-report-giving-thanks/) **Published:** December 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** The time of year has come once again for families to gather around the table and give thanks for the good fortunes of life, friends, and health. **Content:** The time of year has come once again for families to gather around the table and give thanks for the good fortunes of life, friends, and health. And while money matters are typically set aside when passing the turkey, stuffing, and pumpkin pie, it is worth recognizing at this time of year the blessings that our economy and financial markets have bestowed upon us over the years. **Economy**. Consider first the U.S. economy. While we have endured mighty challenges in recent years such as the sharp and sudden COVID recession and the first major outbreak of high inflation in more than forty years, we have witnessed remarkable growth over the long-term. This includes an economy as measured by total output on an inflation adjusted basis that has more than tripled in size over the last four decades and increased by half since the turn of the millennium. In short, we as country are far more prosperous today than we ever have been. ![](https://clear-wealth.com/wp-content/uploads/thanks1.jpeg "thanks1 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Stocks Next lets consider the stock market in which so many of our citizens in this country have allocated their life savings with the willingness to assume the risk of owning some of the greatest companies in the world to generate a rate of return in excess of inflation that is vastly superior to what is on offer from a savings account at their local bankIndeed, we as stock investors have seen many major challenges over the years. This includes the sudden and shocking drop in stocks that accompanied the onset of the COVID crisis in 2020, when the S&P 500 dropped by -35% in just over a month from mid-February to mid-March that year. It also includes the dual market shocks of the early 2000s, when the bursting of the technology bubble and the financial crisis cut stock portfolios in half if not worse twice within the span of a single decade. And for those that go back far enough, it also includes the worst day in stock market history when the Dow Jones Industrial Average plunged by more than -22% in October 1987. ![](https://clear-wealth.com/wp-content/uploads/thanks2-1.jpeg "thanks2 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Despite these numerous short-term challenges that have periodically arisen along the way, the long-term growth of the U.S. stock market has been remarkable. An S&P 500 that was trading at around 100 four decades ago has increased by 60 times in the years since through today. This same headline stock market index that was trading at 667 just fifteen years ago and 2181 at the start of the current decade is now spending recent trading days rising above 6000. This is 60x in forty years, 9x in fifteen years, and nearly 3x in five years. **Bonds**. Our reasons to give thanks also extend to the lending markets. Yes, the forty-year bull market in bonds appears to have finally come to an end in the aftermath of the COVID crisis (as bond yields fall as they consistently have in the chart below since the early 1980s, bond prices and the value of investor bond portfolios rise to complement the income that they are receiving from their bond investments), but the prosperous financial conditions that remain should still be appreciated. After all, a time existed within many of our lifetimes when obtaining a mortgage to buy a house or a loan to buy a car involved interest rates on borrowing that pushed as high as a loan sharkishy 20% or more. But accompanying the economic and financial market prosperity over the last many decades has been the ability to borrow capital for purchases and fixed investment at attractively low rates. This has enabled us to further enhance our prosperity by leveraging our capital in a manageable and predictable way. ![](https://clear-wealth.com/wp-content/uploads/thanks3.jpeg "thanks3 - Great Valley Advisor Group - Clear Wealth Planning Solutions") **Giving thanks for today, staying focused on the long-term**. These are just a few of the reasons to give thanks for the prosperity that our economy and financial markets have provided many of us over the years. The long-term journey to today has not been without its numerous short-term challenges along the way, however. And as we travel into the future, new short-term challenges will arise, sometimes suddenly and shockingly along the way. But as history continues to teach us as investors, resist the urge to overreact to these periodic setbacks and instead remain dedicated to your long-term investment plan. This will help ensure that you are able to fully participate in whatever further long-term growth and prosperity the future may hold. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 665148** **Categories:** Insights --- ### [Economic & Market Report: 78 More Than 47 (or 45)](https://clear-wealth.com/economic-market-report-78-more-than-47-or-45/) **Published:** November 25, 2024 **Author:** Clear Wealth Planning **Content:** Move over Grover Cleveland (22 and 24). The epic grade school social studies question must now be rewritten, as we are now on the brink of having our second President in U.S. history in Donald Trump (45 and soon to be 47) with the distinction of serving two non-consecutive terms. But far more important than revisions to our trivia books is the nomination season that is now underway in the wake of the election. And the number that matters most to financial markets waiting with bated breath is who will be nominated the 78th United States Secretary of the Treasury. Why the focus on the next Treasury Secretary? Put simply, if the President is the CEO, the Treasury Secretary is the CFO of the United States of America. And while they serve at the pleasure of the President, they are still the person with the primary responsibility of overseeing the U.S economy and directing fiscal policy on behalf of the U.S. government. As a result, the policy views and perspectives of the nominee that eventually starts serving in this role come late January matter a great deal to financial markets. As of this writing, four names lead the list of potential nominees for Treasury Secretary, with an announcement expected at any time. But regardless of who is ultimately selected, history provides an instructive guide on how markets are likely to react once a person is finally named. **It’s easy being green**. Much like the immediate aftermath of a presidential election, the stock market historically has performed well in the trading days and weeks that follow the announcement of the Treasury Secretary nominee. Just as when the outcome of the presidential election that includes the U.S. Senate and U.S. House enables investors to better predict future fiscal policy outcomes, the appointment of the Treasury Secretary allows for the further sharpening of estimates and policy expectations. Moreover, the naming of Treasury Secretary typically bolsters investor confidence (assuming it is a market friendly pick, which has been a priority for administrations dating back over the last several decades and undoubtedly will be a emphasis for the incoming administration), particularly since unlike many other cabinet positions that can be more transient, the person named to Treasury Secretary often stays in that role for the entirety of a presidential term. Consider our first recent example with the nomination of Tim Geithner on 11/24/08 to serve as the 74th Treasury Secretary in the first Obama administration. Despite the fact that we were in the depths of the Great Financial Crisis at the time, the S&P 500 rallied by +18% for more than a month through early January 2009 immediately following the news. ![](https://clear-wealth.com/wp-content/uploads/78-1.jpeg "78-1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Next was the nomination of Jack Lew as the 75th Treasury Secretary for the second Obama administration. This nomination came very late in the process on January 10, 2013 just days before inauguration day. Still the S&P 500 added +1% in the days that followed. ![](https://clear-wealth.com/wp-content/uploads/78-2.jpeg "78-2 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Following Trumps first election victory in 2016 Steve Mnuchin was nominated to become the 76th Treasury Secretary on November 29 2016 Although markets were already in post election rally mode at that point they added another +35 in the weeks that followed the news![](https://clear-wealth.com/wp-content/uploads/78-3.jpeg "78-3 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Most recently, the nomination of Janet Yellen as the 77th Treasury Secretary on 11/30/20 as the Biden administration came into office helped continue stocks already on a leg higher by another +6% in the weeks that followed. ![](https://clear-wealth.com/wp-content/uploads/78-4.jpeg "78-4 - Great Valley Advisor Group - Clear Wealth Planning Solutions") I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 662397-02-01** **Categories:** Insights --- ### [Economic & Market Report: It Takes Time](https://clear-wealth.com/economic-market-report-it-takes-time/) **Published:** November 19, 2024 **Author:** Clear Wealth Planning **Content:** Changes to the political landscape continue to unfold in the wake of the Republican sweep in the 2024 elections. The financial market reaction has also been dramatic, as U.S. stocks have rallied strongly in the days since Election Day with the removal of the uncertainty of who will be running the executive branch as well as the U.S. Senate and House of Representatives for the next two years. But one might also get the impression when following the financial media along the way that the anticipated policies from the new GOP led Washington DC have already been put in place yesterday even though the transition of power won’t even start to begin for more than a month from now. It is important to remember that what is promised on the campaign trail typically is very different from what is eventually implemented into law and subsequently executed. Even more so, it takes time before any such policies start to take effect under any new government in Washington. So what can we more reasonably expect from our politicians and financial markets as new leadership takes hold. **You know time is of the essence**. History provides a useful guide for what to expect over the next two years. Of course, this is not the first time that we have seen a sweep scenario emerging from a Presidential election in recent years. In fact, we have seen three political party sweeps in the last two decades alone. And both the timing of major legislation being enacted and the U.S. stock market reaction along the way bears some striking similarities to note as we advance toward 2025 and beyond. **It takes time to let the coffee percolate**. Let’s begin with the first of these three sweep outcomes that took place on Election Day in November 2008. In the midst of the Great Financial Crisis, President Obama scored a decisive victory accompanied by the Democrats adding a whopping eight seats in the U.S. Senate and 21 seats in the House of Representatives. The party came to Washington in 2009 with a clear mandate to lead with reforming the health care system as a primary objective. Yet despite all of these advantages, it took Democrats more than a year after taking control before finally signing into law the Affordable Care Act (ACA) on March 23, 2010. ![](https://clear-wealth.com/wp-content/uploads/time1.jpeg "time1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") So how did U.S. stocks perform along the way over these first two years. In 2009, the S&P 500 finally bottomed in March before rallying strongly through the remainder of the year and into the early part of 2010. In fact, it wasn’t until around the time that the ACA was finally passed that the U.S. stock market stalled and traded sideways for virtually all of 2010 until the very end of the year under Democratic control. **You gotta be patient**. Let’s fast forward to our second recent sweep scenario. In 2016, the GOP swept into power with an unexpected win for President Trump accompanied by the Republicans taking control of the Senate and House. It took only hours after the election results made the political results clear that the markets turned their focus to the pro-growth economic policies and major tax cuts that were likely to follow from Republican led fiscal policy. Yet despite controlling the White House, the Senate, and the House, the Tax Cuts and Jobs Act was not signed into law until January 1, 2018, virtually a year after the GOP claimed control in DC. ![](https://clear-wealth.com/wp-content/uploads/time2.jpeg "time2 - Great Valley Advisor Group - Clear Wealth Planning Solutions") But even more so than 2008, financial markets wasted no time finding their giddy up following Election Day in 2016. For the remainder of 2016 and throughout all of 2017, U.S. stocks moved higher in virtually a straight line. It wasn’t until the much anticipated tax cuts were finally signed into law in 2018 that the stock market subsequently faltered, moving to the downside in the second year of GOP control. **It takes time to get the dough and get the ring**. What about the third recent scenario? This played out in 2020. Different party once again, but notably similar results. This time, the Democrats scored the sweep in taking control of the presidency, Senate and House coming out of the 2020 election. This time, the mandate was to continue resuscitating the economy emerging from the COVID pandemic while enacting major spending projects. Nonetheless, it took more than a year before the landmark Inflation Reduction Act was signed into law on August 16, 2022. Much like the previous two sweep episodes, U.S. stocks exploded higher in the first year under single party control in Washington. It wasn’t until the second year when legislation was signed into law where markets took a swing back to the downside. **Bottom line**. Remember, it takes time. We’ve been hearing it a lot already, and it’s only going to continue in the coming weeks. We’ll hear a lot about the tax cuts and the tariffs and the deregulation and so on that many in the financial media are discussing as if they’ve already taken place. But the reality is that the current leadership is still in power until January, and even when the GOP takes full control in January, it’s very likely going to take a while even under the most ambitious timelines before any of these policies are finally instituted if at all. And if recent history is any guide, investors could reasonably anticipate that the stock market may perform well in the first year of 2025 in anticipation of this legislation coming to pass, while the second year of 2026 may bring a different story once these policies are finally signed into law. It will be interesting to see how it all plays out this time around, but in the meantime remember that it takes time. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 658279** **Categories:** Insights --- ### [Economic & Market Report: 2024 Election Results – Market Impact](https://clear-wealth.com/economic-market-report-2024-election-results-market-impact/) **Published:** November 8, 2024 **Author:** Clear Wealth Planning **Excerpt:** The election results are in.  In a stunning outcome, Donald Trump and the GOP emerged from voting on Tuesday with a resounding victory.  **Content:** The election results are in. In a stunning outcome, Donald Trump and the GOP emerged from voting on Tuesday with a resounding victory. Since much ink has been spilled in the hours since recapping the wherefores and the whys, let’s cut right to the chase and discuss the economic and financial market implications of the GOP sweep. **Clear mandate**. The first point to highlight is arguably the most important. Donald Trump and the GOP didn’t just win on Tuesday, they did so in decisive fashion. Unlike in 2016 when Donald Trump squeezed out a victory despite losing the popular vote, the former and future President is on track to best his electoral vote total while also winning the popular tally by nearly 5 million votes. Over on Capitol Hill, the GOP is also set to take control of the Senate with a handful of seats to spare in the majority. And while the fate of the U.S. House of Representatives appeared to be tilting toward the Democrats heading into the overnight following Election Day, by Wednesday the odds had meaningfully shifted in favor of the Republicans maintaining control of the House. Putting this all together, the GOP is all but certain to have registered a sweep. Putting this all together, Donald Trump and the Republicans will be assuming control in January with a clear mandate to implement much of the legislation and policies they chose for at least the next two years. And this ability to get stuff done in Washington means that the economy and financial markets will likely feel the effects. The following are the investment portfolio implications emerging from Election Day. **Favor stocks over bonds**. The U.S. stock market rallied strongly across the board on Wednesday, but this was no surprise. Stocks were expected to rally strongly regardless of who won on Election Day, as a major source of uncertainty was being removed by simply the voting taking place. But the fact that the GOP sweep scenario played out means that some more lasting effects for the market are likely to continue past Thanksgiving and into the New Year. The GOP’s clear mandate means that a bazooka of pro-growth fiscal policy is likely to be unleashed on the economy and financial markets over the coming year. This includes increased spending, further tax cuts, reduced regulation, and more lenient antitrust oversight allowing deals to get done just to name a few. At the same time, monetary policy should be expected to remain easy for the foreseeable future. The Fed has already started cutting interest rates, and they are expected to continue doing so into the New Year to combat a potential economic slowdown that is now meaningfully less likely to materialize given the expected fiscal policy support mentioned above. Moreover, it should be anticipated based on past precedence that our next President will be outspoken in pressing the Fed to keep policy easier even if they might be inclined to move otherwise. These forces should put a meaningful tailwind behind stocks well into 2025. While the benefits should be well received across all segments of the U.S. equity market, particular beneficiaries include mid-cap and small cap stocks, both of which have been relative laggards to large caps for some time. While growth and value also stand to benefit, value companies with wide economic moats and sustained pricing power may be particularly well suited for the policy environment ahead. The same might also be said for developed international stocks due to their extreme relative valuation discount to U.S. equities, although this must be evaluated in the context of the direction of the U.S. dollar in the months ahead. As for bonds, the outlook could be relatively more challenged going forward. Bond investors as well as the monetary policy makers at the U.S. Federal Reserve have been banking on a continued steady decline in inflation to support Fed rate cuts and lower bond yields. But the probability of such an outcome is now experiencing a meaningful shift coming out of Tuesday’s election results. **Inflation threat rises again**. The persistent number one primary downside risk to the economy and financial markets in the form of a renewed rise in inflation has suddenly shot up the charts in probability in recent days. Here’s why. The U.S. economy is already strong with preliminary estimates for 2024 Q3 GDP growth coming in near 3% and projections for 2024 Q4 growth registering at 2.4% according to the Atlanta Fed GDPNow forecast. Despite this brisk pace of expansion, the market is already getting a heaping of Fed monetary support that is now about to be supplemented by a wave of fiscal policy stimulus from the incoming Congress and administration. At the same time, the President Elect’s most favorite word in “tariff” now stands the strong chance of being put into action with broad strokes over the coming year, with much of the resulting price increases ultimately being passed along to consumers. These along with potential future supply chain disruptions associated with expected and still unknown shifts in the geopolitical landscape along with likely increased debt issuance at a time when the U.S. debt to GDP ratio is already well north of 100% are all forces that suggest sustainably higher prices may eventually be on offer going forward. While many areas of the stock market, particularly those that are richly valued, would likely come under pressure from such a development, it bodes particularly ill for the bond market. As a result, investors may be well served to strategically shorten duration in fixed income portfolios and favor higher quality corporates along with shorter dated Treasuries if such a scenario starts to unfold. **Additional opportunities**. The prospects of sustainably higher inflation under new leadership in Washington in 2025 also has broader reaching implications. For example, the long forgotten commodities complex beyond precious metals including industrial metals and agricultural products may increasingly find themselves in favor in such a future environment, providing the more effective hedge to stocks that bonds are increasingly challenged to provide in a higher inflation environment. Strategically and selectively focusing on the equities of natural resource producers may serve as a more effective and liquid way of gaining exposure to this area of the market for those that are interested in exploring further. Volatility should also be anticipated to go through extended elevated bouts over the next 12-24 months. As a result, a more specialized allocation such as managed futures at a relatively small percentage of an overall portfolio allocation may be worth consideration as an added layer of downside risk protection for model strategy. **What to watch in the weeks ahead**. Now that the election outcome has been decided, the next important step is to monitor who is set to be appointed to key cabinet positions. Leading among these is Treasury Secretary, a position that despite all of the other Cabinet turnover was held for the entirety of Trump’s first term by Steve Mnuchin. Other cabinet positions of interest from a market perspective include Secretaries of Commerce, Labor, Health and Human Services, and Energy. Added wild cards to the mix for their market adjacent impacts would be Secretaries of State and Defense. Knowing who is likely to fill these positions will go a long way in understanding the anticipated policy prescriptions that are likely to follow from these various departments. **Bottom line**. The 2024 election outcome is now in the books, and the market reaction is well underway. While the stage is set for further stock gains as investors reallocate with a major uncertainty now removed, the same may not be said for bonds going forward. But as events continue to unfold as we move toward a new administration and Congress, it remains as important as ever to remain dedicated to your investment discipline and long-term plan. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 655461** **Categories:** Insights --- ### [Economic & Market Report: The Heat Is On](https://clear-wealth.com/economic-market-report-the-heat-is-on/) **Published:** November 4, 2024 **Author:** Clear Wealth Planning **Excerpt:** It was all going so well for the doves. The U.S. stock market continued to surge to new all-time highs at the same time that bond yields were plunging, all in anticipation of the U.S. Federal Reserve cutting interest rates at their mid-September Open Market Committee meeting. **Content:** It was all going so well for the doves. The U.S. stock market continued to surge to new all-time highs at the same time that bond yields were plunging, all in anticipation of the U.S. Federal Reserve cutting interest rates at their mid-September Open Market Committee meeting. But no sooner did the Fed actually deliver with a greater than originally expected half point rate cut, and U.S. Treasury yields went soaring higher. While stocks continued to advance into this headwind for several weeks, more recently they’ve taken a pause. What’s thrown a wrench into the easy money narrative of just a few weeks ago? The renewed rise of inflation concerns. **Taking a breather**. Don’t get me wrong. The U.S. stock market is continuing to have a sizzling 2024. Trading north of 5800 on the S&P 500, U.S. stocks are higher by more than +20% this year. And while stocks have taken a bit of a breather in recent weeks as third quarter earnings season gets into full swing, it’s still within striking distance of fresh new all-time highs on any given trading day. Moreover, while the corporate earnings outlook for the current quarter has been revised slightly lower so far this reporting season, estimates have been revised higher by more than 2% through the remainder of 2025. [![](https://clear-wealth.com/wp-content/uploads/heat1-1024x768.jpeg "- Clear Wealth Planning Solutions")](https://gvaria.com/wp-content/uploads/2024/10/heat1-scaled.jpeg) Nonetheless, the U.S. stock market continues to grapple with some mounting headwinds. These include current valuations on the headline index that are now north of 29 times earnings on an as reported basis, which is historically very expensive. In addition, corporate profit margins on the S&P 500 continue to hover near peak levels near 12% that are well above the historical average. While these factors have not constrained a further advance in stock prices to date, the renewed threat of inflation would thrust both of these metrics into the spotlight in a hurry. Put simply, inflation is poison for stock valuations (lower) and corporate profit margins (lower), both of which lead to lower stock prices all else equal. **Bond broadside**. While the U.S. stock market continues to sail into these headwinds, the same cannot be said for the bond market in general and U.S. Treasuries in particular. After touching a post inflation cycle low of 3.6% right around when the U.S. Federal Reserve made their announcement on rates, Treasury yields have surged sharply higher in the weeks since, reaching as high as 4.3% in recent trading days. Such are not the yield movements of a bond market that is excited about Fed rate cuts. Instead, it is a signal that bond investors are worried that among other things the Fed may be coming in too hot and too fast with their rate cuts in what is an already brimming U.S. economy with lingering inflation pressures. **Inflation watch**. So what should investors be watching in the days ahead to determine whether the recent rise in bond yields is merely a blip on the radar or the early warning signals of a renewed inflation outbreak? [![](https://clear-wealth.com/wp-content/uploads/heat2-1024x768.jpeg "- Clear Wealth Planning Solutions")](https://gvaria.com/wp-content/uploads/2024/10/heat2-scaled.jpeg) First, continue to watch the 10-Year U.S. Treasury yield. Yields have been moving in a converging sideways oscillating pattern for some time now. After bottoming at the low end of this narrowing channel at 3.6% back in mid-September, it is now pressing toward the high end of this range near 4.4% today. For the more opportunistic investor, Treasuries could represent a potential buying opportunity if yields continue to surge toward this current support level. Conversely, if yields blast through the top end of this converging channel, it may signal that renewed concerns about inflation could be becoming more entrenched, which would bode ill for stock prices as well. [![](https://clear-wealth.com/wp-content/uploads/heat3-1024x768.jpeg "- Clear Wealth Planning Solutions")](https://gvaria.com/wp-content/uploads/2024/10/heat3-scaled.jpeg) Another signal to watch is the 5-Year Breakeven Inflation Rate, which effectively measures investor expectations for average inflation over the next five years. After dipping below 2% for the first time in years leading into the recent Fed meeting in September. They have surged sharply higher toward 2.3% in recent weeks with seemingly no end in sight to the rise. Breakevens have also been trending steadily lower for years, and a reading as high as 2.5% would remain consistent with the very high end of this current downtrend range. But if we see breakevens power sustainably above 2.5%, this would suggest that the inflation problem could be bigger and stickier than thought just a month or two ago. **Bottom line**. The threat of inflation remains the number one downside risk to the markets as we move through the final months of 2024. It’s not only bad for stocks, but its also bad for bonds. And despite the Fed’s eagerness to cut interest rates, pricing pressures continue to linger under the surface including services inflation still hovering near 5%. As a result, while U.S. stocks continue to press new all-time highs, it remains as important as ever to monitor the inflationary risks. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 652025-1** **Categories:** Insights --- ### [Economic & Market Report: Stocks Don’t Care Who Wins](https://clear-wealth.com/economic-market-report-stocks-dont-care-who-wins/) **Published:** October 28, 2024 **Author:** Clear Wealth Planning **Excerpt:** We’ve got a big election coming up in the United States that’s now less than two weeks away.  **Content:** We’ve got a big election coming up in the United States that’s now less than two weeks away. While a presidential election is always a big deal, some are proclaiming that the 2024 election is “the most important in history”. Given that the winners of the election that includes control not only of the White House but also the U.S. Senate and House of Representatives play an important role in directing fiscal policy, many investors are fixated on what the potential impact on financial markets may be. But if long-term history is any guide, investment markets simply do not care who wins the election. **We’ve all been here before**. Looking back over the last 125 years to the year 1900, we have had 31 presidential election cycles. Highlighting the political impartiality of financial markets from the outset, this has included 16 Republican party and 15 Democratic presidential winners. In short, the results are effectively split right up the middle. So how has the U.S. stock market performed in the wake of these past presidential elections? A good way to measure the immediate and emotional investor reaction to the election outcome is to hone in on the price return on the U.S. stock market as measured by either the S&P 500 or the Dow Jones Industrial Average before it during the November when the election took place. The good news for investors is that the U.S. stock market has posted an average price gain of +1.46% during presidential election year Novembers dating back to 1900. This is significantly better than the +0.55% monthly price return average overall over this same time period. Moreover, the U.S. stock market has posted a 65% winning percentage in moving higher in 20 of the 31 presidential election Novembers, which is also decidedly higher than the overall monthly winning percentage of the U.S. stock market at just below 60%. Thus, from a betting perspective, the historical odds meaningfully favor investors remaining fully invested during a presidential election season. Let’s take things two steps further. Extending this look through the Decembers following presidential elections, we see that stocks have historically added to their initial post election gains, advancing by more than +2% from before the election through the end of December. And for those that are worried about the longer term implications of a given presidential election, we have seen stocks move higher on price alone over the course of the entire four year presidential term that follows more than 80% of the time (25 out of 31 four year cycles) with an average price gain of more than +67%. **But what about the past exceptions**. Of course, we have had moments when the market has struggled both in the immediate aftermath of an election as well as the years that have followed. Could the 2024 election align with these downside exceptions to the rule? Let’s take a look at some of the more recent examples for some reassurance in this regard. Consider the immediate aftermath of the 2012 election. The U.S. stock market declined by roughly -3% that November. But when dissecting the month a bit more closely, we see that virtually all of the decline for the month took place in the first few days of November leading up to Election Day (this was the immediate aftermath of Hurricane Sandy that struck the Mid-Atlantic that year and some consider the “October Surprise” for that election cycle). Stocks found their footing by mid-November and steadily rallied through mid-December before investors started to reposition in anticipation of the launch of the Fed’s QE3 monetary policy deluge in January 2013. Overall, stocks went on to register a +49% price gain over the next four years. ![](https://clear-wealth.com/wp-content/uploads/care1.jpeg "care1 - Great Valley Advisor Group - Clear Wealth Planning Solutions")care1Next, let’s look at the aftermath of the 2008 election. This election, of course, took place during the height of the Great Financial Crisis, so the market declines that year could hardly be assigned to the election outcome. And even after an initial decline through mid-November, stocks found their footing and moved steadily higher through the remainder of 2008. In fact, an event that was widely cited as being a catalyst for this late 2008 bounce was the naming of Tim Geithner as Treasury Secretary for the new administration, a person that was reportedly being considered for this role that year by both the Obama and McCain camps. Regardless, by the time the next election was rolling around four years later, stocks had posted a +48% price gain. ![](https://clear-wealth.com/wp-content/uploads/care2.jpeg "care2 - Great Valley Advisor Group - Clear Wealth Planning Solutions")care2Let’s keep going and flip the associated political party from the Democrats in 2008 and 2012 to the Republicans in 2000. The S&P 500 steadily fell in both November and December that year as election workers were sifting through ballots and examining “hanging chads”. But the fact that the market held as steady as it did that year given the true election outcome uncertainty was made all the more remarkable by the fact that we were in the early stages of the unwinding of the biggest stock market bubble at the time since the late 1920s. In short, it’s notable in many respects that the market returns following this election were not a whole lot worse. ![](https://clear-wealth.com/wp-content/uploads/care3.jpeg "care3 - Great Valley Advisor Group - Clear Wealth Planning Solutions")care3Let’s balance out the scorecard with a second Republican won election followed by a down November. Much like 2012, a good portion of the November downside already took place ahead of Election Day that year. And while stocks continued to decline for the first few trading days afterward, they subsequently bottomed and rallied to end post-election higher through the remainder of the year. Furthermore, stocks went on to rise by another +49% in price alone over the next four years. ![](https://clear-wealth.com/wp-content/uploads/care4.jpeg "care4 - Great Valley Advisor Group - Clear Wealth Planning Solutions")care4**But will this time be different?** It is always possible that markets may react differently this time than it did the thirty-one previous times we had a presidential election. It’s also important to remember that while we may have some polarizing figures on the ballot heading into the first Tuesday in November this year, we have had a number of candidates in the past that have been highly controversial to a good percentage of the electorate in their own right. As just one of many examples, it should be noted that not all voters were enthusiastic about President Roosevelt running for a third and fourth term in 1940 and 1944, as the passing of the 22nd Amendment a few years later in 1947 with the support of numerous Democrats and ratified under a Democratic presidency took place for a reason. And the events surrounding the election of 1972 and President Nixon are well documented. Yet stocks performed well in the immediate aftermath of each of these past elections despite World Wars in the 1940s and chronic inflation in the 1970s raging around them. Nonetheless, some would still understandably contend that today’s slate of candidates are different than anything we have seen in the past and the markets may react accordingly to the outcome. Only time will tell. But two points are worth remembering in this regard as we move toward Election Day. First, either candidate winning the presidency should come as no surprise to investors, as polling data have been signaling for months that this election is effectively a “toss up”. If anything, markets are more likely to rally in the aftermath of the election simply because a major source of uncertainty has been removed. Next, as insensitive as it may seem, financial markets don’t care about candidate views on topics like immigration, abortion, the Middle East, or any of the other hot button issues that may or may not drive voters to the polls on November 5. Instead, as long as financial markets are getting their steady flow of liquidity from supportive fiscal and monetary policies, they will demonstrate the propensity to rise regardless of who wins the election. And if markets get the sense that they may get more of what they like in terms of policies that are supportive of financial markets, they are likely to rally regardless of whether a Democrat, Republican, Libertarian or Green candidate wins on November 5. Conversely, I’d have an easier time finding a unicorn than a candidate from either party that wants to raise taxes on the masses. The days of restrictive fiscal policy remain in the past at least for the time being. **Bottom line**. The upcoming presidential election is undoubtedly a big deal. But when it comes to your investment portfolio, it is important to remember that markets have historically responded favorably to election outcomes regardless of what candidates win on Election Day. As a result, it remains important to stick to your long-term financial plan and try to resist the urge to react to a near-term event that likely will not matter much to markets at the end of the day. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Theory of Market Relativity](https://clear-wealth.com/theory-of-market-relativity/) **Published:** October 7, 2024 **Author:** Clear Wealth Planning **Excerpt:** Investing is a long-term game. And when evaluating long-term portfolio opportunities, it is worthwhile to consider the relative performance of various segments relative to the broader market. **Content:** Investing is a long-term game. And when evaluating long-term portfolio opportunities, it is worthwhile to consider the relative performance of various segments relative to the broader market. For over long-term periods of time, market gravity has an uncanny way of dragging relative outperformers back to earth and lifting relative underperformers to eventual new heights. Thus, seeking out those segments that have chronically underperformed for an extended period can bring rewards over time for those investors with a long-term focus. **Gravity**. History has shown that various stock segments move in and out of favor relative to the broader market over time. Consider the information technology sector. Left for dead for years in the aftermath of the bursting of the dot.com bubble at the turn of the millennium, the tech sector roared back to life in the wake of the Great Financial Crisis in the 2010s and into the early 2020s. The underlying economic and policy environment was particularly ideal for mega cap tech stocks during this time period, as the combination of chronically sluggish economic growth, persistently low inflation, and easy monetary policy led many investors to seek out these big free cash flow generating growth companies at any price (plug a 0% interest rate into your discounted cash flow model and one can twist themselves to justify just about any premium valuation). This helped lead to an unprecedentedly long period of consistent outperformance of the tech sector relative to the broader market. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Slide1 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide1But here’s the problem for the white-hot tech sector going forward. Starting in 2022, the economic and policy environment changed dramatically. Instead, we are now in an environment of persistently solid but lately fading economic growth, the ongoing threat of a renewed inflation outbreak with pricing growth still running well ahead of the Fed’s long-term target, and a policy environment that recently turned easier from a monetary policy perspective but runs the risk of needing to tighten anew depending on how inflation pressures play out from here. These are all conditions that favor areas of the market other than tech shares, but apparently the sector may not have gotten the memo at least so far over the last two plus years. The consumer discretionary sector may be foreshadowing the turn that could eventually befall the overdue tech sector. Since 2021, the consumer discretionary sector has descended into a relative decline versus the broader U.S. stock market. ![Rocket launch with SpaceX hangar and blue sky; header reads 'Markets In Depth' for Great Valley Advisor Group, article cover by GVA Asset Management.](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "Slide2 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide2The fact that tech adjacent Amazon and Tesla that together make up nearly 40% of the entire weighting in the sector have been essentially flat (Amazon) to solidly down (Tesla) over the past three plus years (doesn’t sound so magnificent, does it?) suggests that even the most optimistic stock high flyers eventually start to get pulled back to earth over prolonged periods. **Time and length**. So if information technology is long overdue and consumer discretionary may have already peaked a few years ago now, what are the segments of the market that may warrant investor attention going forward? Fortunately, when so many stock market sectors get left behind for so long amid an extended technology sector boomlet, it means that so many sectors are trading at historically attractive valuations and deep discounts relative to the broader market. Consider the consumer staples sector, which historically has thrived during periods of economic uncertainty while also providing a measure of inflation protection through the wide economic moats and pricing power that many of these companies boast. Today, consumer staples stocks are trading at their largest relative performance discounts in nearly 25 years, thus suggesting potential long-term opportunities. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "Slide3 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide3A similar vein holds health care stocks. While they are not trading at the relative lows of its defensive consumer staples brethren, health care stocks have faded in the aftermath of the global pandemic to levels relative to the market last seen more than a decade ago. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "Slide4 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide4Rounding out the defensive trio is the utilities sector, which only recently bounced from historic relative pricing lows versus the broader S&P 500. While one could reasonably contend such a chronic relative decline may be irreversible for the likes of the old telecommunications services sector, the same cannot be said for electricity generation. To the contrary, the world is going need an awful lot of power well into the future to run all of the artificial intelligence technology that so many investors have been whipped up about these last couple of years. ![Daily chart of the S&P 500 Large Cap Index with trend lines, moving averages, and RSI indicator below the chart, showing an overall uptrend in 2025-2026 and a pullback in June.](https://clear-wealth.com/wp-content/uploads/Slide5.jpeg "Slide5 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide5Defensive sectors are not the only ones trading at notable relative lows versus the broader market. Consider economically sensitive industrials, which have been trading at lows relative to the broader market for the last few years now that were last seen during the dot.com bubble a quarter of a century ago. ![Line chart comparing SPY (black) and XLK (blue) daily performance from June 3 to June 10, 2026, showing an overall downtrend with steeper drop for XLK.](https://clear-wealth.com/wp-content/uploads/Slide6.jpeg "Slide6 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide6Then there is even more economically sensitive materials stocks, which have faded back toward dot.com era lows on a relative to the broader market basis ever since China got out of the commodities hoarding game not long after the calming of the Great Financial Crisis. ![Intraday multi-line stock chart (June 3–10, 2026) comparing SPY and several sector ETFs. SPY (black/red) falls about 3%, while other lines show mixed gains across XLP, XLV, XLF, and XLE with notable spikes around June 5 and June 10.](https://clear-wealth.com/wp-content/uploads/Slide7.jpeg "Slide7 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide7Lastly, we have the energy sector, that was pulled back like a slingshot relative to the broader market heading into the inflation outbreak earlier this decade. Although energy shares posted an impressive bounce, they have barely scratched the surface relative to the S&P 500. ![](https://clear-wealth.com/wp-content/uploads/Slide8.jpeg "Slide8 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Slide8**Bottom line**. While maintaining an allocation to segments that continue to perform well relative to the broader market is certainly warranted, those with a long-term time horizon may find more attractive investment opportunities by focusing on areas of the market that have been out of favor for an extended period, as history has shown that gravity more often than not pulls both winners and losers back to the center if not beyond. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 640188-1** **Categories:** Insights --- ### [Economic & Market Report: Silver and Gold](https://clear-wealth.com/economic-market-report-silver-and-gold/) **Published:** October 21, 2024 **Author:** Clear Wealth Planning **Excerpt:** The U.S. stock market continues to claim new all-time highs.  But another segment of capital markets is also glistening brightly as we continue through 2024. **Content:** The U.S. stock market continues to claim new all-time highs. But another segment of capital markets is also glistening brightly as we continue through 2024. It is the precious metals market including gold and silver. Even if you are not allocated to these more specialized categories, they can still provide important information to guide investor decision-making with their traditional investments. **All that glitters**. U.S. stocks have been a sterling investment since the turn of the millennium. Consider that the S&P 500 was trading just above 1000 as we entered the 2000s and traded as low as 667 along the way, yet is pressing toward 6000 as the first quarter of the 21st century draws to a close. Phenomenal performance to say the least. But despite these gains, it is surprising to many investors to learn that the precious metal of gold has performed measurable better over this same time period. For while the S&P 500 has posted a cumulative total return north of +500% since 2000, gold has advanced by more than +800% cumulatively over this same time period ![](https://clear-wealth.com/wp-content/uploads/sg1.jpeg "sg1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") While the precious metals market just like U.S. stocks have certainly had their stumbles along the way over the past 25 years, it is worth noting that both have been shining bright so far in 2024. Whereas the S&P 500 is up over +24% year-to-date, which is impressive in its own right, both gold and its higher beta counterpart silver are higher by +30% or more so far this year. ![](https://clear-wealth.com/wp-content/uploads/sg2.jpeg "sg2 - Great Valley Advisor Group - Clear Wealth Planning Solutions")sg2The fact that investors have two distinctly different segments of the market that are virtually uncorrelated with each other in terms of their price performance that can generate such impressive returns highlights the merits of broad portfolio diversification and the value that can be added from considering the full landscape of categories when managing the asset allocation process on a risk-adjusted basis. **How do you measure its worth**. Of course, many investors are not allocated to some of the more specialized areas of capital markets such as precious metals. But even if you are exclusively focused on stocks and bonds does not mean that one cannot derive worthwhile information from the price performance exhibited by precious metals like gold and silver. So what is the messaging that gold and silver are sending to investors today? Let’s start with gold. Here is an asset that spent the last 13 years struggling to break out above $2,000 per ounce. But in 2024, not only did gold break out decisively to the upside, it appears on a fast track to test the $3,000 level in the coming months. In short, it is on fire. ![](https://clear-wealth.com/wp-content/uploads/sg3.jpeg "sg3 - Great Valley Advisor Group - Clear Wealth Planning Solutions")sg3Now many investors may view this run in gold as a signal that inflation problems may lie ahead. After all, history has supposedly taught us that gold is the classic hedge against inflation. This point is based in truth, but a number of qualifiers must be applied for context. Gold is a hedge against inflation, but it is inflation that is running out of the control of monetary policy makers. This is what took place during the 1970s and early 1980s, and gold did phenomenally well during this time period. But if we have an outbreak of inflation and the market perceives that monetary policy makers are going to combat it aggressively – like raising the fed funds rate more than 5% in just over a year like they did starting in 2022 – then gold’s performance will be middling at best. Why? Because gold returns are also driven by the flow of monetary liquidity, and if the Fed is going to hike interest rates and thus drain liquidity, gold will get sold off in the process. Instead, gold is a hedge not necessarily against inflation, but out of control inflation. It’s also a hedge against deflation like we saw in the 1930s and again in and around the Great Financial Crisis starting in the late 2000s. In short, gold is a hedge against economic instability. So why then is gold performing well today? Because gold also benefits in an environment where monetary policy is easing – like the Fed cutting interest rates by 50 basis points in September after months of anticipation – and inflationary pressures are expected to remain under control – like the 5-year breakeven inflation rate still hovering just above 2%. Such is the environment that we are in today, and this is constructive not only for gold prices, but also stock and bond prices. In short, the rise in gold this year is sending a constructive signal to the broader capital market place that the Fed has the flexibility to continue easing monetary policy, that a renewed rise in inflation is not likely, and that the economy may hold up better than expected despite ongoing recession concerns. Let’s take this one step further with a look at silver. Like gold, silver is a precious metal, but with some key differences. First, silver has much greater price volatility than gold. Thus, an allocation to silver is not for the faint of heart. Next, silver has a dual identity that can change at any point in time. Unlike gold that is only really used for jewelry, silver has a number of industrial applications. As a result, sometimes silver behaves like a precious metal, and other times it acts more like an industrial metal. Thus, if silver is surging higher, it’s not only confirming the signals provided by gold, but it brings additional messaging with it. So what can we take away from silver’s strong surge in 2024? That while the economy may slow as we make our way into 2025, that the economy is likely to hold up better than expected and that the demand for raw materials from producers and manufacturers is not only likely to hold steady, but that it may experience a solid surge on the other side of the economic cycle once growth starts to reaccelerate. **Bottom line**. It has been a phenomenal year so far for precious metals such as gold and silver. And even if you are not allocated to these areas of the market, they are providing important reassuring signals for the economic and market path ahead for both stocks and bonds. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 646474-1** **Categories:** Insights --- ### [Economic & Market Report: Rekindling the Flames](https://clear-wealth.com/economic-market-report-rekindling-the-flames/) **Published:** October 14, 2024 **Author:** Clear Wealth Planning **Excerpt:** It continues to top the charts as a major downside risk for capital markets as we continue through the 2020s. It sent the markets reeling a few years ago, and the problem was never fully eradicated even though the focus of policy makers has since turned elsewhere. **Content:** It continues to top the charts as a major downside risk for capital markets as we continue through the 2020s. It sent the markets reeling a few years ago, and the problem was never fully eradicated even though the focus of policy makers has since turned elsewhere. And recent developments both on the human decisions making and market reality fronts are converging to potentially bring this threat back to the surface. What is this downside risk? It is a renewed rise in high inflation. And it warrants close attention as we continue through the remainder of the year and into 2025. **Lingering under the surface**. The good news remains that headline inflation pressures continue to fade from the peaks of two years ago. With the latest Consumer Price Index release for September 2024, the annual headline inflation rate dropped to new post-2022 lows from 2.6% in August to 2.4% last month. This is constructive and consistent with the idea of the Federal Reserve guiding inflation back to its 2% target rate. But when looking at the Core CPI that excludes food and energy, the story starts to look a little different. For example, the decline in the annual inflation rate has stalled in the 3.2% to 3.3% range, which is relatively high for the post Great Financial Crisis period. ![](https://clear-wealth.com/wp-content/uploads/rek1.jpeg "rek1 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Digging a bit deeper reveals some lingering concerns. More specifically, services inflation remains hot long after the 2022 inflation episode subsided from the headlines. After peaking at an annual 5% rate in the spring, services inflation excluding shelter had been gradually falling back. But in September, it ticked back higher. ![Bar chart of HBM's share of global DRAM wafer capacity by year: 2023 ~2%, 2024 ~7%, 2026 ~22%.](https://clear-wealth.com/wp-content/uploads/rek2.jpeg "rek2 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Now one data point in a major sub-category does not a headline trend reversal make. And the annual services inflation rate is still lower from the spring even after the latest blip higher. With that being said, inflation pressures continue to brew underneath the market surface, and this risk was reinforced with the latest CPI report on Thursday. As just one of many examples, we continue to see a steady rise in the monthly inflation rate in headline, core, and services inflation dating back to the spring. ![Donut chart showing DRAM market share: Samsung 38.6%, SK Hynix 28.8%, Micron 22.4%, Others 10.2%.] }? Wait format: Should be array.](https://clear-wealth.com/wp-content/uploads/rek3.jpeg "rek3 - Great Valley Advisor Group - Clear Wealth Planning Solutions") **Policy error?** Does all of this mean that the Federal Reserve committed a policy mistake with its decision to cut interest rates by 50 basis points emerging from their latest FOMC meeting in September? Now this Chief Market Strategist would contend that the Fed went unnecessarily too far by jumping out of the gates with a half point cut in September. Investors have been anticipating an economic recession six to nine months out going all the way back to 2022, but the actual economic slowdown has remained elusive. And with the economy currently running at a projected economic growth rate north of +3% with an unemployment rate that while higher from its lows in early 2023 is still lower than the peak rates from previous economic expansions and corporate earnings that are still projected to grow at a double-digit rate over the next 12-months, a strong argument could have been made that the Fed need not cut interest rates at all in September, much less 50 basis points. At least the 25 basis points that most market participants were expecting up until a few days before the Fed meeting might have been the more measured and prudent choice, but only time will tell. Nonetheless, the Fed did have the flexibility to cut by 50 basis points as they did in September. And they maintain the flexibility to cut further if they so choose at their upcoming November and December meetings. This is due to the fact that inflation trends are still at their back, and the real interest rate is at its highest levels since before the Great Financial Crisis, implying that monetary policy conditions are relatively tight in an environment where some cracks in the economic growth outlook are starting to form. ![Timeline of relief pushed years ahead with HBM prioritized: 2026 SK Hynix M15X ramp; 2027 Micron Idaho fab online; 2H 2028 Samsung P5 volume production; 2029–2030 Micron New York fab online. Bottom note: enterprise/HBM first, delaying relief for commodity DRAM and NAND.](https://clear-wealth.com/wp-content/uploads/rek4.jpeg "rek4 - Great Valley Advisor Group - Clear Wealth Planning Solutions") **Keeping a close eye**. If such inflation worries start to hit the headlines, it bodes ill for both stocks trading at nearly 30 times earnings on the S&P 500 and bonds with a 10-Year U.S. Treasury yield trading around 4%, perhaps even more so than it did in 2022. So what to watch to determine whether any current renewed inflation concerns start to become renewed inflation realities? Consider the 5-year breakeven inflation rate, which shows the average inflation that the market is pricing in over the next five years. Recently, it touched a new post-2022 inflation outbreak low just below 1.9%. But since early September, this reading has spiked higher toward 2.2%. While still low, it will be worth watching in the weeks ahead to see how much further this jump in inflation expectations continues to run. ![Bar chart comparing memory's share of PC BOM costs: previous quarter around 15% and latest quarter around 35%.](https://clear-wealth.com/wp-content/uploads/rek5.jpeg "rek5 - Great Valley Advisor Group - Clear Wealth Planning Solutions") Next, watch for the latest reading in the Personal Consumption Expenditures (PCE) price index. This is the Fed’s preferred inflation measure and will come out at the end of the month for September. Up to this point, the PCE and Core PCE readings have been decidedly positive and supportive of the Fed’s inclination to start easing monetary policy, as both are well below 3% and the headline rate is descending toward 2%. But much like its Core CPI counterpart, the Core CPE annual inflation rate has flattened in recent months. A confirming renewed rise in either of these readings for September would only add to the idea that inflation may not be dead quite yet. ![Bar chart showing HBM market revenue rising from about B in 2025 to about 0B in 2028, indicating near tripling.](https://clear-wealth.com/wp-content/uploads/rek6.jpeg "rek6 - Great Valley Advisor Group - Clear Wealth Planning Solutions")Bottom line The Federal Reserve has turned its attention to its future recession fight but a renewed rise in inflation remains the primary downside risk to the stock and bond markets today And the latest readings on inflation suggest that such pressures continue to fester under the surface Thus it is worthwhile to keep a close watch on inflation readings in the weeks aheadI/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 643525-1** **Categories:** Insights --- ### [Economic & Market Report: Knock Your Sox Off](https://clear-wealth.com/economic-market-report-knock-your-sox-off/) **Published:** September 30, 2024 **Author:** Clear Wealth Planning **Excerpt:** A changing of the guard appears to be taking place in the U.S. stock market. The S&P 500 Index continues to set fresh all-time highs with a year end run toward 6000 increasingly coming into view. **Content:** A changing of the guard appears to be taking place in the U.S. stock market. The S&P 500 Index continues to set fresh all-time highs with a year end run toward 6000 increasingly coming into view. But the leadership now driving the market to new heights has suddenly changed in recent months. Following nearly two years of prodigious leadership, the information technology sector in general and the semiconductor industry more specifically has suddenly fallen to the wayside. What segments then has assumed the market leadership mantle as we enter the final quarter of 2024. **Sox knocked off.** The once highflying semiconductor industry has taken a long overdue breather in 2024 Q3. Traditionally a highly economically sensitive and notoriously unpredictable segment prone to wild swings in either direction at any given point in time, semiconductor shares entered into a sharp swing to the downside starting on July 11. Whereas the S&P 500 Index has risen by just over 1% in the more than two months since, the Philadelphia Semiconductor Index, or SOX, has fallen by more than -13% and as much as -27% over this same time period. ![Line chart comparing Nasdaq‑100 index (blue) and Bitcoin price (brown) from 2020 to 2026, showing peaks and fluctuations over time.](https://clear-wealth.com/wp-content/uploads/sox1.jpeg "image-3png - Clear Wealth Planning Solutions") So what are the implications of this former market leader trailing off to the downside? Impressively, much of the rest of the broader market has picked up the upside slack. **New leaders**. A new set of sectors and industries are now driving the U.S. stock market higher in recent months. First among these are the utilities and real estate sector. Traditionally the staid performer often drifting toward the middle of the sector return grid, utilities shares have rallied virtually unabated for nearly three months now, having gained nearly +16% since early July. And interest rate sensitive real estate stocks have been marginally even more impressive with a similar upside advance over this same time period. ![Person in a hat and sunglasses raises a sign that reads '7000+ GO LIKE HELL' at a stadium, with 'Long May You Run' and GVA Asset Management branding visible.](https://clear-wealth.com/wp-content/uploads/sox2.jpeg "long-runjpg - Clear Wealth Planning Solutions") These sectors are not alone in helping to drive the S&P 500 to the upside in recent months. Consider the economically sensitive industrials and materials sectors, which are higher by +10% and +8%, respectively, since early July. Recession? What recession? ![](https://clear-wealth.com/wp-content/uploads/sox3.jpeg "iwp_log_69f9b6f31325d - Clear Wealth Planning Solutions") For those that are worried about recession risks, the more defensive consumer staples and health care sectors have logged their own impressive gains over the last few months with mid-to-high single digit gains. ![](https://clear-wealth.com/wp-content/uploads/sox4.jpeg "- Clear Wealth Planning Solutions") Then there is the interest rate sensitive financials sector, that is higher by +7% in recent months. ![](https://clear-wealth.com/wp-content/uploads/sox5.jpeg "Design the Roadmap - Clear Wealth Planning Solutions") Moving beyond stocks, we have also witnessed impressive gains in recent months from the long-term U.S. Treasury market as well as gold. ![](https://clear-wealth.com/wp-content/uploads/sox6.jpeg "Untitled Page - Clear Wealth Planning Solutions") **Breadth**. All of these developments are positive and constructive signs for a market looking to maintain its upward trajectory through the remainder of the year and into the next. One of the primary concerns dogging U.S. stocks for much of the last two calendar years has been the notably narrow market leadership, as it had been a select few stocks from the information technology, communications services and consumer discretionary sectors that were responsible for the lion’s share of the market gains. But over the last few months, we have seen a steady broadening of performance with more than 80% of stocks across the entire S&P 500 trading above their respective 50-day moving averages. ![](https://clear-wealth.com/wp-content/uploads/sox7.jpeg "Design the Roadmap - Clear Wealth Planning Solutions") Moreover, we have seen more than 64% of stocks in the S&P 500 outperform the headline index in 2024 Q3, which is a stark contrast to the roughly 20% to 30% of stocks that were outperforming the S&P heading into the quarter. **Bottom line**. Investors may be vocalizing concerns about the economic outlook and the potential for a recession looming on the horizon. But the good news is that financial markets are continuing to advance. And the even better news is that the breadth of performance supporting financial markets has seen some healthy broadening this quarter, which helps make recent gains more sustainable as we move into the final quarter of the year. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 636479-1** **Categories:** Insights --- ### [Economic & Market Report: Why The Fifty?](https://clear-wealth.com/economic-market-report-why-the-fifty/) **Published:** September 23, 2024 **Author:** Clear Wealth Planning **Excerpt:** The U.S. Federal Reserve still managed to deliver a surprise to markets this week. **Content:** **Steepening**. The U.S. Federal Reserve still managed to deliver a surprise to markets this week. While it had long ago become a forgone conclusion that the Fed would be lowering interest rates for the first time in more than four years since the onset of COVID, it upped the ante come press conference time by announcing a half point cut to the fed funds rate. This was a big move in contrast to the mantra of being deliberate and marginal with changes to monetary policy. So why the fifty point rate cut, and what are the implications for the markets as we move through the remainder of 2024 and into 2025? **Clear**. At first glance, the Fed’s decision to go 50 bps out of the gates may appear curious. It seems like an aggressive move, after all, given the current economic and market backdrop. Consider the following. The U.S. stock market is still setting new all-time highs. ![](https://clear-wealth.com/wp-content/uploads/Slide1-1.jpeg "cruising1jpeg - Clear Wealth Planning Solutions") The U.S. economy continues to expand at a healthy rate. ![](https://clear-wealth.com/wp-content/uploads/Slide2-1.jpeg "cruising2jpeg - Clear Wealth Planning Solutions") The unemployment rate has ticked higher over the past 18 months, it remains not far above historic lows. ![](https://clear-wealth.com/wp-content/uploads/Slide3-1.jpeg "Economic & Market Report: Cruising Altitude - Clear Wealth Planning Solutions") All of these factors signal an economy that is doing just fine and hardly the conditions that would suggest the Fed needs to go in for a double right out of the gates. **Clouds on the horizon**. Of course, it is important to remember that the Fed isn’t necessarily managing monetary policy for the economy right in front of its face today. Instead, just like the stock market will move today to price in outcomes it anticipates six to eighteen months down the road, so too is the Fed seeking to adjust interest rates now in anticipation of the economy it anticipates over the coming year and beyond. This element adds to the intrigue of the Fed’s decision to go bigger in cutting by a half point on Wednesday. With much of the economy seeming to be rolling along just fine today, what exactly might the Fed be seeing that the rest of us don’t know to cause them to move more aggressively? Do we have something more to worry about? The more likely answer to these questions is not crystal ball related. The Fed is very likely reading from the same playbook as the rest of us. It’s more likely that they wanted to make a statement out of the gates that they are serious about fighting any looming economic slowdown in finishing the job of bringing the U.S. economy in for a soft landing following the inflationary outbreak in recent years. **The primary downside risk**. This brings us back to the primary downside risk for financial markets that has loomed dating back for more than a year now. The Federal Reserve put their foot through the floor in jacking up interest rates back in 2022 and 2023 to fight the inflation fires. And since the second half of 2022, we have seen pricing pressures by a variety of measures peak and steadily decline since. But in the aftermath of the worst bout of inflation in the U.S. economy since the early 1980s, the threat has persisted that the inflationary fires might not only rekindle themselves but come back even worse. This after all, was the repeated dilemma that dogged monetary policy makers throughout the 1970s and into the early 1980s – cut monetary policy too soon in response to economic weakness and a new case of inflation comes back more scorching than it was before. Such is the risk confronting monetary policy makers today. At first glance, markets appear sanguine about future inflation prospects. The 5-year breakeven inflation rate remains at its lowest levels of the decade at a level just below the Fed’s target rate of 2%. ![](https://clear-wealth.com/wp-content/uploads/Slide4-1.jpeg "cruising-altitudejpg - Clear Wealth Planning Solutions") And the 10-Year U.S. Treasury yield continues to fall precipitously from its October 2023 and April 2024 highs, suggesting that the market is far more concerned today about the prospects of economic weakness ahead, not a renewed rise in pricing pressures. ![](https://clear-wealth.com/wp-content/uploads/Slide5-1.jpeg "Slide1jpeg - Clear Wealth Planning Solutions") These are reassuring signs suggesting the Fed has the flexibility to come out swinging with its initial round of rate cuts. Nonetheless, it remains critical in the weeks and months ahead to monitor inflation readings closely for any new pricing fires starting to burn. ![](https://clear-wealth.com/wp-content/uploads/Slide6-1.jpeg "Slide2jpeg - Clear Wealth Planning Solutions") For example, while headline CPI (blue line) continues to decline on an annualized basis, it is noteworthy that the Core CPI excluding food and energy (red line) recently ticked higher, albeit modestly. And while services inflation (green line) appears to have rolled back over after a renewed surge dating back to last year, the rent of shelter component of CPI (purple line) also recently ticked back higher. Single data points do not trends make. However, if we see inflation readings such as these starting to move sustainably higher in the months ahead, it may require the Fed to not only cease their dawning rate cutting cycle, but it may ultimately force them to resume raising interest rates. And both the stock and bond markets would not like that outcome one bit. **Bottom line**. The Fed is out of the gates strong with their latest monetary policy easing cycle with a half point rate cut. While the effort may reinforce the Fed’s recession fighting chops, it puts an added spotlight on the risk of renewed inflationary sparks that may eventually come as a result. This will be a key theme to watch in the months ahead. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 633379-1** **Categories:** Insights --- ### [Economic & Market Report: Careful What You Wish For](https://clear-wealth.com/economic-market-report-careful-what-you-wish-for/) **Published:** September 16, 2024 **Author:** Clear Wealth Planning **Excerpt:** The time has finally come.  At long last and following nearly two years of anticipation, the U.S. Federal Reserve is ready to begin delivering the interest rate cuts investors have longed for. **Content:** The time has finally come. At long last and following nearly two years of anticipation, the U.S. Federal Reserve is ready to begin delivering the interest rate cuts investors have longed for. While one could certainly quibble with whether starting into a rate cutting cycle today will be the wise move in the end with economic growth still strong and percolating inflation pressures still lingering beneath the surface, the fact is these rate cuts are almost certainly coming when the Fed emerges from its latest policy meeting on Wednesday, September 18. While stock investors may see this as the latest reason for wild optimism, history suggests that we should be careful what we wish for when it comes to Fed rate cuts. **Steepening**. Investors have been conditioned for the last 15 years to think that the Fed cutting interest rates is a good thing. Under the investor preface that “bad news is good news”, whenever the economy hit a minor pothole in the post Great Financial Crisis (GFC) period, the U.S. Federal Reserve would come rushing back in with policy easing including rate cuts if they were available and quantitative easing liquidity injections to keep the economy and its financial markets afloat. But it is important to highlight a key difference between the rate cutting cycle that we are about to enter into versus what a whole generation of investors have come to know over the last decade and a half. For the many years since the GFC, the Treasury yield curve, which is the difference between long-term yields in the 10-year U.S. Treasury yield and short-term yields in the 3-month Treasury yield, was consistently steep. This signaled that were consistently in a phase of economic recovery and growth, albeit chronically slow and sluggish, coming out of the GFC. Put simply, markets had already ingested its monetary policy medicine in the form of aggressively easy monetary policy in response to the GFC, and it was slowly on the mend in the years since. This is in sharp contrast to what we are entering into today. The outbreak of the scorching case of inflation earlier this decade finally broke the post-GFC economic malaise fever, and the Fed was forced to finally raise interest rates aggressively off of the zero bound to as high as 5.50%. This led to an inverted yield curve where investors were getting paid more in yield for owning T-Bills paid back to them in 3-months than the yield from loaning money to the U.S. government for 10-years. This is an unusual circumstance (usually investors get paid a “maturity premium” for having to wait longer to receive their money back) that has happened in the past but only under specific circumstances. When has this taken place? In the time period not long before descending into economic recession. ![](https://clear-wealth.com/wp-content/uploads/careful1.jpeg "iwp_log_67585b1e4ab93 - Clear Wealth Planning Solutions") The chart above shows the seven past instances over the last 60 years when we have had a similarly inverted yield curve. One point is immediately evident when examining these past periods. In each of the last seven instances when the yield curve shifted from inverted to steepening, which results from the Fed cutting interest rates and bringing down the short end of the curve, the U.S. economy subsequently descended into economic recession. The economy receiving its monetary medicine to combat recession is shown by the gray shaded areas on the chart. **Rock climbing**. The second impact from these yield curve steepening periods is likely much more relevant to stock investors. Yes, the Federal Reserve is about to start injecting a big dose of liquidity to boost the economy with feed through effects to financial markets. But history has shown that the stock market initially struggles with the adjustment to the reality of an economic slowdown before it finds its footing and resumes rising on the wave of recovery. And this historical fact from the pre-GFC period is seemingly being overlooked by many investors as we enter into the next dramatic steepening phase. Consider the following. During each of the last seven episodes when the Treasury yield curve sharply steepened, the US stock market subsequently descended into a peak to trough decline of -28% on average, which is full fledged bear market territory. With the exception of the COVID crisis that was truncated by the massive deluge of emergency liquidity that played a meaningful part in the subsequent inflation that followed, the average duration of these past yield curve steepening bear market episodes was 18 months. In short, history has shown that when the Fed finally gets to the point where it is cutting interest rates, an extended period of stock market indigestion typically follows before the liquidity euphoria of higher stock prices finally takes hold. **Quickdraws**. The latest upcoming phase of yield curve steepening could certainly be different. After all, we’ve seen a lot of unprecedented market reactions in recent years versus historical norms. But suppose a long overdue period of stock market turbulence lies ahead. What are ways that investors can successfully traverse such an environment? The first is the diversification that comes from asset allocation. Many asset classes outside of stocks have historically performed particularly well during these yield curve steepening periods. These include long-term U.S. Treasuries and precious metals including gold, both of which have a historical track record of posting impressive gains during these same periods. An important key for these categories is whether inflationary pressures can remain in check as the Fed cuts interest rates and the yield curve steepens. The next is the composition of stock allocations. Stock market sectors that have historically struggled during these past yield curve steepening episodes happen to be the same sectors that have been skyrocketing to the upside over the past year. These include information technology in general and semiconductors in particular. Communications services and consumer discretionary have also historically been hit more directly during these periods. So what sectors historically perform relatively well during these periods of yield curve steepening? The more defensive and countercyclical sectors of consumer staples, health care and utilities. Dividend growers and those with wide economic moats and pricing power perform particularly well during these more challenging periods. **Bottom line**. Long awaited interest rate cuts are finally arriving at an economy and investment market near you. While investors may perceive the start of this new phase as good news, history has shown that it can be anything but for the more speculative stock investors among us. Now is arguably a time more than most where investors may be well served to reevaluate their current allocations and reaffirm their dedication to a broadly diversified long-term investment plan. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 629447-1** **Categories:** Insights --- ### [Economic & Market Report: Elections](https://clear-wealth.com/economic-market-report-elections/) **Published:** September 16, 2024 **Author:** Clear Wealth Planning **Excerpt:** It’s time again. Much like the Olympics and the FIFA World Cup, it’s an epic event that comes once every four years. It is U.S. presidential election season. **Content:** It’s time again. Much like the Olympics and the FIFA World Cup, it’s an epic event that comes once every four years. It is U.S. presidential election season. And now that Labor Day weekend is behind us with less than nine weeks remaining until Election Day on Tuesday, November 5, the focus and attention on politics and the markets is kicking into high gear. So what should we reasonably anticipate for the economy and markets as we move through the final weeks until Election Day and beyond? **Perspective.** An important point is worth emphasizing before going any further with the discussion of presidential politics and its impact on the economy and financial markets. We’re going to hear a lot of hyperbolic rhetoric in the coming weeks from both sides of the political aisle about the implications on the economy and markets from who wins or loses the presidential election. But here’s the thing. The U.S. economy is a beast. It is absolutely huge and it’s going to do largely what it’s going to do regardless of who might or might not occupy the White House. It is so much bigger than any one person, even a person with the power of the presidency. And the same is true of the financial markets that reside within the U.S. economy. Can a president make differences on the margins of the economy – push things a little bit here, pull them a little bit there? Absolutely. But they can only do so much when it comes to the economy and markets. Instead, I would argue that the Chair of the U.S. Federal Reserve is FAR more influential in this regard than any person or party that sits behind the resolute desk. Another point is equally important when considering the upcoming election. So much focus will be on the U.S. presidential contest, but it is only one of the three contests that matter at the end of the day. Also up for grabs on Election Day is control of the U.S. Senate and U.S. House of Representatives. What is being decided from an economic and markets perspective is what party is setting fiscal policy, which plays a role in influencing the economy and markets *on the margins* as indicated above. And the executive branch in the presidency can only execute the laws that have been legislated by the Senate and House. Put simply, the outcome of all three elections is more important from an economic and market perspective than any one outcome in isolation. **Gridlock.** As we continue our descent toward analyzing the implications of the upcoming election, another key point merits discussion. When it comes to financial markets, what they hate most is uncertainty. Once investors know an outcome with certainty, they can model against it and invest accordingly. And this includes fiscal policy coming from the government. As a result, if the election result leads to gridlock where both parties win at least one of the three elections – presidency, Senate, House – the markets actually tend to like this outcome best. Why? Because it means that the U.S. government is less likely to do anything from a fiscal policy standpoint to which investors have to adjust. The more cynical among us might even put it that investors like split government in Washington because it means they won’t be able to do anything to screw things up for markets. As a result, as we evaluate the potential outcomes of the upcoming election in early November that includes the U.S. presidency as well as the Senate and House, we will look at each in terms of what party is likely to win each contest and what that means in aggregate. Instead of getting into the policy weeds like what candidate says they’re going to be the one to put the proverbial soda machine in the lunchroom, we will focus simply on what the data is telling us as we draw closer to Election Day. **U.S. Senate**. Of the three upcoming contests, the U.S. Senate contest arguably has the most certainty in terms of its outcome. The Democrats currently control the 100 seat U.S. Senate with 47 seats being held by the party along with the four independents that caucus with the Democrats (think Bernie Sanders (VT) and Joe Manchin (WV)) and the Vice President as the added tie breaking vote. In short, Democrats control the Senate with a 51+VP majority versus the GOP at 49 seats. In other words, they only have one seat to lose at most, and that assumes they are able to win re-election to the execute branch. Looking forward, control appears likely to shift to the Republicans coming out of Election Day in November. Simply using one of many major election forecasting sources, the Decision Desk HQ and The Hill is predicting that the GOP has a 70% probability of taking control of the U.S. Senate. And I would contend that the probability in reality is actually even higher. Why is the Senate outlook so challenging for the Democrats in November, particularly when they currently have the majority? It comes down to the reality of math. Given that senators serve 6 year terms, only one-third of the Senate comes up for re-election every two years. And when examining the 34 of 100 senate races that are up this cycle, 23 of these seats are currently held by Democrats or Independents versus only 11 for Republicans. Moreover, of the 23 seats that Democrats have to defend to keep their one plus VP majority in the Senate, eight are in states with an underlying electorate that currently leans Republican to varying degrees. For example, Bob Casey is the senator from Pennsylvania that is up for re-election this cycle in a state that ranks R+2 in the Cook Partisan Voting Index (PVI). By comparison, none of the 11 GOP seats up this cycle are in states with a Democratic leaning electorate. Let’s look deeper at these eight states with Democratic senators and Republican leaning electorates. The good news for Democrats is that they are currently projected to continue to hold these seats in five out of the eight contests. Thus, control of the U.S. senate comes down to three particular contests. The bad news for Democrats is that one of these three remaining seats is all but certain to flip to the Republicans, as retiring former Democratic and currently Independent senator Joe Manchin (there’s a reason he switched from Democrat to Independent in recent years) is exiting a seat in West Virginia that is now R+22 according to the Cook PVI. Current polling strongly favors the Republican candidate flipping this senate seat in November. This brings us to the key race to watch as we enter into peak election season over the remaining nine weeks. Jon Tester is the Democratic senator from Montana that is up for re-election in a state that ranks R+11 on the Cook PVI. The race remains too close to call, but GOP candidate Tim Sheehy currently has 73% odds of flipping the seat come election day according to Decision Desk HQ. If Democrats lose this Montana senate race, the GOP will almost certainly control the U.S. Senate for the next two years. But even if the Democrats prevail in Montana, they also need to win the third seat in this group in Ohio. Democratic incumbent Sherrod Brown currently leads in the polls and has a 62% probability of winning re-election. So putting this all together, the key race to watch in determining what party is likely to control the U.S. Senate is Montana. Keeping an eye on Ohio as a second race is also worthwhile, but if Ohio starts to fall into the flip category, this likely means that Montana would have also moved further into the GOP category. **Presidency**. What a difference two months make. If the election were held in early July, the probability for the GOP to retake control of the White House was very high. But since Vice President Harris replaced President Joe Biden at the top of the Democratic ticket, probabilities have shifted dramatically. Today, the Democrats now have a 56% probability of keeping the White House according to Decision Desk HQ, and VP Harris now leads in the aggregate popular vote polls by more than 3%. Of course, as the 2000 and 2016 elections taught us (same with the 1876 and 1888 elections for those that remember back that far), the winner of the U.S. presidency need not win the popular vote, as instead it’s only the electoral vote that matters. It’s about who wins the most electoral votes from each state, and in this regard the race for the U.S. presidency remains too close to call. As we start into peak election season, seven states warrant the most attention in deciding who will win the election. These are Arizona, Nevada, Georgia, North Carolina, Pennsylvania, Michigan, and Wisconsin. And when we break these states down even further, Trump is currently considered more likely to win in North Carolina, Georgia, and Arizona, while Harris is currently favored to win in Michigan, Nevada, Wisconsin, and Pennsylvania. Put simply, the presidency remains fully up for grabs. And if we needed to pick one state above all others that is worth watching as we start into peak election season, it is Pennsylvania. More than any other state, whoever wins Pennsylvania gains a meaningful increase in their probability of winning the overall election. Thus, watching state polling out of PA is just as important if not more so than monitoring the national polls. Another state worth keeping at the top of the radar screen is Arizona, which is arguably the second most competitive state in the contest at present. **House**. The race for control of the U.S. House of Representatives is arguably the most competitive of them all at present. The GOP maintains a razor thin majority heading into the next election, so it is the Democrats that are facing a marginally up hill battle as they need to pick up a handful of seats to regain control. At present, the Republicans have a 56% probability of maintaining control of the House according to Decision Desk HQ. This is a race that we will likely revisit in more detail as we draw closer to Election Day. In the meantime, three particular House races warrant the closest attention in seeking to determine which party will have control come early November. These are California 13, Michigan 7, and Oregon 5. If either party is set to sweep these three races, it implies a meaningfully greater probability that they will control the House in the process. **Sweep**. So let’s put this all together. We know the economy and markets like gridlock, but a sweep scenario can also be cheered by investors if it thinks its going to get policy prescriptions that are supportive of the markets. One has to look no further than the market reaction in the wake of the GOP sweep coming out of the 2016 election, as the promise of corporate tax cuts in a chronically low inflationary environment with a steady flow of liquidity from the U.S. Federal Reserve sent stocks flying to the upside for the next year afterward. Of course, markets could also scorn the potential policy subscriptions as well depending on what they may be. Let’s take a look at the probabilities for each outcome. Based off of the Decision Desk HQ probabilities, we have a 76% probability for split government in Washington, thus the gridlock scenario where each party wins at least one of the three elections. Of the remaining 24%, the GOP holds a 17% probability of a sweep win of the presidency, the Senate, and the House, while the Democrats have a scant 7% chance of pulling off the sweep. In other words, the GOP sweep scenario appears far more likely at this point than the Democratic three-fer. With this in mind, it is worth considering the potential upside and primary downside risk associated with a GOP sweep in November since it is the more likely of the two outcomes. Stocks may cheer a GOP sweep in 2024 the same way they did in 2016, as such an outcome would likely bring lower taxes and other market favorable legislative goodies over the next two years. The potential also exists, however, that markets could recoil at such an outcome. Why? Because unlike 2016, we are still mired in an economy that is gradually making its way out of a scorching inflation problem over the last few years. While the headline and core inflation rates have come back to earth and inflation expectations remain in check, services inflation continues to run hot. And if we enter into an environment where a lot of fiscal policy stimulus is about to get poured in the economy that could reignite inflationary pressures, both stocks and bonds might start to rebel. The same could also be true if investors start to perceive that the independence of the U.S. Federal Reserve and their ability to heed the lessons of the 1970s comes under pressure where repeatedly cutting interest rates too soon and too aggressively caused even worse inflationary problems at the time. The first place to look to determine whether these risks start to worry investors will be the U.S. Treasury market and the direction of the 10-Year Treasury yield, as higher yields would be an early signal of such concerns. **Bottom line**. Peak election season is now underway. And now that we have set the table, we will be monitoring the changing tides in the coming weeks between now and Election Day in working to determine how the outcome of each of the three key elections will impact fiscal policy expectations and the associated impact on the economy and financial markets. Even if these influences are only on the margins, they are still worth monitoring in understanding the policy backdrop for markets over the next two years. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 625829-1** **Categories:** Insights --- ### [Economic & Market Report: NVIDI-yeah!](https://clear-wealth.com/economic-market-report-nvidi-yeah/) **Published:** September 3, 2024 **Author:** Clear Wealth Planning **Excerpt:** Mega cap technology titan Nvidia posted earnings after the bell on Wednesday.  The company vastly exceeded stated analysts’ expectations both on the top line and the bottom line. **Content:** Mega cap technology titan Nvidia posted earnings after the bell on Wednesday. The company vastly exceeded stated analysts’ expectations both on the top line and the bottom line. It also announced a new $50 billion stock buyback program (in other words, they are buying back their own stock at the equivalent value of the 188th largest company by market cap in the United States – they could buy Ross Stores in its entirety for the cash amount they are spending to buy back their own stock). Despite obliterating their numbers, the stock fell more than -7% in after hours trading following their latest announcement (apparently the whisper numbers were expecting even greater excellence, such is the peril of being priced for perfection). But the bigger story than the Nvidia stock price reaction is what this headline stealing report further confirms about corporate earnings and the underlying market backdrop. Put simply, there is a lot to like. **Yeah!** A typical corporate earnings season is marked by the following pattern. Analysts typically set the bar high for earnings expectations in advance of the quarter, as it helps to justify higher current valuations. But once the earnings season officially begins, the actual earnings number along with the outlook for the next quarter or two usually get revised lower – in short, the anticipation of the future often overstates what eventually comes to pass in the present. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "iwp_log_673c684b61c1e - Clear Wealth Planning Solutions") But not so this earnings season. Instead, we have seen both current reported earnings for 2024 Q2 come in vastly better than expected, but the earnings outlook for the next few quarters has been revised meaningfully *higher*. Now I know economists and market watchers are wringing their hands about a looming recession in the months ahead, but historically you don’t see these types of aggressive upward revisions in earnings expectations on the brink of an economic slowdown. And now that the U.S. Federal Reserve has all but committed to start lowering interest rates at their next FOMC meeting in a few weeks, this is bound to provide even more fuel to support earnings growth in the months ahead. This is good stuff for stock prices. **Supportive signals**. Several key indicators provide added support for a favorable market outlook in the months ahead. First, CCC-rated and lower high yield corporate bond spreads relative to U.S. Treasuries, which is a good measure of the supportive speculative activity and liquidity conditions in the marketplace, remains favorable. After briefly spiking above 10% at the start of August, CCC-rated spreads have fallen back below 9.5% and remain well above the peaks from 2022 and early 2023. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "iwp_log_673cca55b109b - Clear Wealth Planning Solutions") Broader inflation expectations, which remains among the biggest downside risks for markets as we continue through the remainder of 2024, have fallen all the way back to the Fed’s post financial crisis targeted level of 2%. Inflation remaining in check is huge for corporate profitability and wider profit margins, which in turn is good for stock prices. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "time1jpeg - Clear Wealth Planning Solutions") Next is the banks. During the inflation spike of 2022 and subsequent banking system instability in early 2023, the percentage of banks that were tightening lending standards had soared to over 50%, which was the highest level since the depths of the COVID crisis as recently as 2023 Q3. But since that time, the percentage of banks that are still tightening lending has faded dramatically. For example, the latest quarter saw the percentage of banks cutting back on lending activity falling to less than 8%. The fewer banks tightening lending standards, the more capital is readily available for businesses to fund growth and increase revenues and profits, which in turn supports higher stock prices. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "time2jpeg - Clear Wealth Planning Solutions") These are just a few of the constructive signals supporting a U.S. stock market that is once again pressing toward new all-time highs. **Stimulating**. So who in the stock market is benefiting from these positive trends? Lately, it has not been the usual suspects, which is arguably a good thing. For quite a while now, market leadership has been dominated by technology in general and semiconductors in particular. This was resulting in a historically unprecedented degree of market concentration where only a select few names were responsible for the vast majority of the overall market gains. But since the start of the third quarter, tech in general and semiconductors in particular are meaningfully lagging the S&P 500. ![](https://clear-wealth.com/wp-content/uploads/Slide5.jpeg "Economic & Market Report: It Takes Time - Clear Wealth Planning Solutions") Instead, market leadership has come from long forgotten sectors such as consumer staples, health care, financials, real estate, and utilities. Overall, each of these sectors are outperforming the headline S&P 500 this quarter by as much as two to three times. This broader distribution of stock market gains is resulting in a broad 76% of stocks currently trading above their respective 50-day moving averages and a much higher than before 36% of stocks within the S&P 500 now outperforming the broader index (still a far cry from the typical 49%, but progress from the 21% reading we were seeing not that long ago). ![](https://clear-wealth.com/wp-content/uploads/Slide6.jpeg "takes-timejpg - Clear Wealth Planning Solutions")**Bottom line.** The S&P 500 has returned to wrangling for new all-time highs. And the recent stock price insurgence has come with a wealth of positive economic and fundamental reading to support these renewed gains. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 620732-1** **Categories:** Insights --- ### [Economic & Market Report: August & Everything After](https://clear-wealth.com/economic-market-report-august-everything-after/) **Published:** August 28, 2024 **Author:** Clear Wealth Planning **Excerpt:** The sudden and sharp stock market correction that marked the beginning of August has quickly become a distant memory. **Content:** The sudden and sharp stock market correction that marked the beginning of August has quickly become a distant memory. Elevator down, elevator back up with the S&P 500 having gained in 10 out of the last 12 trading days and once again pushing new all-time highs in the process. What can we reasonably expect from capital markets as the summer starts to wane and the leaves on the trees start to turn in the fall. **Risks**. Is the stock market still exposed to the risk of a measurable short-term correction? Absolutely. Despite briefly letting off some steam at the start of August, the S&P 500 is once again back to trading well above its long-term trendlines as measured by its 50-day (blue), 200-day (red), and 400-day (pink) lines in the chart below. ![](https://clear-wealth.com/wp-content/uploads/Slide1-2.jpeg "heat2-1024x768jpeg - Clear Wealth Planning Solutions") We could see as much as 1000 points come off the S&P 500, or roughly -17% lower from current levels, and the market would still be in an uptrend. That’s how far ahead of itself the market has been running since the lows from last Halloween. This raises an important point – short-term corrections, even if they are meaningful, are a part of a healthy long-term bull market. So even if we see more than -10% come off the market over a two to eight week period in the coming months, it would still be in the context of a market that is still striding boldly higher. **Rewards**. So how can we be so sure that any such short-term correction isn’t the start of something more meaningful to the downside? Underlying circumstances can certainly change, and we monitor market conditions on a daily basis for any changes in the tides. But the good news is that underlying market fundamentals remain highly favorable on a variety of fronts. First, the U.S. economic growth outlook remains solid despite the ongoing concerns about an economic slowdown in the months ahead. This is highlighted by the latest forecast from the Atlanta Fed GDP Now, which continues to project a steady +2% economic growth clip for the current quarter. This is the type of ongoing growth rate that is supportive of a healthy market and corporate earnings outlook. ![](https://clear-wealth.com/wp-content/uploads/Slide2-2.jpeg "heat3-1024x768jpeg - Clear Wealth Planning Solutions") About corporate earnings, this more than anything else is the key fundamental driver for higher stock prices. And the good news is that coming out of the latest earnings season for 2024 Q2, the corporate earnings growth outlook was revised measurably higher, providing even more fuel for higher stock prices. Not only are year-over-year as reported corporate earnings set to rise by +10% once the current earnings season officially draws to a close, but earnings growth for the remaining two quarters of the year in 2024 Q3 and Q4 are set to increase at an annualized +12% rate. Double-digit annual earnings growth is historically a great catalyst for higher stock prices. ![](https://clear-wealth.com/wp-content/uploads/Slide3-2.jpeg "Economic & Market Report: The Heat Is On - Clear Wealth Planning Solutions") What about that primary downside risk for stock prices that we have been preaching for more than a year now in the form of a renewed rise in inflation? The good news for stocks is that inflationary pressures continue to fade from the peaks that we saw roughly two years ago now. This is true both on a headline (blue) and core (red) basis in the chart below. And even the services inflation (green) that has been lingering on the risk radar screen for months now appears to have peaked and is starting to roll back over. These waning inflation pressures are not only good for the economy and stock prices, but they provide the U.S. Federal Reserve with increasingly flexibility to inject even more liquidity in support of financial markets in the form of rate cuts, of which as many as three to five are anticipated by the market between now and the end of the year. ![](https://clear-wealth.com/wp-content/uploads/Slide4-1.jpeg "heatjpg - Clear Wealth Planning Solutions") **Bottom line.** Could we see another sharp stock market correction in the months ahead? Certainly, as the market has been running hot for many months now. But it remains important to keep in mind that short-term corrections, even double-digit corrections, are a natural part of long-term bull markets. And as head toward the end of August and the months to follow after, the good news is that the economic, earnings, and inflation outlook remain increasingly supportive of higher stock prices beyond any short-term market pressures we might face. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 619380-1** **Categories:** Insights --- ### [Economic & Market Report: Hidden Gems](https://clear-wealth.com/economic-market-report-hidden-gems/) **Published:** August 19, 2024 **Author:** Clear Wealth Planning **Excerpt:** The stock market dominates the headlines, and understandably so.  The S&P 500 has been a stellar performer for years, and the last nine months last year have been no exception, having surged as much as nearly +40% trough to peak since late October.  **Content:** The stock market dominates the headlines, and understandably so. The S&P 500 has been a stellar performer for years, and the last nine months last year have been no exception, having surged as much as nearly +40% trough to peak since late October. But while stocks own the spotlight, other key unsung asset classes have also been performing their roles admirably in recent months. **Stocks**. First, a quick update. It was less than two weeks ago that global capital markets were suddenly rattled by the unwind of the yen carry trade. Although stocks were already descending from their July 16 peak, a sharp three day sell-off on August 1, 2, and 5 saw the S&P 500 plunging more than -8%. Normally when stocks bottom following such a sharp sell-off driven by an mechanical investment market shake up, they typically swing back and forth in the subsequent days, as fierce rebounds are mixed with sudden and sharp downside reversals as institutions that were caught offsides on a trade gone wrong but weren’t forced to sell in the initial outbreak work to find their way to the exits in these positions to reduce downside risk exposure. But what we have seen in the days since last Monday has been anything but. Instead, the S&P 500 has rallied smartly in seven out of the last eight trading days since the Monday lows (the headline index did roll over once last Wednesday, but that’s about it). This is an impressive recovery from what looked like a perilous state for stocks just over a week ago and highlights how resilient today’s market remains even in the face of economic, financial, and market pressures. This bodes well for potential continued equity market gains in the months ahead through Thanksgiving. ![](https://clear-wealth.com/wp-content/uploads/Slide1-1.jpeg "iwp_log_670d563b99293 - Clear Wealth Planning Solutions") Could we see some consolidation in the coming days following the recently strong advance? Absolutely, particularly as the S&P 500 has rebounded so quickly and has blasted its way back above its 50-day moving average in the process. But even if we see any short-term consolidation, the path of least resistance for stocks continues to be to the upside. **Bonds**. If you were a stock investor at the start of August, you may have found yourself internally freaking out for a minute or two as stock prices cut sharply to the downside. But if you were a bond investor during this same time period, you likely had good reason to be thrilled with how your portfolio was responding, as the investment grade segment of the fixed income market was registering solid gains as equities were cascading to the downside. Leading among these was long-term U.S. Treasuries, which rallied more than +3% as the S&P 500 was falling by more than -8%. Such is the diversification benefit provided by the bond market in certain market environments. Notably, the spurt of long-term Treasury outperformance to start August is nothing new. In fact, if one went back to late April of this year, we see that the long bond is higher by more than +12% versus the S&P 500 that has gained just +8% over this same time period. This is recent leadership that flies under the surface in today’s stock dominated marketplace. ![](https://clear-wealth.com/wp-content/uploads/Slide2-1.jpeg "rek1jpeg - Clear Wealth Planning Solutions") Perhaps more importantly, we have seen an important technical development suggesting further upside for bonds going forward. Overlooked during the stock market plunge at the start of August was arguably a more notable plunge in the 10-Year U.S. Treasury yield (as yields fall, bond prices rise, so this was a notably good thing for bond investors). In the process, the 10-Year Treasury yield fell below its ultra long-term 400-day moving average. Why is this notable? Because a move across this particular trend line historically marks a major change in trend. For example, when the 10-Year U.S. Treasury yield last moved above its 400-day moving average in February 2021, this coincided with the very beginning of the inflationary outbreak that not only saw yields spike as high as 5% but the U.S. stock market fall into a bear market a year later. Thus, the fact that the 10-Year yield has fallen below this key technical level signals investor conviction that the inflation battle is largely over and that focus is turning toward the long anticipated Fed rate cuts finally starting to come to pass. **Gold**. Another more specialized category in the asset allocation mix that has been registering stellar returns for quite some time now is gold. With inflationary pressures seemingly continuing to ease and the U.S. Federal Reserve poised to start lowering interest rates as soon as September, the gold market has been glistening for some time now. ![](https://clear-wealth.com/wp-content/uploads/Slide3-1.jpeg "rek2jpeg - Clear Wealth Planning Solutions") In fact, if one looks back over nearly the past year since early October, we see that gold has actually outperformed the S&P 500, registering a 35% return outperforming the S&P 500 by more than three percentage points. Not too shabby for a barbarous relic. **Bottom line**. While stocks dominate the spotlight, it’s worth noting the strong performances from the supporting cast. And this includes both bonds and gold, which have been delivering in their own right along with the diversification benefit of lowering overall portfolio risk. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 616854-1** **Categories:** Insights --- ### [Economic & Market Report: Embrace the Ides of July](https://clear-wealth.com/economic-market-report-embrace-the-ides-of-july/) **Published:** August 5, 2024 **Author:** Clear Wealth Planning **Excerpt:** The U.S. stock market is on the retreat. After peaking in the middle of July at 5669 on the S&P 500, U.S. stocks have fallen by as much as -5%. **Content:** The U.S. stock market is on the retreat. After peaking in the middle of July at 5669 on the S&P 500, U.S. stocks have fallen by as much as -5%. How much further should we expect the market to decline in the coming weeks, and is this recent weakness a cause for concern as we continue through the second half of 2024. **Healthy**. The first key point to emphasize is that short-term stock market corrections are a healthy part of longer term bull markets. Stocks do not move in either direction in a straight line, but instead typically oscillate in a “two steps forward, one step back” manner for an extended period. And following a phenomenal run dating back to last October and more recently since mid-April with notably low price volatility, U.S. stocks have been long overdue for some sort of pullback. As a result, the recent weakness since mid-July should come as no surprise, as it shows that investor willingness to take some gains off the table as they load up for the next move to the upside. **Retreat**. Nonetheless, today’s market is in retreat. Although it has fallen as much as -5% since mid-July, it remains solidly above its lows from July 25 through Thursday’s close. Perhaps more importantly, the S&P 500 continues to hold support at its medium-term 50-day moving average (blue line in the chart below), which is a constructive sign in support of the idea that any current market pullback may be short lived. **![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Economic & Market Report: Knock Your Sox Off - Clear Wealth Planning Solutions")** With that said, some notable short-term challenges remain for the market to overcome before making its next charge to the upside. First, with its recent decline, the S&P 500 has broken below its upward sloping trendline dating back to Halloween. It has only been a recent and modest trend break so far, however, and the market is showing resilience in working to regain this support level. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "iwp_log_66fd5a8ca50bf - Clear Wealth Planning Solutions") Next, the S&P 500 broke decisively below its short-term 20-day moving average (dotted green line in the chart below) back on July 24 and has remained stuck below this level in the seven trading days since. Breaking back above this short-term resistance currently around 5538 on the S&P 500 will be key in resuming the advance to the upside. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "iwp_log_66fd5a91a16cf - Clear Wealth Planning Solutions") **Charge**. Amid these signs of short-term weakness and consolidation are arguably greater causes for constructive optimism. Consider some of the following. First, inflation expectations remain fully in check, market liquidity conditions remain favorable, and investors continue to exhibit risk tolerance, which are all favorable signals for a continued market advance in the months ahead. Second, markets are maintaining meaningfully increased breadth despite pulling back in recent weeks. A primary concern associated with the market advance particularly since mid-April was the extreme concentration. By early July, only 40% of stocks in the S&P 500 were trading above their 50-day moving average and only 21% of stocks were outperforming the headline index despite U.S. stocks trading at all-time highs. Put simply, this is extraordinarily narrow concentration for a market in such a strong advance. Despite falling back by as much as -5% in recent weeks, between two-thirds and three-fourths of stocks on the S&P 500 are now trading above their respective 50-day moving averages and more than 35% of stocks are now outperforming the S&P 500 index. This is a meaningful and healthy broadening of market performance in recent weeks, which is positive. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "iwp_log_67044d2aaf28b - Clear Wealth Planning Solutions") Third, the corporate earnings outlook has actually improved as we make our way through the second half of second quarter earnings season. Earnings growth on the S&P 500 is now set to increase by more than +10% on an annualized year-over-year basis through the remainder of 2024, which is a measurable improvement from the high single digit earnings growth forecasts heading into earnings season. This bodes well for the longer term bull market to continue, as corporate earnings growth is a primary driver of stock market gains. Lastly, just as stock market gains were highly concentrated in the technology sector during the spring and early summer, so too have stock market declines been concentrated in technology in recent weeks. For while the information technology sector at down -10% to date since July 16 has meaningfully underperformed the S&P 500 at -4%, many stock market sectors have scored solid gains over this same time period. This includes utilities up nearly +6%, real estate higher by more than +3%, and both consumer staples and health care higher by +1%. So even while the headline index may be lower, many segments within the index are moving higher, which is a positive sign. ![](https://clear-wealth.com/wp-content/uploads/Slide5.jpeg "iwp_log_67044d2f7db05 - Clear Wealth Planning Solutions") **Bottom line**. Semiconductor stocks have fallen into correction over the past couple of weeks, which have pulled the broader market lower. This pullback may ultimately prove fleeting as it did back in April, but even if the chip dip becomes more prolonged, it’s important to remember that many market segments may continue to perform well underneath the surface. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 610826-1** **Categories:** Insights --- ### [Economic & Market Report: Chips & Dip](https://clear-wealth.com/economic-market-report-chips-dip/) **Published:** July 29, 2024 **Author:** Clear Wealth Planning **Excerpt:** Technology stocks have been a force behind capital market gains for nearly a decade. **Content:** Technology stocks have been a force behind capital market gains for nearly a decade. And for more than a year, the semiconductor industry in particular has been the market darling inspired by artificial intelligence dreams. But following relentlessly impressive gains, chip stocks have suddenly fallen on hard times. Is this a long awaited dip in chip stocks for investors to capitalize, or is this the beginning of a broader market shift? Let’s take a closer look. **Breakdown**. The first important point for investors waiting for a dip in chips is that the sector overall is breaking down from a technical analysis perspective. ![](https://clear-wealth.com/wp-content/uploads/1.jpeg "Slide1-1jpeg - Clear Wealth Planning Solutions") It’s worth noting that chip stocks as measured by the Philadelphia Semiconductor Index (SOX) have nearly doubled since Halloween. Along the way, the SOX has found repeated support at its upward sloping 50-day moving average (blue line in chart above). But on Wednesday and Thursday of this week, the SOX broke decisively below this key support level and continued further below its upward sloping trendline dating back to last October. This suggests that further downside might lie ahead for chip stocks going forward. Now it is worth noting that we saw a similar technical breakdown back in April, as the SOX broke decisively below its 50-day M.A. mid-month and grinded until early May before reclaiming this key support level. Thus, it is far too early to draw any long-term conclusions related to the recent break in technical support. Monitoring how chip stocks respond through next week will be important in determining whether the recent correction is short lived. In the meantime, semiconductor stocks are already down more than -17% from their highs from just two weeks ago, and the next key support level for chip stocks is another -10% lower from current levels and nearly -25% below recent highs. Even if the SOX were to fall back to its 200-day moving average support, this would only bring chip stocks back to levels that would have been all-time highs as recently as January. This is how elevated chip stocks have become. **Blowing the diode**. Another challenge increasingly confronting chip stocks even after the latest dip is valuations. Historically, semiconductor stocks have traded at a discounted valuation both on an absolute basis as well as relative to the broader market. For example, throughout the 2010s, semiconductor stocks traded at a composite forward price-to-earnings ratio in the 10x to 15x range. This typically discounted valuation highlights not only the higher risk associated with owning chip stocks, but also the extreme cyclicality and economic sensitivity associated with the industry. So where are chip stocks collectively trading today? Semiconductor stocks are currently trading at a forward P/E multiple north of 30x earnings. This is as rich as chip stocks have been in a quarter century, which suggests that the risk-reward for this recently high flying segment of the market is tilted to the downside at this stage even if they manage to find their footing and rebound to the upside in the short-term. **A market of stocks**. The recent weakness in technology stocks in general and semiconductor stocks in particular have dragged measurably on the broader market. Since July 11, for example, tech stocks are lower by double-digits led by chips to the downside. This has resulted in the broader S&P 500 falling by more than -4% over this same time period. ![](https://clear-wealth.com/wp-content/uploads/2.jpeg "Slide2-1jpeg - Clear Wealth Planning Solutions") Despite this broader weakness, it’s important to remember that the stock market is a market of stocks. Just because one or two major segments of the market that have been leading to the upside suddenly falter, this does not mean that many other sectors within the market are not performing well. To this point, since July 11, the energy sector has advanced by +3%, health care stocks are higher by +2%, utilities have advanced by +1.5%, and consumer staples are up nearly +1%. All of these major sector gains have come at a time when the broader market is solidly lower. **Bottom line**. Semiconductor stocks have fallen into correction over the past couple of weeks, which have pulled the broader market lower. This pullback may ultimately prove fleeting as it did back in April, but even if the chip dip becomes more prolonged, it’s important to remember that many market segments may continue to perform well underneath the surface. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 608716-1** **Categories:** Insights --- ### [Economic & Market Report: Rhymes of History](https://clear-wealth.com/economic-market-report-rhymes-of-history/) **Published:** July 22, 2024 **Author:** Clear Wealth Planning **Excerpt:** History does not repeat, but it sure can rhyme. We are heading into the prime of the political election season, and with the various speeches and pontifications from our leading candidates comes statements that end up having meaningful market consequences. **Content:** History does not repeat, but it sure can rhyme. We are heading into the prime of the political election season, and with the various speeches and pontifications from our leading candidates comes statements that end up having meaningful market consequences. The latest such example came this week, but it’s not the first time we’ve seen such market swaying events. What, if anything, can we take away from recent past episodes? “Taiwan should pay us for defense”. Republican presidential candidate Donald Trump, who is currently leading in the polls with the election four months away, shared this sentiment when sitting for an interview with Bloomberg Businessweek this week. Semiconductor stocks were sent reeling to the downside on Wednesday and Thursday following these remarks. Why? Because Taiwan is essentially the global epicenter of the semiconductor industry, and it remains under looming threat of China seeking to reclaim full control of the island the same way they swept into Hong Kong a few years ago, which would likely be highly disruptive to global chip production and distribution. Overall, semiconductor stocks as measured by the Philadelphia Semiconductor Index have plunged by as much as -9% in the past two trading days and have fallen by as much as -10% from their peaks just a week ago. ![](https://clear-wealth.com/wp-content/uploads/Slide1-2-1.jpeg "iwp_log_66e61241ada98 - Clear Wealth Planning Solutions") The plunge in semiconductor stocks is particularly notable for the following reason. These are the same highly cyclical and economically sensitive stocks that have been the primary drivers of broader stock market gains for much of the past year driven by the belief that the proliferation of Artificial Intelligence powered by these computer chips will transform the world. How much have market gains depended on these chip stocks? NVIDIA alone has recently accounted for as much as 40% of the entire year to date gain in the S&P 500 Index in 2024. In short, it has been profound. **“Price gouging like this in the specialty drug market is outrageous”**. This is not the first time we have seen major political figures roil high flying segments of the stock market with their passing comments. It was nearly nine years ago in September 2015 when then Democratic presidential candidate Hillary Clinton, who at the time was considered to have a reasonably high probably to assume the presidency following the 2016 election, made the price gouging declaration on Twitter targeting the biotech industry, followed by the comment “Tomorrow I’ll lay out a plan to take it on”. Much like semiconductor stocks this decade, biotech shares were the high flyers of the first half last decade based on the premise that the innovative medical advancements from these companies would change the world. But having just topped out a couple of days earlier, biotech shares started plunging to the downside following Clinton’s remarks. Over the course of the next eight trading days, the passing comment from a person that might become president more than a year later (and eventually did not become president) helped send biotech shares lower by nearly -20%. And biotech shares continued to slide in the months that followed, falling by as much as -42% over the next five months before finally finding a bottom. More than two years later in late 2017, biotech stocks were still trading below their peak 2015 levels. ![](https://clear-wealth.com/wp-content/uploads/Slide2-2-1.jpeg "iwp_log_66e784d0db2cf - Clear Wealth Planning Solutions") **Will history rhyme this time?** It remains to be seen whether richly overvalued semiconductor stocks will suffer the same fate following the passing comments of a leading presidential candidate that richly overvalued biotech stocks endured following the passing comments of a leading presidential candidate less than a decade ago. The following are some key metrics to monitor whether chip stocks can regain their footing and continue their bold march higher or whether Trump’s comments end up being the catalyst for an arguably long overdue consolidation in semiconductor stocks similar to the long overdue consolidation in biotech shares back in 2015. ![](https://clear-wealth.com/wp-content/uploads/Slide3-1-1.jpeg "iwp_log_66e784d42038f - Clear Wealth Planning Solutions") First, chip stocks found their footing on Thursday at their upward sloping 50-day moving average (blue line on chart above), which is a positive response to key technical support level. With that said, the initial bounce was relatively weak, so it will be worth watching whether chip shares slide further into early next week. If so, further and more sustained downside should be expected. Next, if semiconductor stocks break support, the next stop to the downside at the 200-day moving average (red line) could see as much as -25% come off of the semiconductor stock index. Even with such a decline, the uptrend in chip stocks would still remain in a longer term uptrend. That’s how much semiconductor stocks have gotten way ahead of themselves in the current rally. Finally, it was not that long ago in 2022 when semiconductor stocks lost roughly -50% of their value peak to trough (such is the nature of owning shares in a highly cyclical and economically sensitive industry like semiconductors). This includes shares of today’s investor fave NVIDIA, which dropped nearly -70% in less than a year from November 2021 to October 2022. Much like biotech shares from nearly a decade ago, investors must be prepared for the fact that the risk that gives us such high flying gains is a double edged sword that can be followed by crushing declines. **Bottom line**. Whether presidential candidate Trump’s comments on Taiwan will ultimately be the catalyst that pricked the bubble in semiconductor stocks similar to how then presidential candidate Clinton’s comments popped the bubble in biotech stocks roughly a decade ago remains to be seen. But if this comes to pass, it has the potential to bring with it some long overdue rotation within the market and perhaps some healthy broadening of performance across stocks beyond the few high flying names that have driven gains up to this point. Keep a close watch in the coming weeks. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 605562-1** **Categories:** Insights --- ### [Economic & Market Report: Overheating](https://clear-wealth.com/economic-market-report-overheating-2/) **Published:** July 16, 2024 **Author:** Clear Wealth Planning **Excerpt:** The U.S. stock market much like most of the country this summer remains blazing hot. The S&P 500 has already notched a +18% year to date return, and every single trading day so far in July has brought with it a new all-time high for the benchmark index. How much longer should we expect these blistering stock returns to continue through the rest of the summer? **Content:** The U.S. stock market much like most of the country this summer remains blazing hot. The S&P 500 has already notched a +18% year to date return, and every single trading day so far in July has brought with it a new all-time high for the benchmark index. How much longer should we expect these blistering stock returns to continue through the rest of the summer? **Overheating.** The returns on the S&P 500 are undoubtedly fantastic. And the uptrend in the market dating back to the October 2022 lows remains very much intact. If anything, the performance of the headline index has almost become too good as of late. ![](https://clear-wealth.com/wp-content/uploads/Slide1-1-2.jpeg "ides.jpg - Clear Wealth Planning Solutions") Here is the issue. The S&P 500 index is running well ahead of trend on a variety of metrics, some of which are shown in the chart above. First, the S&P 500 trading at over 5600 today is running well ahead of its long-term trendline dating back to the October 2022 lows. As we have seen numerous times over the past nearly two years, the S&P has repeatedly mean reverted back to this long-term trendline. And given that the market’s current gap above this trendline is historically wide similar to late July 2023 and March 2024 levels, it stands to reason how much further the current rally can stretch before gravity starts to pull it back to earth. Next, the same can be said of the S&P 500 relative to its moving average trend lines. This includes its medium-term 50-day (blue line on chart above), long-term 200-day (red line), and ultra long-term 400-day (pink line) moving averages on the chart above. Not only is the S&P 500 today trading well above all of these trendlines that represent where we could reasonably expect the market to be trading over these respective time periods, but the gap between these 50-day, 200-day, and 400-day moving averages are also wide in their own right. This means that not only is the market running hot, but it has been running hot for a while now. Historically, this set up has eventually given way to at least some degree of consolidation. Lastly, the S&P 500 is currently trading with a Relative Strength Index (RSI) reading well north of 70 at nearly 76. Historically, an RSI reading over 70 has signaled overbought conditions with the market overdue for some sort of pullback. The fact that we are measurably above the 70 line only highlights further to the degree today’s market is overextended. **Getting thirsty**. The market may be overbought, but that doesn’t necessarily mean it’s going to break to the downside. One has to look no further than last December or this March when the market was similarly overbought and either continued unabated to the upside or entered into only a mild pullback before continuing its march higher. As a result, it raises the question as to what catalysts might exist, if any, that would induce the market to pull back in a more sustainable way. One key factor deals with liquidity. The available money sloshing around capital markets has been abundant for years save the inflationary stretch earlier this decade. And as long as liquidity conditions remain abundant, stocks can continue to rise regardless of the price. If liquidity conditions start to dry up, however, this can be a catalyst to cause stock prices to fall regardless of how sound the underlying fundamentals may be. A good measure of market liquidity is the price of Bitcoin. Why? Because it is the quintessential speculator’s instrument, as it has no intrinsic value and has historically moved with the speculative liquidity fueled waves of the markets over the years. Further to this point, the price of Bitcoin has been highly correlated with the NASDAQ 100, where the more speculative fare on offer in equity markets can be found. ![](https://clear-wealth.com/wp-content/uploads/Slide2-1-2.jpeg "iwp_log_66bab1dc85e66 - Clear Wealth Planning Solutions") Thus, the recent price movements between Bitcoin and the NASDAQ 100 are notable. For while the NASDAQ 100 continues striding to new all-time highs, we see that Bitcoin peaked in February and has been trading sideways in the months since. And while it was running ahead of trend for a few months, the price of Bitcoin has been lurching sharply lower since the beginning of June. Whether this is an indication of marginally tightening market liquidity conditions remains to be seen, but it will be worth monitoring whether Bitcoin prices catch up with the NASDAQ 100 or if the overheated tech index (and the broader S&P 500 that is so heavily weighted to tech today) catches down with the price of Bitcoin. **Bottom line**. The U.S. stock market continues to blaze as we make our way through the summer months. And while these fires may continue to burn bright, we should be prepared for a market that is overheating on many measures may need to take a breather in the form of a -5% to -10% short-term correction as we make our way through the rest of the summer. If any such near-term correction were to occur, it’s likely to be short lived (two to six weeks), as underlying economic and corporate earnings fundamentals remain sufficiently strong to support a further rising stock market. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 602383-1** **Categories:** Insights --- ### [Economic & Market Report: Three Cheers for the Red, White, & Blue… & Green](https://clear-wealth.com/economic-market-report-three-cheers-for-the-red-white-blue-green-2/) **Published:** July 8, 2024 **Author:** Clear Wealth Planning **Excerpt:** It is the Fourth of July holiday in the United States. With this spirit in mind, it is a good time to take a look at how well the U.S. stock market continues to move independently from the rest of the world in keeping with a tradition that has gone on for many years now. **Content:** It is the Fourth of July holiday in the United States. With this spirit in mind, it is a good time to take a look at how well the U.S. stock market continues to move independently from the rest of the world in keeping with a tradition that has gone on for many years now. **Long-term outperformance.** It has been a trend that is now decades in the making. The U.S. stock market as measured by the S&P 500 Index has dramatically outperformed its global peers. One has to look no further than the cumulative returns of U.S. stocks relative to their non-U.S. counterparts since the start of the last decade to see how profound this outperformance has been. ![](https://clear-wealth.com/wp-content/uploads/64-1-1.jpeg "2024outlook.jpg - Clear Wealth Planning Solutions") What has been driving this phenomenon? It has been several factors, particularly since the calming of the Great Financial Crisis. First, the United States remains the largest and most established and liquid financial marketplace in the world. It is a place where capital can go to be treated best. While the U.S. may not be as fiscally healthy as it has been in the past, it remains the global safe haven destination for investors over all other markets. Second, the U.S. has been the logical destination for a global economy awash with excess liquidity looking for a home. Regardless of where easy monetary and/or fiscal policy has emanated, more often than not this excess liquidity has made its way around the world to U.S. markets either directly or indirectly. Third, the U.S. remains at the global forefront in terms of economic growth and technological innovation. Unlike many leading economies in other parts of the world that have been coping with varying degrees of fiscal and/or competitive stress, the U.S. markets remain the driver of global growth and leading the expansion into new business opportunities. Lastly, although economic growth has been sluggish and uneven since the aftermath of the Great Financial Crisis, it has been relatively steady supported by chronically low interest rates up until the last couple of years. And even after the inflationary outbreak in recent years shook financial markets and drove core interest rates measurably higher, the United States economy remains the bastion of stability relative to the rest of the world. **U.S. bias.** Eventually the global economic tide will turn. I can still remember like yesterday the 1980s and early 1990s when the primary concern was how the United States was falling behind the rest of the world in terms of potential economic growth and innovation. History has shown that global leadership constantly evolves and inevitably we will reach a point where other parts of the world overtake the U.S. This, of course, has been a persistent concern among economists and investors for years related first to Japan, then Europe, and more recently China. While no such shift has yet to come to pass, a new wave of global competitors such as India are gradually making their way to the forefront of the discussion today. In the meantime, the U.S. bias in asset allocation portfolios continues to be rewarded. And this is likely to be true in the near-term as many other parts of the world continue shifting toward deglobalization, changing geopolitical threats, and political and economic change. **At what price?** An additional headwind confronting the continued U.S. bias going forward is the increasingly widening valuation gap between U.S. stocks and their non-U.S. counterparts. For example, historically U.S. and European stocks traded comparably on a cyclically adjusted price-to-earnings (CAPE) ratio basis. But since the start of the last decade, these two markets started to deviate. Today, while Europe trades at what would historically be considered an expensive 21 times CAPE ratio, the U.S. is vastly more expensive with a CAPE at 35 times. ![](https://clear-wealth.com/wp-content/uploads/64-2-1.jpeg "64-1.jpeg - Clear Wealth Planning Solutions") Thus, non-U.S. stocks have a distinct valuation advantage over U.S. stocks once the time comes when the rotation out of the U.S. and into developed international and/or emerging markets finally takes place. The only question is when, for non-U.S. stocks have shown this valuation advantage for many years now, yet the gap keeps widening. **Bottom line.** As we celebrate Independence Day here in the U.S., we can look forward to the second half of 2024 with forces still in place that support a U.S. bias in equity portfolios relative to the rest of the world. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 597032-1** **Categories:** Insights --- ### [Economic & Market Report: 2024 Second Half Outlook](https://clear-wealth.com/economic-market-report-2024-second-half-outlook-2/) **Published:** July 3, 2024 **Author:** Clear Wealth Planning **Excerpt:** The first half of 2024 is just about officially in the books. It has been a rousing start to the year so far for the U.S. stock market. Following such strong performance in the first six months of the year, what can investors reasonably expect through the rest of 2024? The good news is that investors have a variety of reasons to remain constructive and optimistic. The outlook is not without risks, however. **Content:** The first half of 2024 is just about officially in the books. It has been a rousing start to the year so far for the U.S. stock market. Following such strong performance in the first six months of the year, what can investors reasonably expect through the rest of 2024? The good news is that investors have a variety of reasons to remain constructive and optimistic. The outlook is not without risks, however. Strong uptrend continues. As we look out into the second half horizon, it is worthwhile to assess where we stand with the markets today. Overall, the U.S. market remains a resoundingly positive picture. We have been in a stock bull market dating back to October 2022, and the uptrend in the benchmark S&P 500 remains well defined and firmly intact. ![](https://clear-wealth.com/wp-content/uploads/Slide1-3.jpeg "bright4.jpeg - Clear Wealth Planning Solutions") A few key points about the current market are worth highlighting. Let’s begin with the optimistic. If the current uptrend continues through the second half of the year, it would not be unreasonable for the S&P 500 to finish the year in the 5800 range. This would represent a more than +20% gain on the index for 2024. Taking this one step further, crossing the 6000 level on the S&P 500 along the way is not entirely out of the question depending on how much momentum and enthusiasm is behind the market as we move through the remaining months of the year. Let’s now consider the realistic. The S&P 500 is currently overbought from a technical perspective. This includes a Relative Strength Index (RSI) reading that remains over 70. Historically, RSI readings north of 70 are followed by a market that needs to consolidate (move sideways) at a minimum and is overdue for some sort of pullback. And given that the S&P 500 is now trading at a frothy 4%, 13%, and 21% above its 50-day (blue line), 200-day (red line), and 400-day (pink line) moving averages, respectively, the U.S. stock market is now long overdue for some degree of mean reversion (movement back toward these trend lines). As a result, investors should not be surprised if we see a pullback anywhere in the range of -5% to -12% over a couple weeks if not a couple months between now and the end of the year. Any such correction should likely be viewed as a garden variety pullback that typically occur as part of a longer-term bull market similar to what we saw during the period from August to October last year. In short, a potential buying opportunity if anything. Economic tailwinds. So why should investors remain optimistic if we see the outbreak of a stock correction through the second half of the year? Because the fundamental backdrop remains supportive of higher stock prices. Consider the current forecast for U.S. economic growth as measured by gross domestic product (GDP) from the Atlanta Fed GDPNow. ![](https://clear-wealth.com/wp-content/uploads/Slide2-3.jpeg "bright5.jpeg - Clear Wealth Planning Solutions") We see that current economic growth is projected to come in at +3% for 2024 Q2 based on the latest forecasts (green line above). This is not only a robust rate of economic expansion, but it continues to register in excess of consensus economists’ expectations (blue line above). So not only is the economy continuing to expand, but it is surprising to the upside in its strength. This is supportive of higher stock prices. Adding to the positive economic fundamentals is the fact that inflation expectations remain firmly in check. Following the surge in inflation that was a primary driver of the 2022 stock bear market, 5-year average market inflation expectations are not only close to the U.S. Federal Reserve’s long-term target, they have faded in recent weeks to their lowest levels since the outbreak of COVID a few years ago. ![](https://clear-wealth.com/wp-content/uploads/Slide3-3.jpeg "Economic & Market Report: Mr. Brightside - Clear Wealth Planning Solutions") Corporate earnings. The positive economic backdrop is helping to support the financial performance of the companies that make up the U.S. stock market. This includes corporate earnings, which is a primary driver of stock performance and makes up the “E” in the P/E ratio that is widely used to value stock investments. Looking ahead through the remainder of 2024 and into 2025, S&P 500 corporate earnings are projected to rise more than +10%. This is a robust rate of projected profit growth, and if long-term market history is any guide, this strong profit growth is highly correlated with higher stock prices as shown in the chart below. ![](https://clear-wealth.com/wp-content/uploads/Slide4-2.jpeg "Economic & Market Report: One - Clear Wealth Planning Solutions") **Downside risks**. So the fundamental and technical backdrop for stocks is positive heading into the second half of the year, but what about the downside risks? *Inflation resurgence*. It was true heading into the year, and it remains true today. The number one downside risk to the markets heading into the second half of the year is a renewed rise in inflation. Dating back to the peaks in headline and core inflation in the summer of 2022, the annual rate of inflation has steadily faded from nearly 9% and 7%, respectively, to approaching a more normal 3% today. But inflation readings have frequently come in hotter than expected so far in 2024, and if the blue and red lines in the chart below stop drifting lower and start pushing higher, this would be a decidedly negative sign for the stock market. Why? If the annual rate of inflation starts rising again, this means that the persistent investor anticipation for Fed interest rate cuts could suddenly shift to worries that the Fed may need to raise interest rates even further. And just as investors love monetary policy liquidity pouring into the markets (cutting interest rates), they recoil when monetary policy liquidity is being drained out of the markets (raising interest rates). ![](https://clear-wealth.com/wp-content/uploads/Slide5-2.jpeg "- Clear Wealth Planning Solutions") *Bank tightening*. Another potential downside risk for markets in the second half of the year would be a sudden tightening of bank lending standards for any number of reasons. For example, a risk that continues to overhang lending markets over the last couple of years has been chronic problems in the commercial real estate sector. These challenges have largely simmered without feedthrough effects to the broader financial system, but as this problem lingers the risk remains that issues reach a threshold where banks are forced to rein in lending activity more than they already are. *Geopolitical risk*. History has repeatedly reminded us that the global community remains an unpredictable place. This includes unpredictable military and/or terrorist events that can arise suddenly and often unpredictably. While capital markets have a long history of quickly rebounding following the shock of a political event (the fact that the U.S. stock market was trading higher in December 2001 versus its pre-9/11 levels is just one example), each event will need to be evaluated for its associated financial system impacts as they arise. **What about the election?** While the upcoming election in November is likely to garner a lot of conversation about the associated impact on financial markets, history has provided us with a few key conclusions that are worth keeping in mind as we draw closer to election day. First, election years have historically been positive for financial markets. Why? Because one of the primary goals of a politician is to get re-elected. And one of the best ways for a politician to get re-elected is to make sure their voters are happy. And one of the best ways to make your voters happy is to spend money (fiscal policy) on the things they care about. And when politicians spend money, it is stimulative to the financial system. Second, the stock market has historically performed well in the weeks that immediately follow election day. This has been true regardless of what candidates or which party wins the election. Why? Because the one thing that investment markets hate more than anything else is uncertainty. And once the election is over, the uncertainty of which candidates and which parties will be in control of the executive and legislative branches has been eliminated (hopefully). Once markets know who their politicians are going to be that will be in charge of setting fiscal policy, they can more accurately adjust their investment models and have more confidence in allocating capital to the markets. **Bottom line.** With a great start of the year already under our belts, we still have good reason for optimism about further gains as we enter the second half of the year. Risks remain, however, so we should not be surprised if the markets pull back for any number of reasons along the way. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 597032-1** **Categories:** Insights --- ### [Economic & Market Report: One](https://clear-wealth.com/economic-market-report-one/) **Published:** June 25, 2024 **Author:** Clear Wealth Planning **Excerpt:** The U.S. stock market is off to a roaring start in 2024. We are not even half way through the year yet, and the S&P 500 Index is higher by more than +15%. Sounds fantastic, right? It is definitely great news on a headline basis, but unfortunately all is not necessarily well with the broader stock market. A closer look underneath the surface reveals that the market is not nearly as healthy as the headline return might imply. **Content:** The U.S. stock market is off to a roaring start in 2024. We are not even half way through the year yet, and the S&P 500 Index is higher by more than +15%. Sounds fantastic, right? It is definitely great news on a headline basis, but unfortunately all is not necessarily well with the broader stock market. A closer look underneath the surface reveals that the market is not nearly as healthy as the headline return might imply. We’re one, but we’re not the same. Yes, the S&P 500 continues to rise at an epic rate, but it’s important to remember that the one U.S. stock market consists of many stocks that are vastly different from one another. One has to look no further than the chart below, which shows the cumulative return of the S&P 500 that focuses on the large cap area of the U.S. stock market versus the S&P 400 mid-cap and S&P 600 small cap indices. While the big stocks are soaring to the upside, we see mid-caps have tailed off markedly over the past month after keeping pace with large caps through the spring, while small-caps have effectively been dead money all year so far. ![](https://clear-wealth.com/wp-content/uploads/Slide1-2.jpeg "Home - Clear Wealth Planning Solutions") Let’s take this one step further and dig deeper into the U.S. large cap space itself. The S&P 500 is market cap weighted, which means that the largest companies in the index have the biggest impact on returns. For example, three companies alone – Microsoft, Apple, and NVIDIA – make up more than 21% of the entire weighting of the S&P 500 Index, with the remaining 79% spread across the remaining 497+ stocks in the index. As a relative comparison, let’s see how the S&P 500 has performed year-to-date if we took each of stocks in the index and assigned an equal weight to each holding (i.e. essentially 0.2% to each stock in the benchmark). Remarkably, while the market cap weighted S&P 500 is higher by more than +15%, the same index equal weighted is only up less than 5%. Moreover, it is trading meaningfully lower today versus its previous peak from the end of March. ![](https://clear-wealth.com/wp-content/uploads/Slide2-2.jpeg "iwp_log_668de3ae6c3c9 - Clear Wealth Planning Solutions") Deep down inside I feel to scream. The key takeaway is the following – something may not be right underneath the market surface. For while the S&P 500 is marching boldly higher, the vast majority of stocks with in the U.S. stock market are not necessarily sharing in this enthusiasm. This is what is known as narrowing market breadth, where a relatively few and decreasing number of stocks are driving the overall market higher. ![](https://clear-wealth.com/wp-content/uploads/Slide3-2.jpeg "iwp_log_6695c7a0f3124 - Clear Wealth Planning Solutions") The chart above highlights this concept in more detail. At the end of March when the market previously peaked, more than 85% of stocks in the S&P 500 were trading above their respective 50-day moving averages. In other words, most stocks were participating in the broader market advance, thus broad market breadth. This is a good thing because if any specific stock in the group were to falter along the way, many other stocks are still rising to pick up the slack. But over the course of the second quarter, we’ve seen marked narrowing of breadth. Today, despite the S&P 500 striking fresh new all-time highs, less than 50% of stocks within the index are trading above their respective 50-day moving averages. This is a potential problem, because if one of these remaining stocks that are driving the market higher steps on a proverbial landmine, a diminishing number of stock market solders remain to continue the market advance. On the headline and core inflation front, the latest data looked particularly constructive. For the month of May, the annual headline inflation rate trimmed just over 10 basis points from 3.36% to 3.25%. As for the core inflation reading excluding the more volatile food and energy components, the steady downtrend continued as the annual rate hit a new post inflation cycle low of 3.41%, which was down more than 20 basis points from the previous month. One is the loneliest number. Staying on the topic of narrowing breadth, we find that one particular stock more than any other is playing a disproportionately large part in carrying the broader S&P 500 to the upside. Rising just this week to become the largest company by market cap in the world at more than $3.4 trillion, NVIDIA alone accounts for more than 35% of the total return on the S&P 500 this year. In other words, take this one stock out of the market and suddenly the S&P 500 goes from being up more than +15% to gaining less than +10%. This is a disproportionately huge total return impact coming from just one stock across the entire market. Again, this is great as long as NVIDIA continues to rise to the upside, but trading at more than 75 times earnings (earnings yield of just 1.27% versus a 10-Year Treasury yield north of 4.2%) and 41 times sales (broadly, a P/S ratio higher than 3 is considered expensive), even the greatest stocks in the world with incredibly compelling growth stories can have their limits (see Cisco Systems circa the year 2000).Every year, it’s the same and I feel it again. One final point to highlight on narrowing market breadth. Last year, the Magnificent Seven stocks of Microsoft, Apple, Amazon, NVIDIA, Alphabet (Google), Meta (Facebook), and Tesla led the charge as only 28% of stocks in the S&P 500 outperformed the index in 2023. This was considered remarkably narrow market breadth, as historically roughly 49% of stocks in the S&P 500 (essentially half) beat the market in any given year as would be reasonably expected. Where do we stand today so far in 2024? After signs of broadening toward 40% in the first quarter of this year, today only 22% of stocks in the S&P 500 are leading the market year to date. This is measurably even more extreme narrow markets, which come with the increasingly commensurate risks as highlighted above. **Bottom line.** Clearly, market breadth has narrowed significantly in the second quarter even as the S&P 500 continues to march to new all-time highs, and this comes with increasing risk. The pessimist understandably might conclude that with fewer and fewer stocks driving the market to the upside, that eventually these remaining leaders will falter and a short-term correction in the range of -5% to -12% over a two week to eight week period on average could reasonably be expected. And if we were to see such a pullback come to pass as we move through the summer and into the fall, this would be a normal short-term pullback with a longer term upward moving bull market. In short, any such pullback should be anticipated at any given point in time as part of a normal healthy market. The optimist, however, might take an alternate view. The economy remains strong, corporate earnings continue to increase at a double-digit annual rate, and stock valuations outside of the scorching hot tech sector remain historically reasonable if not outright attractive. As a result, it is also possible that the 79% of stocks that are currently trailing the market might eventually move to catch up. In other words, a renewed broadening of market performance remains possible particularly given the underlying fundamentals and would be a welcome development in driving the next leg higher in the broader market. Whether the pessimist or optimistic view prevails will be a worthwhile development to watch as we move through the summer months. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 594257-1** **Categories:** Insights --- ### [Economic & Market Report: Mr. Brightside](https://clear-wealth.com/economic-market-report-mr-brightside/) **Published:** June 17, 2024 **Author:** Clear Wealth Planning **Excerpt:** That was fast.  It was just one week ago that this Chief Market Strategist was putting pen to paper to raise early warning signals about potential signs of economic slowing amid an environment where inflationary pressures were bubbling underneath the surface. **Content:** That was fast. It was just one week ago that this Chief Market Strategist was putting pen to paper to raise early warning signals about potential signs of economic slowing amid an environment where inflationary pressures were bubbling underneath the surface. While a handful of most recent data points certainly do not a trend make and only time will continue to tell, recent data on the U.S. economy suggest we may be doing just fine. **Revitalized growth outlook with qualifications.** After cascading lower for a few weeks into the start of June, the forecast for economic growth according to the Atlanta Fed GDP Now has quickly bounced back to life. Since bottoming at 1.8% on June 3 at levels below the consensus of blue chip economists for the first time in recent memory, current projections have surged back above 3% thanks to strong employment and trade readings in recent days. ![](https://clear-wealth.com/wp-content/uploads/bright1.jpeg "iwp_log_66722f1277919 - Clear Wealth Planning Solutions") While this bodes well for ongoing fundamental support for rising U.S. stock prices, the recent bounce in the economic forecast does not mean we are out of the woods by any means in terms of a potential cooling of growth. For while the Atlanta Fed GDP Now forecast may have surged anew, the New York Fed Nowcast remains adrift below 2%. ![](https://clear-wealth.com/wp-content/uploads/bright2.jpeg "- Clear Wealth Planning Solutions") So while the latest news on the economy is reassuring, we are still not out of the cage of potential economic weakening in the months ahead. **Positive signs on the inflation front**. The latest news on the inflation front was also constructive. In a theme that has been reiterated dating back to last summer, a renewed rise in inflation continues to loom as arguably the primary downside risk for capital markets. With this in mind, the latest Consumer Price Index readings from the Bureau of Labor Statistics for the month of May that came out this week warranted close attention. And for those anticipating that the inflation gotta gotta be down, the latest report this Wednesday did not disappoint. On the headline and core inflation front, the latest data looked particularly constructive. For the month of May, the annual headline inflation rate trimmed just over 10 basis points from 3.36% to 3.25%. As for the core inflation reading excluding the more volatile food and energy components, the steady downtrend continued as the annual rate hit a new post inflation cycle low of 3.41%, which was down more than 20 basis points from the previous month. ![](https://clear-wealth.com/wp-content/uploads/bright3.jpeg "iwp_log_66724ddfb09d1 - Clear Wealth Planning Solutions") While these +3% readings are still well north of the sub-2% levels we all came to know so well during the post Great Financial Crisis period, they are readings that would have been considered right about on the mark from a price stability perspective in the pre Great Financial Crisis period. And more importantly, they continue to trend in the right direction, which continues to be lower. While trends in headline and core inflation are indeed promising, a notable area of concern beneath the surface was building services inflation pressures. For while headline and core inflation continue to trend lower, services ex shelter inflation has been steadily rising since last September toward 5% today. ![](https://clear-wealth.com/wp-content/uploads/bright4.jpeg "Home - Clear Wealth Planning Solutions") Although the latest annual reading on services ex shelter inflation continued to rise, it came with some notable good news. First, the latest increase was only gradual, climbing another 10 basis points for the second month in a row, which continues to be a mere fraction of some of the spikes that we were seeing on this front earlier in the year. ![](https://clear-wealth.com/wp-content/uploads/bright5.jpeg "Home - Clear Wealth Planning Solutions") Building on these more constructive recent developments, services ex shelter inflation on a month-over-month basis. For after steadily rising since May 2023 on a month-over-month basis to a peak as recently as March 2024, this reading as suddenly plummeted over the last two months to virtually flat in May. This is a positive development, as it preliminarily suggests that some of the pricing pressures lurking underneath the headline surface may be abating. **Bottom line.** The latest batch of economic data has understandably put a lift underneath the economic forecasts and the market outlook. While these downside risks warrant continued close attention in the months ahead, signs of renewed economic vigor and steadily waning inflation results is a great combination to help push stock prices higher over time if it continues to hold over time. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 591507-1** **Categories:** Insights --- ### [Economic & Market Report: Economic Soft Serve](https://clear-wealth.com/economic-market-report-economic-soft-serve/) **Published:** June 10, 2024 **Author:** Clear Wealth Planning **Excerpt:** So much feels great about capital markets as summertime temperatures heat up. But the U.S. economy is offering up a soft and cool economic twist with the start of the beach season. As fireworks like NVIDIA continue its march past $3 trillion toward becoming the largest company in the world by market cap and GameStop is suddenly back to posting daily stock price doubles, it’s important to also keep an eye on the daily economic waves rolling in throughout the summer. **Content:** So much feels great about capital markets as summertime temperatures heat up. But the U.S. economy is offering up a soft and cool economic twist with the start of the beach season. As fireworks like NVIDIA continue its march past $3 trillion toward becoming the largest company in the world by market cap and GameStop is suddenly back to posting daily stock price doubles, it’s important to also keep an eye on the daily economic waves rolling in throughout the summer. Vanilla. While much of the economic focus so far this year has been around a U.S. economy that has persistently been stronger than expected, the first cup of economic soft serve is coming from output growth indicators. Consider the Atlanta Fed GDPNow real GDP estimate for the current quarter, which is shown in the chart below. ![](https://clear-wealth.com/wp-content/uploads/june-6_1.jpeg "poster - Clear Wealth Planning Solutions") Reminiscent of a visit to Niagara falls, the latest forecasts for economic growth have suddenly cascaded to the downside over the last two weeks. Driving the waterfall in growth projections has been a measurable reduction in expectations for consumer spending reflected in weaker than expected jobs data coupled with weaker than expected readings in manufacturing and construction spending. As a result, we now see GDPNow forecasts for economic growth that are lower than the Blue Chip consensus of leading economists. This is a stark contrast to what we have seen for most of the last two years where consensus economists were more pessimistic than the GDPNow projections (it’s worth noting that the same is effectively true for the recently reinstated New York Fed Nowcast). Put simply, projections for U.S. economic growth are suddenly slowing. And various leading indicators suggest that this cooling may continue through the remainder of the year. The investor pessimists might see this economic soft serve as a reason to retreat from equity investments, particularly given their already steaming valuations. The investor optimists, however, might actually rejoice at these signs of a slowing economy. We’ve already been feasting on a picnic of consistently strong corporate earnings and abundant financial market liquidity, and now a slowing economy may inspire the U.S. Federal Reserve to finally loosen up and lower interest rates as so many anticipated coming into 2024. Win win, amirite? **Chocolate**. Economic soft serve is often served in a twist. While a slowing economy may start to clear the path for the Fed to lower interest rates, if only it were that easy. The Fed has an explicit dual mandate – maximum employment (GDP, jobs, etc.) and price stability (inflation). If we’re drifting away from maximum employment as suggested above, the Fed has a potential reason to cut rates. But it must consider this move in the context of the inflation situation. And regardless of what the headline inflation data might be telling you, one need not search long or far for a U.S. consumer that continues to agitate about things being a lot more expensive today than ever. A first look at the inflation data suggests that it’s still all good on the inflation front. Yeah, prices are still rising on a headline (blue line below) and core excluding the more volatile food and energy components (red line below), but they are rising at an increasingly lower rate, down from the 6% to 9% readings from 2022 to below 4% and still falling today. Still work to do, but heading in the right direction. All good for the Fed to cut, amirite? ![](https://clear-wealth.com/wp-content/uploads/june-6_2.jpeg "Home - Clear Wealth Planning Solutions") Oh, if only it was that simple. What about that green line in the chart above? The headline data may look OK, but just like the performance of the S&P 500 when you take out NVIDIA (not nearly as good as the headlines might suggest), the same holds true when looking at economic data like inflation. For when we dive under the surface, we see some troubling developments on the pricing front that warrant close attention in the months ahead. The green line in the chart above is the inflation rate for services in the U.S. economy outside of the cost to own or rent a place to live. Think services like your water and trash collection bills, your doctor bills, your car insurance, your vet bills, and the cost for movie and sporting event tickets among many others. In short, it’s all the things we spend our money on each month in the course of living (and hopefully enjoying) our day to day lives. This services ex shelter inflation rate had been falling since 2022 even faster than the headline readings reaching a low of just 2.8% by last September. But since the end of 2023 and through 2024 so far, this services ex shelter inflation rate fire has roared back to life. As of the latest reading for April 2024, it’s closing in on 5%. Hot, hot, hot!!! **Jimmies**. Let’s put this together so far. We suddenly have signs that the economy is slowing in a meaningful way. At the same time and much like ice cream dripping out of the bottom of a cone, we have inflation readings lurking under the surface that are running hotter than expected. This is not the soft serve combo that will induce the Fed to lower interest rates. Why? First, the Fed is already still blistering from the 2021-22 sunburn when they first injected waaay too much liquidity in response to the COVID crisis and then waited waaaaaaaay too long to withdraw this liquidity, thus laying the kindling for the inflation fires that burned brightly in 2022 and continue to smolder today. The Fed has already undermined the credibility of their inflation fighting chops, so they need to be slow, deliberate, and persistently laser focused on keeping the inflation fires out before turning their attention to supporting economic growth. In other words, if anything, the Fed is likely err on the side of waiting to raise rates in the months ahead, even if the economy continues to slow. Second, while it may be a distant memory if anything for most of us, but the Fed as an institution remembers all too well the lessons of the stagflationary 1970s when they faced similar challenges of slowing economic growth and rising inflation. Back then, they chose lowering interest rates to support economic growth over fighting inflation three consecutive times, and each time they ended up with an even worse inflation problem that crushed the economy anyway. The lesson learned is that the Fed must fully extinguish inflation pressures first before they can turn toward supporting the economy (see the 1980 and 1981-82 recessions). Thus, for those hoping for a Fed rate cut on these initial signs of a fading economy, don’t hold your breath. **Bottom line.** If, and big emphasis is on the word **IF**, the economy continues to show signs of slowing (it may quickly pick back up) as we move through the summer, keep a close eye on the inflation data. For **IF** underlying inflation readings continue to run hot, we may end up in a situation where the economy is slowing while the Fed remains focused on the inflation fight, thus not cutting interest rates (and maybe even starting to talk about raising interest rates – GASP!). Chances are, capital markets may not like this economic soft serve twist if it ends up getting served. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 588697-1** **Categories:** Insights --- ### [Economic & Market Report: Hot Stock Summer](https://clear-wealth.com/economic-market-report-hot-stock-summer/) **Published:** June 4, 2024 **Author:** Clear Wealth Planning **Excerpt:** The summer season is now officially underway. And despite robust gains already this year, capital markets are primed and ready for a hot stock summer. **Content:** The summer season is now officially underway. And despite robust gains already this year, capital markets are primed and ready for a hot stock summer. **Hot.** U.S. stocks are off to a hot start this year. In what would be considered a strong year by most standards, the S&P 500 is already higher by nearly +12% in 2024, and it’s not even June yet. With such strong gains already in the books, it might be reasonable to think that stocks are overdue to cool off a bit. But as the summer temperatures heat up, there’s good reason to think that U.S. stocks may follow suit. The following are a few reasons why. ***Fundamentals***. U.S. stocks are indeed expensive from a historical perspective. For example, the S&P 500 is trading at nearly 28 times earnings, which is more than 75% above its long-term historical average. Valuations do matter in the long-term, but history has shown that they often can be overlooked for an extended period of time in the short-term as long as economic growth is strong (check), corporate earnings growth is robust (check), and the underlying market liquidity environment remains abundant (check). Valuations will matter again someday, but in a presidential election year where the fiscal policy environment is likely to remain as supportive as monetary policy, it’s not likely to matter this summer. ***Risk appetite***. A variety of indicators suggest that investor risk appetites remain alive and well. Among the many indicators supporting this notion is CCC and lower rated corporate bond spreads over comparably dated U.S. Treasuries, which is shown in the chart below. ![](https://clear-wealth.com/wp-content/uploads/hotstocksummer1-1024x768-1.jpeg "Home - Clear Wealth Planning Solutions") When this spread is rising like it was during COVID and heading into the inflation outbreak of 2021-22, this indicates that investors are fleeing risk, which is not good for low quality corporate bonds and is subsequently not good for stocks. Conversely, when this spread is falling like it has been steadily since 2022, it means that investors are increasingly eager to take on risk. As long as this spread continues to trend lower through the summer, this is supportive of higher stock prices. ***Inflation in check***. Despite all of the fuss about stronger than expected inflation readings throughout the early months of 2024, U.S. stock prices have shaken off these concerns in marching higher. So if the recent development of cooler than expected inflation starts to become a trend into the summer, this could unleash U.S. stock prices even more. And if inflation expectations are any sign, the long-term odds favor more disinflation going forward over a renewed rise in inflation. ![](https://clear-wealth.com/wp-content/uploads/hotstocksummer2-1024x768-1.jpeg "Home - Clear Wealth Planning Solutions") ***Refreshing liquidity***. Amid widespread signs of already abundant liquidity, the U.S. Federal Reserve is set to give the market an added boost as the summer gets underway. The Fed has already lopped more than $1.2 trillion in total assets from its balance sheet since 2022 (nearly $9 trillion to $7.8 trillion), and U.S. stocks have hardly noticed. And starting in June, the Fed will slow the pace of its balance sheet reduction from $95 billion to $60 billion per month. The reduction will come from scaling back the roll off in U.S. Treasuries from maturities not being replaced from $60 billion to $25 billion per month. ![](https://clear-wealth.com/wp-content/uploads/hotstocksummer3-1024x768-1.jpeg "iwp_log_665e7f6008523 - Clear Wealth Planning Solutions") Yes, the U.S. Federal Reserve is still draining liquidity on net even after this tapering reduction. But impacts from changes in monetary policy are not only absolute but also relative. In other words, if the U.S. Federal Reserve is scaling back their Treasury roll off from $60 billion to $25 billion, this means the Fed will soon be buying $35 billion more in U.S. Treasuries than they have been previously. This means that the U.S. financial system starting in June will have an extra $35 billion per month sloshing around than it had before. And as the time since the Great Financial Crisis has repeatedly taught us, more liquidity has an uncanny way of finding its way into the U.S. stock market before it’s all said and done. **Bottom line.** U.S. stocks have had a great year so far. And a variety of indicators suggest that despite these strong gains already that we have good reason to anticipate a hot stock summer in the months ahead. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 584576-1** **Categories:** Insights --- ### [Economic & Market Report: Why Meme Stocks Matter](https://clear-wealth.com/economic-market-report-why-meme-stocks-matter/) **Published:** May 28, 2024 **Author:** Clear Wealth Planning **Excerpt:** It seems like a frivolous stock market novelty. Companies like GameStop and AMC Entertainment with their relatively small market caps and even more meager sales in the context of the overall marketplace suddenly found themselves returning to the financial news spotlight. **Content:** It seems like a frivolous stock market novelty. Companies like GameStop and AMC Entertainment with their relatively small market caps and even more meager sales in the context of the overall marketplace suddenly found themselves returning to the financial news spotlight. This came thanks to recent pops in their stock prices that were less fundamentally based and more reminiscent of the meme stock craze from a few years ago that descended on capital markets in the aftermath of the COVID crisis. While many investors might dismiss the recent spikes in these stocks as nothing more than a humorous side show, they actually send an important signal about broader capital markets today. What do you meme? So what exactly happened with GameStop and AMC Entertainment recently? **Let’s start with GameStop.** After falling to less than $1 per share on a split adjusted basis in late 2020, shares of the gaming retailer skyrocketed more than +12,000% by early 2021 in a short squeeze so epic it was made into a major motion picture. Since that time, GameStop shares had fallen back to earth, declining more than -91% in the more than three years since through this April. But as the calendar flipped to May, GameStop suddenly rediscovered its meme stock verve, spiking more than +500% over the course of two weeks before quickly falling back to earth. No movie sequel is likely, but notable nonetheless. **How about AMC Entertainment.** Also languishing in the $1 per share range on a split adjusted basis by the start of 2021, shares of the movie theater company also suddenly soared a somewhat less lusty but still phenomenal +4,000% in the first few months of 2021. In the three years since, AMC shares gave back all of these gains and more, falling more than -99% in total and -80% below its previous 2021 lows before the fun got started that year. But when trading got underway last week, AMC shares suddenly exploded higher by +300% on Monday and Tuesday before quickly returning back lower. **So what?** Sure, these are great stories that give investors something to talk with their kids about the markets, but why should we really care from a broader market outlook perspective? We should pay attention to events like the recent meme stock aftershock because they provide us with an indication of the underlying forces at work across capital markets. Consider when the first meme stock boom took place. It was in late 2020 and early 2021. This was a time following the onset of the COVID crisis where the economy was getting itself back on its feet after shutting down a few quarters earlier. More importantly, it was a time when a torrent of liquidity was pumping into the financial system from all different directions including zero interest rates from the U.S. Federal Reserve and stimulus checks landing in the bank accounts of average American all across the country. When liquidity is abundant, it is almost always accompanied with widespread anecdotal signs of rampant speculative behavior. This includes the benchmark S&P 500 quickly rebounding to above pre-COVID highs by late 2020 despite an economy still reeling from the pandemic, the price of “assets” like Bitcoin spiking more than +1,600% to levels more than three times their previous bubble highs from late 2017, and stocks on the market periphery like GameStop and AMC Entertainment suddenly dominating the financial news headlines following sudden and phenomenal gains. **How are these outcomes a sign of abundant liquidity?** Consider the contrasting period in 2022 into early 2023. During this time, the U.S. Federal Reserve in response to an annual inflation rate fast tracking its way toward double-digits thanks in part to the unintended consequences of the deluge of liquidity injected into the economy in response to the COVID crisis had to sharply reverse course and raise interest rates quickly and aggressively. This included jacking up the fed funds rate by more than five percentage points off of the zero bound. In short, a big plug had been pulled and liquidity was being drained rapidly from the financial system. During this time, the benchmark S&P 500 plunged by -28%, Bitcoin collapsed by nearly -80%, and meme stocks like GameStop and AMC Entertainment were nowhere to be found as investors were instead focused on circling their stock and bond portfolio wagons. But since the aftermath of the early 2023 coulda been Great Financial Crisis Part II, capital markets have increasingly been exhibiting that same feeling good on liquidity behavior. The S&P 500 is now trading more than +50% above its October 2022 lows and +10% above its previous all-time highs from January 2022. Bitcoin has rebounded nearly +400% from its 2022 bear market lows in reaching new all-time highs. And we have erstwhile meme stocks like GameStop and AMC Entertainment suddenly finding their old form. **The consequences of abundance.** It’s a great feeling when capital markets are awash with liquidity. Asset prices rise sharply and shake off downside risks with ease. And the more speculative areas of the market become increasingly rewarding for the more risk tolerant among us. But an abundance of liquidity also comes with the risk not only of the misallocation of capital and speculative excesses, but also the sustained rise of inflation under the right economic conditions. Excess liquidity played a big role in sparking the inflation fires over the last few years, which resulted in the first simultaneous bear market in both stocks and bonds since the stagflationary era of the late 1970s and early 1980s. Wait a minute! Aren’t we supposed to be in a restrictive monetary policy environment with the fed funds rate north of 5%? Aren’t we still anticipating the U.S. Federal Reserve to start delivering those long anticipated interest rate cuts any FOMC meeting now? Herein lies the excess liquidity rub. For while interest rates may indeed be high, if we are indeed in a market environment where underlying liquidity conditions are still relatively loose, we should not rule out the possibility that inflationary pressures could ultimately start to reignite. If this were to occur, hopes of Fed interest rate cuts could eventually shift to expectations for Fed interest rate hikes. And as 2022 recently showed us, financial markets may not respond well to such a shift in the liquidity tides. **Bottom line.** All of the above are not clear and present dangers. While the liquidity environment remains seemingly abundant, inflationary pressures continue to wane amid a strong economic backdrop. If one had to assign a fairy tale to today’s capital markets, the name Goldilocks might come to mind. But a market with copious liquidity comes with the risk that the inflationary bears may soon return home. And the recent meme stock revival is just the latest sign that the liquidity environment may be even more abundant as we continue through a strong 2024 for capital markets. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 582899-1** **Categories:** Insights --- ### [Economic & Market Report: Cool Runnings](https://clear-wealth.com/economic-market-report-cool-runnings/) **Published:** May 20, 2024 **Author:** Clear Wealth Planning **Excerpt:** It has been a primary downside risk for financial markets for more than a year now. But after repeatedly coming in hotter than expected in many reports so far in 2024, the latest reading on inflation surprised the markets by coming in cooler than expected on Wednesday. **Content:** It has been a primary downside risk for financial markets for more than a year now. But after repeatedly coming in hotter than expected in many reports so far in 2024, the latest reading on inflation surprised the markets by coming in cooler than expected on Wednesday. Capital markets rejoiced on the news with stocks, bonds, and gold all ripping to the upside. Are investors suddenly on a more peaceful journey for inflation going forward? **Report**. The U.S. Bureau of Labor Statistics released their latest monthly readings on inflation for April, and the headlines looked resoundingly cool. The annual rate of headline inflation came in at 3.36%, and the annual rate of core inflation excluding the more volatile food and energy components was 3.62% last month. Not only did both readings come in lower than expected, but they also represented declines in the annual inflation rate from 3.48% on the headline and 3.80% on the core from the previous month in March. While both readings remain well above the pre-2022 inflation rates, they continue to trend in the right direction for investors, which is lower. ![](https://clear-wealth.com/wp-content/uploads/coolrunnings1.jpeg "cool-runnings.jpg - Clear Wealth Planning Solutions") Investors were understandably excited by the news. After so many stronger than expected readings on inflation throughout 2024, the fact that the latest reading for April came in cooler than expected gave inspiration that we may have finally reached the long anticipated juncture where inflation may start slowing more definitively to the point where the U.S. Federal Reserve can start to more actively consider cutting interest rates. And the post Great Financial Crisis period taught us all too well how much both stocks and bonds love a Fed interest rate cutting environment. **Context**. Not so fast. Yes, the latest CPI brought good headline news, it is important to emphasize that this is only the latest CPI report. More simply, one data point does not a trend make. We need a few more monthly reports for May and June and July and so on before we can justify getting too excited about inflationary pressures starting to cool off more dramatically. It’s also important to note that while a cool CPI reading may be welcome news, the U.S. Federal Reserve’s primary reading on inflation is not the Consumer Price Index. Instead, it is the Personal Consumption Expenditures Price Index, which comes out for April in a couple of weeks at the end of May. Nonetheless, a good headline is a good headline. But what about the true substance of the report? For that, let’s look under the hood. **Closer look**. The annual rate of inflation has been trending lower dating all the way back to mid-2022, which continues to be good news. Even as recent inflation readings have come in hotter than expected, the longer-term trend remained flat to lower, which is even more constructive. And looking ahead to the rest of 2024, it is currently expected that this trend of lower annualized inflation will continue through most if not all of the remainder of the year. This does not mean that the inflation outlook is not without risks or ongoing challenges. A major point of current concern on the inflation front resides right below the surface. While headline and core inflation is fading on an annual basis, these declines are being driven almost exclusively by a year-over-year decline in core goods prices. On the other side of the coin is core services prices, and it is here where we are seeing some disconcerting trends that need to be watched closely in the months ahead. ![](https://clear-wealth.com/wp-content/uploads/coolrunnings2.jpeg "iwp_log_664bf63602201 - Clear Wealth Planning Solutions") The rate of core services inflation has flattened out in recent months. In fact, it has barely budged lower for the last seven months and counting dating back to October 2023. Of course, the same could also be said for the headline CPI inflation rate, which has been stubbornly stuck for nearly a year since last June. But the bigger problem with the stalling in the decline of core services inflation is that it has flattened out at a relatively high level north of 5.3%. This is still hot inflation on an absolute basis. Let’s look a little deeper into this potential pocket of inflation trouble underneath the headline surface. Core services inflation has indeed flattened, but it is made up of a variety of component parts. Leading among these is shelter costs, which have been steadily fading in their own right despite the broader core services reading turning flat. But when you strip out shelter prices from core services, we see a troubling trend picking up steam. ![](https://clear-wealth.com/wp-content/uploads/coolrunnings3.jpeg "iwp_log_6655f812d0db1 - Clear Wealth Planning Solutions") The annual rate of core services inflation excluding shelter peaked back in September 2022 and had been steadily and sharply slowing since. That is until September 2023 when it reached as low as 2.76%. Good stuff. But since late last year, this core services reading excluding shelter has reaccelerated sharply to the upside. This includes hitting a new recent peak at 4.89% with the April reading that is up 12 basis points over the 4.77% reading the prior month in March. This is a potential problem that warrants continued close attention in the months ahead. For if consumers continue to see blistering price increases for necessary services like hospital stays and the like into the second half of the year, it not only has the potential to spill over into broader inflationary pressures, but it is taking money out of the pockets of consumers that they might otherwise spend elsewhere to support further growth in the U.S. economy in the quarters ahead. **Fed watch**. With all of this being said, market and investor expectations are still definitively on the side of lower inflation in the months ahead. This is best highlighted by Fed interest rate cut expectations. For while the market remains arguably too optimistic in thinking that we may see one quarter point rate cut from the Fed in July/September and a second quarter point rate cut by the end of the year in December (this Chief Market Strategist sees a maximum of one quarter point rate cut and not until December if at all), the more important point is that the market is currently assigning a zero percent probability of a Fed rate increase through September 2025. In short, market expectations remain fully biased toward the further slowing of inflation, which is constructive for markets and asset prices as we continue into the summer months. **Bottom line.** The latest reading on inflation was indeed good news. But risks are lurking underneath the inflation headline surface that warrant continued monitoring. Nonetheless, the overall outlook for inflation remains constructive through the remainder of the year, which continues to be supportive of asset prices including stocks and bonds. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Breakout](https://clear-wealth.com/economic-market-report-breakout/) **Published:** May 14, 2024 **Author:** Clear Wealth Planning **Content:** The U.S. stock market got off to a bumpy start in 2024 Q2. No sooner did the calendar flip to April and the S&P 500 descended into a pullback. Over the course of the first fifteen trading days of the new quarter, the S&P 500 retreated by nearly -6%. Knowing that stock market corrections within a broader uptrend last anywhere between two to eight weeks with declines ranging from -5% to -12% along with the fact that the pullback was long overdue by a number of technical measures, it was reasonable to wonder whether we might see another tough quarter for stocks reminiscent of the stretch last August through October dropped by -11%. Turns out, not so much, as we appear to have a renewed upside breakout in U.S. stocks. **Breakout.** So what has taken place in recent weeks to inspire the breakout discussion? After bottoming intraday on April 19 at 4953, the S&P 500 has been on the upside attack. It rallied for five out of the next six trading days through April 29 to reach 5123 and join a battle with its medium-term 50-day moving average resistance, which is the blue line on the chart below. If the S&P could advance decisively above this key trend line resistance, it would signal that the rally dating back to October 30 was back on. Conversely, if the S&P 500 fell back, it meant that further selling pressure needed to be wrung out of the market before it was ready to resume its uptrend. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "breakout-featured.jpg - Clear Wealth Planning Solutions") Over the next three trading days through May 2, the S&P 500 retreated back to 5011, but by the end of the day last Tuesday, it was surging back to the upside. And by Friday, the S&P 500 made its decisive move above its 50-day moving average resistance to reclaim the uptrend. The fact that the S&P 500 has been able to reclaim its 50-day moving average support line so quickly following an extended rally five months prior that saw the headline index gain more than +28% is not only impressive but decidedly bullish for the stock market to continue its gains into the summer months. But despite its initial strong surge, is the breakout confirmed? Not quite yet. **Seeking confirmation**. It is worthwhile to note that while the S&P 500’s surge above its 50-day moving average is indeed a great start, more needs to take place before we can get too comfortable that a breakout has taken place. Not only does the market need to advance above this line, it needs to do so decisively and sustainably. We got the decisive part last Friday, but the market needs to spend at least a few more trading days above its 50-day moving average and continue its advance higher before the breakout is fully confirmed. We can examine other related signals as well to help determine whether the breakout is likely to hold. For example, we can look at U.S. mid-cap and U.S. small cap stocks as measured by the S&P 400 and S&P 600 indices, respectively, to see how these markets are performing from a breakout perspective. And in both regards, we find additional good news. In the case of mid-caps, they broke out above their 50-day moving average resistance even more decisively. And the retreat taking place on Wednesday would be considered modest at best. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "iwp_log_664b4dfeb667d - Clear Wealth Planning Solutions") Same holds true even more so for small caps. Long the laggard relative to large caps and mid-caps, they had the most definitive breakout above resistance of them all. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "coolrunnings1.jpeg - Clear Wealth Planning Solutions") The relative strength in the breakout of mid-caps and small caps is a particularly good sign for large caps, as these smaller sized areas of the market have a history of leading the broader market over time. Moreover, the underlying economic and corporate earnings fundamentals support the continued upside scenario, as 2024 Q2 economic growth projections remain more robust than expected and corporate earnings continue to rise at a low double-digit rate at a time when inflationary pressures continue to ease, albeit more gradually than originally anticipated, but still easing nonetheless. **Next hurdles**. So what are the next hurdles ahead for a U.S. stock market that appears poised to return to rally mode? The good news is that a number of tailwinds remain at the market’s back. Following the upside burst in recent days, the S&P 500 also cleared its short-term 20-day moving average resistance (dotted green line) dating back to early April and in the process reached the top end of its Bollinger Band range (top solid green line). As a quick overly simplified explanation, Bollinger Bands show where the S&P 500 should reasonably be expected to trade 95% of the time – thus stocks should reasonably be higher than the top green line 2.5% of the time and below the bottom green line 2.5% of the time. In short, hitting the top band indicated the market was overdue for a quick breather, which played out on Wednesday. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "coolrunnings2.jpeg - Clear Wealth Planning Solutions") Beyond the overdue immediate pause, markets still have a number of indicators suggesting further room to move to the upside. The Relative Strength Index (RSI) is now back in bullish territory with a reading above 50, but at 59 still has a lot of room to rise before reaching an overbought 70 reading. Money flow is no longer negative as indicated by the red valleys at the bottom of the chart above, but we are far from having money flow rise into the green mountains that have driven past rallies. And the 20-day and 50-day moving averages that were resistance as recently as a week ago are now serving as trendline support to help steady the market on its latest advance. **Bottom line.** While we are still awaiting final confirmation, initial signals suggest that the recent market pullback in early April is fading into the rearview mirror. This is a positive sign for stock investors as we move through May and into the early summer months. ***Disclosure****: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* Compliance Approval #: 574524-1 **Categories:** Insights --- ### [Economic & Market Report: S&P’s Eleven](https://clear-wealth.com/economic-market-report-sps-eleven/) **Published:** May 6, 2024 **Author:** Clear Wealth Planning **Excerpt:** A passing glance at the U.S. market might make an investor think that it’s all about technology stocks all of the time.  But the S&P 500 Index is made up of eleven sectors, all with their unique and individual forces driving their returns. **Content:** A passing glance at the U.S. market might make an investor think that it’s all about technology stocks all of the time. But the S&P 500 Index is made up of eleven sectors, all with their unique and individual forces driving their returns. While the financial media attention is so heavily focused on a select few names, it is worthwhile to consider how these eleven sectors move in conjunction and contrast with each other over time in creating the more diversified symphony of market returns. **Information Technology.** The tech sector is the Danny Ocean of the S&P 500. It’s the sector that seemingly always gets the top billing in the financial media, and it has so many of the names that draw the attention of investors. And over the last seven years, the spotlight has certainly been justified, with cumulative returns more than double that of the broader U.S. stock market. And since the end of October when the latest stock market rally got underway, it continued to not disappoint with returns north of +22% over this time period. Despite all of the glowing reviews, the tech sector has revealed some of its weaknesses as of late. First, it has underperformed the broader S&P 500 by nearly a percentage point during this latest rally over the last six months. Perhaps more notably, since March 13 nearly two months ago, tech has fallen by more than -6.5% versus the S&P 500 being only down -2%. So while tech continues to be the headline stealing sector within the U.S. stock market, it is far from invincible. To this point, it is worth remembering that tech was among the worst performing sectors during the 2022 bear market, and we can still recall the notorious bursting of the technology bubble only two decades ago. **Communication Services.** This sector is the Rusty Ryan of the S&P 500. It is tech adjacent, with many of its largest members having been transported from the tech sector a few years ago along with a basket of media companies. And unlike tech, the communication services sector has outperformed the S&P 500 by more than +2% during the rally over the past six months. But much like tech, it has also been a recent laggard for an even longer stretch. Since February 2, communication services stocks have traded lower by -0.50% versus the S&P 500 trading higher by more than +2%. **Consumer Discretionary.** If a third sector stood at the top of the popularity pack with tech and communication services, it would be consumer discretionary. Thanks to its tech adjacent constituents Amazon and Tesla that together make up 40% of the sector’s entire market cap. But despite all of the shining lights, the sector has been a notable laggard during the current rally. It is higher by only +18%, falling more than five percentage points short of the S&P 500 since late October. And since December 20, it is lower by -2.4% versus the broader market trading higher by nearly +7%. This trailing performance is primarily attributable to Tesla, which has fallen by nearly -30% over this short time period. So despite the robust historical performance and all of the ongoing fawning attention in the financial media, these three stock sector kings have been flat to negative for the last few months now. Who then among the eleven is picking up the slack? **Financials**. It may come as a surprise to many market followers, but the best performing sector in the U.S. stock market by far is the Saul Bloom in financials. On the brink of Great Financial Crisis II just over a year ago, the financials sector has rallied by nearly +30% since late October to outperform the broader S&P 500 by more than six percentage points. But much like the headliners discussed above, so much of this upside was concentrated at the very beginning of the rally. For since December 28 of last year, financials have risen just +8% mostly in line with the broader market. **Industrials**. The second best sector performer since late October has been the industrials sector with a +27.5% return. It should be noted that of the eleven stock market sectors, industrials are the most highly correlated and historically have tracked most closely to the broader S&P 500. And the recent rally has been no exception, as both industrials and the S&P 500 have largely moved in lockstep. The relative outperformance has been a recent and fleeting development, as a strong relative surge from late February through mid-March propelled the sector higher, and it has managed to hold this ground in the weeks since. These are the headliners and the leaders of the pack. But with so many other sectors in the eleven, what of the so many co-stars and side characters that have underperformed the S&P 500 since late October? The following are the remaining six sectors and their returns during the rally since late October: **Materials**: +19.5% **Utilities**: +17.6% **Real Estate**: +15.5% **Consumer Staples**: +15.3% **Health Care**: +15.0% **Energy**: +11.3% Six sectors, all relative underperformers, but each with their own characteristics and relative return story. Consider materials, which has outperformed the more glamorous consumer discretionary sector overall. Yes, it has trailed the S&P 500 by more than four percentage points during the current rally, but since February 6 it has gained nearly +10% versus the broader market up by less than +3%. Trailed early, but has been a recently stellar performer when those sectors above the title have been flagging. How about utilities? The most steady and understated sector among the group, it’s performance since early February has been more stellar than materials, registering a +12% advance since February 13 stretching well beyond the +1% S&P 500 return over this same time period. Another recent leader as the headliners falter. Energy is yet another. The anti-tech sector – in years where tech ranks toward the middle to bottom of the sector table, energy is often found at the top and vice versa – has been the stellar performer in recent months despite still ranking at the bottom of the pack since late October. Since January 18, the energy sector has rallied more than +16% versus just +7% for the broader market over this same time period. The same can be said for the consumer staples sector as of late. Despite relatively lackluster performance overall during the current rally, it has jumped nearly +4% since April 16 at a time when the broader S&P 500 has been flat. **Bottom line.** All of this highlights key points about how we think about stock investing. While tech, communications services, and consumer discretionary names continue to dominate the headlines and conversations about investment markets, it has been many of the afterthought sectors that have quietly assumed market leadership roles in recent months in working to continue moving the broader stock market to the upside. This highlights why broad sector diversification remains important within equity strategies in working to lower portfolio risk and achieve more consistent overall returns over time. ***Disclosure****: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* Compliance #: 574524-1 **Categories:** Insights --- ### [Economic & Market Report: Bond Market Broadside](https://clear-wealth.com/economic-and-market-report-bond-market-broadside/) **Published:** April 25, 2024 **Author:** Clear Wealth Planning **Content:** The bond market sustained its latest broadside from the U.S. hot economic data warship on Thursday. Not only did the advance reading for 2024 Q1 U.S. GDP come in weaker than expected, but inflation readings also came in hotter than expected. This “stagflationary” barrage was enough to propel Treasury yields to their highest levels in more than six months. What should we reasonably expect from bonds going forward given the already tough start to the year in 2024? Aiming higher. In October of last year, the 10-Year U.S. Treasury yield crested at 5%, its highest levels since before the Great Financial Crisis nearly two decades ago. At the time, pricing pressures were proving stubbornly persistent and the U.S. Federal Reserve was still talking “higher for longer” tough on interest rates. ![](https://clear-wealth.com/wp-content/uploads/Slide1.jpeg "Slide1 - Clear Wealth Planning Solutions") By the end of the year just over two months later, everything had changed. Investors suddenly turned sanguine on the inflation outlook, and expectations for interest rate reductions from the U.S. Federal Reserve extended as high as two percentage points worth of cuts. This sparked a furious rally in the bond market, with 10-Year U.S. Treasury yields falling below 3.8% to close out last year. But since the start of 2024, the bond market has been giving it all back. In the wake of a steady stream of hotter than expected economic data on growth, employment, retail sales, and inflation among others, the 10-Year U.S. Treasury yield has risen as high as 4.74% and is now within a quarter point striking distance of its October 2023 highs at 5%. This raises an important question. Was the late 2023 bond rally the start of something good for bonds, or was it an oasis in an ongoing sea of red? The inflation trend remains the bond market friend. Indeed, the hotter than expected economic data in recent months has justifiably taken the wind out of the bond market sails. And a suddenly weak reading on GDP coupled with another hot salvo on inflation made matters even worse. After all, as this Chief Market Strategist has been emphasizing since the middle of last year, the primary downside risk to capital markets going forward is a renewed rise in inflation. And if you add weak economic growth to the mix, it only compounds the problem since policy makers are constrained in cutting interest rates to support a weakening economy. Nonetheless, it is important to reiterate that while inflation data has been stronger than expected as of late, the trend in the annual inflation rate on the Personal Consumption Expenditures (PCE) headline and core price indices, which is the preferred source for inflation data by the U.S. Federal Reserve, remains definitively to the downside. ![](https://clear-wealth.com/wp-content/uploads/Slide2.jpeg "Slide2 - Clear Wealth Planning Solutions") This leads to a particularly important data point worth watching on Friday. The Bureau of Economic Analysis is set to release its latest monthly readings for March 2024. Here are some key numbers to watch in reviewing the release. The latest headline and core PCE inflation readings were 2.45% and 2.78%, respectively. According to the latest projections from the Cleveland Fed Inflation Nowcast, headline PCE inflation is expected to come in reasonably higher at 2.65%, but more importantly core PCE inflation is anticipated to tick marginally lower to 2.74%. In short, we could see a marginal bump in headline PCE inflation, but the market should be prepared for this outcome. It will be the core PCE reading in particular that’s worth watching to see if it can hold its ground for the most recent month. More important than the latest monthly readings are the broader trends in PCE inflation. They have been definitively to the downside since mid-2022 when inflation peaked. And even if they blip marginally higher for March, a single data point does not make a trend. We will need to monitor the next few months ahead to see if any initial uptick eventually represents a full-blown reversal in inflation. And as long as the trend remains flat to lower, this is supportive of the bond market. Increasing separation. Another factor increasingly favoring the bond market in general and the Treasury market in particular is the steadily increasing yield that investors are receiving above the rate of inflation, otherwise known as the real yield. So as the inflation rate continues to slowly drift lower, it is making the real yield on bonds all the more attractive as they continue to rise.As one of many examples, consider the 10-Year U.S. Treasury yield relative to the annual inflation rate of the Fed’s preferred Core PCE price index. This spread that investors are being paid above this inflation gauge has risen above +1.2%, which marks its highest level in more than a decade. ![](https://clear-wealth.com/wp-content/uploads/Slide3.jpeg "Slide3 - Clear Wealth Planning Solutions") So what happened with forward bond returns the two most recent times this particular real yield reached comparable levels? The first peak took place in January 2014 in the wake of the Fed’s third quantitative easing program and the so called “taper tantrum” that sent bond yields higher sharply higher over the previous year. Over the subsequent two-and-a-half years through mid-2016, Treasuries steadily rallied in price alone by nearly double-digits. Add in the income paid by these bonds and the total return was close to +20%. ![](https://clear-wealth.com/wp-content/uploads/Slide4.jpeg "Slide4 - Clear Wealth Planning Solutions") The next peak took place in November 2018 in the wake of eight (and eventually nine) quarter point interest rate hikes by the U.S. Federal Reserve. Over the next two years, U.S. Treasuries rallied by nearly +20%, with a good portion of this rally taking place even before on the onset of COVID. ![](https://clear-wealth.com/wp-content/uploads/Slide5.jpeg "Slide5 - Clear Wealth Planning Solutions") How the bond market responds in the current environment will depend much on how the inflation data in particular unfolds in the coming months. But if recent history is any guide and 5-year breakeven inflation rates still below 2.5% are any indication, the bond market may have a good foundation for expected upside over the coming 24 to 36 months at current levels. **Bottom line.** The bond market has endured its latest economic data hit this week. But if current trends in inflation continue to hold, the risk-reward profile for bonds is becoming increasingly favorable for bonds going forward. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 571318-1 **Categories:** Insights --- ### [Economic & Market Report: How Low Can We Go](https://clear-wealth.com/economic-and-market-report-how-low-can-we-go/) **Published:** April 22, 2024 **Author:** Clear Wealth Planning **Content:** The long overdue correction has finally arrived. No sooner did the market peak at 5264 on the last trading day of March than the calendar flipped to the start of the second quarter and the market has been moving sustainably to the downside. Now that the correction is underway, how low can we reasonably expect the market to go? Why overdue? So why is the current correction considered overdue. Put simply, because the market has been running well above trend for many months now. Following the difficult stretch from August to October last year, the U.S. stock market exploded to the upside. By the end of last year, the S&P 500 was trading well above its 50-day moving average (blue line below), which was well above its 200-day moving average (red line below) that was well above its 400-day moving average (pink line below). And these gaps only widened further following the explosive start to 2024 for U.S. stocks. ![](https://clear-wealth.com/wp-content/uploads/Chart-1-US-Stocks-overdue-for-a-breather-e1713483905496.jpg "Chart-1-US-Stocks-overdue-for-a-breather-e1713483905496 - Clear Wealth Planning Solutions") The more the market is trading above these trendlines and the wider the gap between these moving average trendlines, the more the market is deviating too far from trend in one direction and becomes overdue to revert back to its trendline means. The fact that the S&P 500 went through extended periods with a Relative Strength Index (RSI) reading above 70 (overbought, and thus due for a correction) was added confirmation that the market from November to March had become frothy. How low so far? It has been a difficult April for the U.S. stock market so far with the overdue correction finally getting underway. The S&P 500 Index has closed lower in ten out of the first fourteen trading days this month. Notably, a number of these down days were marked by stocks trading strongly higher early in the session only to give up these gains and more by the close. In the process, the benchmark index has fallen -5% peak-to-trough from its end of March peak. Any cause for prolonged concern? It’s never pleasant to see the value of our investment portfolios decline in value, but it is an inevitable part of long-term investing in risk assets that fluctuate in price at any given point in time. And the good news is that the underlying fundamentals supporting today’s market remain strong. Economic growth for 2024 so far has been much stronger than anticipated coming into the year, with projections for 2024 Q1 Real GDP growth coming in as high as +3%. Corporate earnings growth is also set to increase by double digits through the remainder of 2024, which is also constructive. And while valuations on the S&P 500 remain elevated versus historical averages, the premium multiples are concentrated in the well known high flyers of recent years. Looking beyond these mega names, the rest of the market is trading at discounted multiples last seen several years ago. As a result, the current correction can be reasonably viewed as a healthy and orderly market consolidation after a recently strong run to the upside. Such pullbacks are good for the market long-term, as they help clear out excesses and misallocation of capital while providing more attractive entry points for new capital to be put to work in the markets. How low can we go? If this is indeed a garden variety short-term pullback within a longer term uptrend, it is reasonable to consider how much lower we should anticipate the market will go. First, it is worthwhile to note that when the stock market enters into a corrective period within a longer term bull market, the depth of the decline averages between -5% and -12% and typically lasts anywhere between four and twelve weeks. To date, although we are already down -5%, we are only in our third week of the correction. As a result, we should reasonably expect that the current decline may continue for at least a few more weeks and may stretch toward the higher end of the historical average range, particularly given that the market was so overextended heading into the correction. Put differently, even if we see a stock market still moving lower into double-digits by May or June, this is still in the context of a short-term pullback within a long-term uptrend. It is worth remembering that the S&P 500 declined by -11% peak to trough over a thirteen week period from August to October last year, only to subsequently rally by nearly +30% in the five months since. ![](https://clear-wealth.com/wp-content/uploads/Chart-2-US-Stocks-how-low-can-we-go-e1713483946137.jpg "Chart-2-US-Stocks-how-low-can-we-go-e1713483946137 - Clear Wealth Planning Solutions") Next, it is worth noting that the S&P 500 has already broken below its medium-term 50-day moving average support. This took place decisively on Monday, and thus signals that the market is likely starting into its next leg lower. The next landing spot of support for the S&P 500 is its 100-day moving average (orange line above), currently at 4930 and rising. This would mark a roughly -6% peak-to-trough decline in the headline index. While we may see a modest bounce from this support level, particularly now that stocks are approaching oversold levels (30 or less) on its RSI, the correction likely has further to go from there. Lastly, the next key level to watch would be 4800 on the S&P 500. This is not only where the rising 150-day (purple line above) and 200-day moving averages are converging in the coming weeks, but it also happens to be near the level where the S&P 500 started the year. Not only would this give us a -9% peak-to-trough decline, but for all of those investors that were waiting for a pullback at the start of the year only to see U.S. stocks surge by roughly +10% in the first three months of the year, this will be their second chance to get back into the market. Such is the buying pressure that can help arrest a decline to the downside and provide the foundation for a fresh new sustained move to the upside. Bottom line. The U.S. stock market has recently fallen into correction, and we should not be surprised if this pullback extends further into the second quarter and takes a few more percentage points off of the S&P 500 Index. But behind so many short-term pullbacks are long-term buying opportunities, and investors may be well served to view this recent market decline with a measure of longer term optimism. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 568588-1 **Categories:** Insights --- ### [Economic & Market Report: Warning Signs](https://clear-wealth.com/economic-and-market-report-warning-signs/) **Published:** April 15, 2024 **Author:** Clear Wealth Planning **Content:** The latest reading on monthly inflation came in hot once again on Wednesday. Predictably and understandably, both stocks and bonds did not like the news. While concerns about the latest CPI report may be overdone, some broader market signals may be suggesting that the longer trend of easing inflationary pressures may be at increasing risk. Hot, hot, hot . . . It has been a recurring theme throughout 2024. Economic data is released – GDP, jobs, inflation – and it comes in hotter than expected. The latest was the release of the Consumer Price Index from the U.S. Bureau of Labor Statistics, which – wait for it – came in hotter than expected. ![](https://clear-wealth.com/wp-content/uploads/Chart-1-CPI-Inflation-Keep-a-close-eye-in-the-months-ahead.jpg "Chart-1-CPI-Inflation-Keep-a-close-eye-in-the-months-ahead - Clear Wealth Planning Solutions") Now we could get into the weeds to debate why this week’s CPI report may or may not be as persistently hot as it might look at first glance (this Chief Market Strategist is on the “may not” side), but it’s worthwhile to stick to the bigger picture. The latest CPI reading has tripped some warning signs that warrant closer attention in the months ahead. Put simply, we can withstand hotter than expected inflation readings as long as the year over year trend in headline and core inflation remains lower. And this had been generally true to a diminishing extent up through last month. But with this latest reading for March, we could be seeing what may end up being the very beginning of a reversal in trend. Headline inflation had bottomed at 3.05% nearly a year ago now, but had been holding steady in the 3.10% to 3.30% range since last fall. But the latest reading for March sent the headline inflation rate up toward 3.5% and its highest reading since last September. Moreover, the trend for the year on headline annual CPI inflation is starting to bend higher. It’s still early on this recent development, but one that warrants close attention as we move through the spring and into the summer. A source of reassurance amid the steady stream of hotter inflation data was the fact that the core inflation continued to trend lower, albeit at a diminishing rate. But with the latest release for March, we saw the annual change in the Core CPI tick higher by 4 basis points from 3.76% to 3.80%. This marks the first rise in the annual Core inflation rate since March 2023. Now it’s important to emphasize that a single data point certainly does not make a trend, particularly when we’re only talking about 4 basis points. But we will want to monitor to see if this number turns back lower when the April data is released next month just as it did previously in April 2023. **Checking the heat.** As would be anticipated following the latest hot CPI inflation reading, expectations around interest rate cuts from the Federal Reserve took another hit. After hitting a peak of as many as seven quarter point rate cuts from the Fed coming into the year, we have now shrunk to expectations for only two cuts by the end of 2024. Now this Chief Market Strategist has held the view for some time that we may not see any rate cuts from the Fed this year, and this arguably would not be a bad thing. Nonetheless, it is important as investors to keep our eyes on the right heat settings. While the CPI inflation data may have come in hot, this is not the inflation reading monitored by the Fed when making their monetary policy decisions. Instead, it is the Personal Consumption Expenditures (PCE) price indices. And unlike the flatting CPI readings, the PCE data continues to trend more definitively lower. ![](https://clear-wealth.com/wp-content/uploads/Chart-2-PCE-Price-Index-Mond-the-One-that-Matters-More.jpg "Chart-2-PCE-Price-Index-Mond-the-One-that-Matters-More - Clear Wealth Planning Solutions") As a result, a key date to mark on your calendars is April 26 when we get the latest PCE inflation readings for March from the Bureau of Economic Analysis. This will give us much more direct insight into whether the Fed may still follow through on the rate cuts that so many market participants are still anticipating. **Warning signs.** A number of other readings are also worth monitoring in the days and weeks ahead in seeking to determine the future direction of inflation. Commodities such as oil, copper, and gold, all of which are higher in price by double-digits year to date are natural places to start. Another reading from the economic realm worth monitoring is the breakeven inflation rate, which is a measure of expected inflation derived from nominal Treasuries and their comparably dated inflation-indexed counterpart. More simply, it provides a reading of what the market expects inflation to be over the next five years on average. ![](https://clear-wealth.com/wp-content/uploads/Chart-3-Breakeven-Inflation-ARate-on-the-Rise.jpg "Chart-3-Breakeven-Inflation-ARate-on-the-Rise - Clear Wealth Planning Solutions") In a development worth watching going forward, the 5-year breakeven inflation rate has risen by 0.43 percentage points from its early December lows at 2.05% to 2.49% today. This reading climbed as high as 2.52% last October before retreating lower, and one gets the feeling that we may break out above this most recent high in the weeks ahead. An expected inflation reading in the 2.5% is still constructive, but something approaching the 3% level or higher may strike the market (and the Fed) quite differently. **Bottom line.** The trend of easing inflationary pressures dating back to 2022 is coming increasingly under pressure. Markets have been resilient so far, but as each new economic reading comes in hotter than expected, it remains important to continue to monitor inflation readings closely for any potential changes in trend. If inflationary pressures start to sustainably rise, risk assets may ultimately start to wilt. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 565491-1 **Categories:** Insights --- ### [Economic & Market Report: Worth Its Weight In Gold](https://clear-wealth.com/economic-and-market-report-worth-its-weight-in-gold/) **Published:** April 8, 2024 **Author:** Clear Wealth Planning **Content:** When thinking about diversification, investor minds often focus on the relationship between stocks and bonds. But a variety of other asset classes also exist. One such category is gold. **Quarter century winner.** Suppose you were presented with the following question: “what between U.S. stocks and gold has been the best performing investment category over the past 25 years?” Understandably, the answer from most investors would be U.S. stocks. After all, those of us that have been in the investing game long enough can remember like yesterday at the turn of the millennium the dubious “Dow 10000” hats on the New York Stock Exchange trading floor along with the even more notorious Dow 36000 book release (the Dow is on the brink of eclipsing 40000 today) along with the NASDAQ bubble peaking at just above 5000 (its over 16400 today) and the S&P 500 hitting all-time highs of 1553 (it is surging above 5000 today). U.S. stock performance over the last quarter century has been phenomenal. ![](https://clear-wealth.com/wp-content/uploads/Chart-1-Stocks-vs-Gold-Quarter-Century-Cumulative-Returns.jpg "Chart-1-Stocks-vs-Gold-Quarter-Century-Cumulative-Returns - Clear Wealth Planning Solutions") Nonetheless, the answer to the above question is not U.S. stocks. Instead, it is gold. Since January 1999, gold has generated a cumulative return of +700% through today versus the +583% total return for U.S. stocks as measured by the S&P 500 over this same time period. Not only is gold the winner, the margin of victory is not even close at triple-digits. **About diversification**. But the key from the chart above is not about the cumulative return experienced by either category over the past 25 years. Regardless of your choice, both categories performed well over this long-term time period. Instead, the far more important point is the vastly differentiated path that these two asset classes traveled along the way to arrive at their respective end points. Consider the period from 2002 to 2012. While stocks were largely dead money during this time period in the wake of the double bubbles of 2000-02 and 2007-09 along the way, gold surged relentlessly to the upside. Consider the period from 2013 to 2018. While gold was getting routed, stocks were exploding to the upside on a wave of sufficiently sluggish economic growth and consistently easy monetary policy flowing from the U.S. Federal Reserve. And consider the period from 2019 to the present, where both stocks and gold have been advancing strongly to the upside with their own respective fits and starts along the way. This is what is known as being uncorrelated, and is a key principle to portfolio diversification over the long-term. Regardless of whether stocks are zigging or zagging at any given point in time, gold is following its own largely independent path. In other words, if either category heads sharply south at any given point in time, the other category has the independent ability to potentially pick up the slack. **Uncorrelated**. Let’s take a brief dip into the statistics. The correlation of two assets is measured on a scale between -1.00 to 0.00 to +1.00. If the correlation reading is positive, it means two assets are likely to move in the same direction over time. The higher the positive reading toward +1.00, the more positively correlated two assets are. For example, while a core U.S. bond strategy has a low positive correlation at +0.21 with U.S. stocks (this is a fairly good diversification reading), the reason that many say high yield bonds trade more like stocks is because they have a relatively correlation to the S&P 500 of +0.74. Conversely, if the correlation reading is negative, it means two assets are likely to move in the *opposite* direction over time, with the higher the negative reading toward -1.00, the more negatively correlated the two assets are. Thinking about the stock/bond relationship, its worth noting that long-term U.S. Treasuries have a low negative correlation at -0.13 with U.S. stocks, thus packing an added portfolio diversification punch relative to a broader core bond strategy for an investment portfolio when stocks are falling (the fact that long-term U.S. Treasuries also have a meaningfully higher standard deviation of total returns than a broader core bond strategy is also an important key from a diversified portfolio construction standpoint, but this is a more in depth discussion for another day). So what about gold? The yellow metal has a +0.09 correlation to U.S. stocks. The closer the reading to 0.00 between two assets, the more uncorrelated (and independently moving) these two assets are. In short, gold is virtually uncorrelated with U.S. stocks. (Bonus note: gold also has a low positive correlation at +0.22 to both a broader core fixed income strategy as well as long-term U.S. Treasuries – not only is gold essentially uncorrelated with stocks, they are also largely uncorrelated with bonds). **But weight**. What else is worth knowing about gold. First, gold as an investment is not for the faint of heart. It has a price volatility that is more than 10% higher than that of U.S. stocks as measured by the S&P 500, which is a more volatile category in its own right. This volatility can be disquieting, particularly when gold enters into a more price swinging stretch as it has on a number of occasions during its history. Next, gold is a real asset. It hurts when you drop it on your foot. But it does not generate cash flows and it does not kick off income. **Bottom line.** When thinking about broad diversification, the asset class universe is not just limited to stocks and bonds. It also includes a variety of other uncorrelated categories including gold. Compliance Tracking #: 554159-1 **Categories:** Insights --- ### [Economic & Market Report: The Monopolistic Seven](https://clear-wealth.com/economic-market-report-the-monopolistic-seven/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Ides of March](https://clear-wealth.com/economic-market-report-the-ides-of-march/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Looking Beneath The Surface](https://clear-wealth.com/economic-market-report-looking-beneath-the-surface/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Shortness of Breadth](https://clear-wealth.com/economic-market-report-shortness-of-breadth/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Winners & Contrarians](https://clear-wealth.com/economic-market-report-winners-contrarians-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** A fresh new calendar year is underway for capital markets, so much focus is on what we can reasonably expect in the year ahead. But given that capital market movements flow across the beginnings and ends of our calendar pages, it is worthwhile to consider as investors get back up to speed from the holiday season what segments of the markets have been winning thus far, and what areas of the market may have been left behind and offering potential opportunity depending on how events unfold in the weeks ahead. **Content:** **Categories:** Insights --- ### [Economic & Market Report: Stress Test](https://clear-wealth.com/economic-market-report-stress-test/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Setting The Bar](https://clear-wealth.com/economic-market-report-setting-the-bar-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** A New Year is underway for capital markets, and the consensus prognostications are tilted toward a favorable year for both stocks and bonds. **Content:** **Categories:** Insights --- ### [Economic & Market Report: Giddy Yap, Let’s Go](https://clear-wealth.com/economic-market-report-giddy-yap-lets-go-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** Christmas came early to capital markets on Wednesday. The U.S. Federal Reserve emerged from its latest Open Market Committee meeting on Wednesday with good tidings for investors, sharing tales that inflation continues to come down and labor markets coming into balance. **Content:** **Categories:** Insights --- ### [Economic & Market Report: ‘Tis the Season](https://clear-wealth.com/economic-market-report-tis-the-season-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** The age-old stock market adage has rang so true over the past year.  The notion of “sell in May and go away” is based on the historical trend of relative underperformance by stocks during the period from May 1 to October 31.  Of course, the flip side of this adage is the historical trend of relative stock outperformance during the period from November 1 to April 30. **Content:** **Categories:** Insights --- ### [Economic & Market Report: World Make Way](https://clear-wealth.com/economic-market-report-world-make-way-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** For more than a decade, the U.S. stock market has been the place to be for global equity investors. But as we continue to emerge from the inflationary induced bear market over the last two years, developed international and emerging markets may be worth a closer look. **Content:** **Categories:** Insights --- ### [Economic & Market Report: All Things Mid & Small](https://clear-wealth.com/economic-market-report-all-things-mid-small-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** It has been a November to remember. Following a three-month slide from August to October that saw U.S. stocks decline by more than -10% and the 10-Year U.S. Treasury yield jump by more than a percentage point (ouch and ouch), capital markets roared back to life this month. **Content:** **Categories:** Insights --- ### [Economic & Market Report: Savoring the Feast](https://clear-wealth.com/economic-market-report-savoring-the-feast-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** Capital markets have had a remarkable run in recent weeks. After bottoming at the end of October, the S&P 500 Index has soared roughly +10%. The 10-Year U.S. Treasury yield has also plunged by more than a half percentage point since recently peaking at 5.00%, driving a comparable nearly +10% bounce in long-term U.S. Treasuries. Given these head turning gains for both stocks and bonds over such a short-term period of time, it is reasonable to consider what we should reasonably expect from here between now and when many across America are carving turkey for their Thanksgiving Day feasts. **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Running of the Bulls](https://clear-wealth.com/economic-market-report-the-running-of-the-bulls-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** Just over a week ago, both stock and bond markets were long overdue for a bounce. And bounce they have. Just like a slingshot, the further and deeper capital markets pulled back through late October, the greater the energy released once the upside rally finally arrived. In the wake of this recent capital market burst, it is worthwhile to evaluate both where we stand today and what we can reasonably expect in the weeks ahead through the end of the year. **Content:** **Categories:** Insights --- ### [Economic & Market Report: Three Market Scares This Halloween](https://clear-wealth.com/economic-market-report-three-market-scares-this-halloween-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** It’s been a haunted ride for capital markets over the last two years. And just when it looked like the horrors were finally coming to an end this past summer, the last few months have seen the stock and bond market demons rise again. While a new dawn may still lie ahead for capital markets in the coming months, here are a few scary risks confronting investors today. **Content:** **Categories:** Insights --- ### [Economic & Market Report: Investment Market Battle Lines](https://clear-wealth.com/economic-market-report-investment-market-battle-lines-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** The volatility across capital markets continues. Following a great summertime stretch, U.S. stocks have been tumbling to the downside since the start of August. As for the bond market, it was just three months ago in mid-July when the 10-Year U.S. Treasury yield rallied its way back to 3.75% before fast tracking its way up to 5.00% in the time since. While the fundamental case for why stocks and bonds may see better days ahead – strong economic growth, persistently tight labor market, declining inflation pressures, modest inflation expectations, improving corporate earnings, widening corporate profit margins, and historically attractive valuations (outside of the so called Magnificent Seven stocks) – the fact remains that capital markets remain under steady pressure during this historically challenging time of year from early August to mid-November from a seasonality perspective. As a result, it is worthwhile to take a look from a technical perspective by more closely examining the battle lines across capital markets. **Content:** **Categories:** Insights --- ### [Economic & Market Report: Forests Over Trees](https://clear-wealth.com/economic-market-report-forests-over-trees-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** Global financial markets are shrouded in uncertainty, and the risks to the downside remain pronounced. Stocks continue to waver amid a difficult stretch dating back to the end of July. And bond yields continue to spike to levels last seen nearly two decades ago. While it is reasonable that investors may wish to recoil amid the swirling geopolitical and market risks, drawing back and taking in the views across the capital market landscape provides constructive reasons to stay the course. **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Market Impact of War](https://clear-wealth.com/economic-market-report-the-market-impact-of-war-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** The world was shaken this past weekend by the sudden and unexpected outbreak of war in Israel. As we continue to watch closely as the geopolitical and humanitarian crisis unfolds, it is also understandable to wonder about the potential impact on capital markets going forward. And history provides a useful guide to our understanding of what to expect from here. **Content:** **Categories:** Insights --- ### [Economic & Market Report: How Low Can You Go?](https://clear-wealth.com/economic-market-report-how-low-can-you-go-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Excerpt:** The period from mid-August to mid-November is a notorious time of year for capital markets. The pithy investment strategy “Sell in May and go away” is based on the idea of avoiding this stretch of time of year in stocks and picking back up after Halloween. And 2023 has been no exception in this regard. While U.S. stocks had a rousing summer through the end of July, the more than two months since have been particularly rough not only for stocks but even more so for bonds. How much lower should we reasonably expect stocks and bonds to go from here? **Content:** **Categories:** Insights --- ### [Economic & Market Report: Seeing Red](https://clear-wealth.com/economic-market-report-seeing-red-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Leaves Turning Brown](https://clear-wealth.com/economic-market-report-leaves-turning-brown-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Red Alert](https://clear-wealth.com/economic-market-report-red-alert-3-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Dog Days of Summer](https://clear-wealth.com/economic-market-report-the-dog-days-of-summer-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Strange Market Bedfellows Worth Monitoring](https://clear-wealth.com/economic-market-report-strange-market-bedfellows-worth-monitoring-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Cool Inflation Summer](https://clear-wealth.com/economic-market-report-cool-inflation-summer-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Putting Junk to Good Use](https://clear-wealth.com/economic-market-report-putting-junk-to-good-use-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: A Closer Look at Corporate Earnings Season](https://clear-wealth.com/economic-market-report-a-closer-look-at-corporate-earnings-season-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Four Horses for Portfolio Gains](https://clear-wealth.com/economic-market-report-the-four-horses-for-portfolio-gains-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Outlook from Jackson Hole](https://clear-wealth.com/economic-market-report-outlook-from-jackson-hole-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Implications of the Recession Outlook](https://clear-wealth.com/economic-market-report-implications-of-the-recession-outlook-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Bonds Are Back](https://clear-wealth.com/economic-market-report-bonds-are-back-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Blue Skies for Now](https://clear-wealth.com/economic-market-report-blue-skies-for-now-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Hold In May and Stay To Trade](https://clear-wealth.com/economic-market-report-hold-in-may-and-stay-to-trade-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Surface Pressure](https://clear-wealth.com/economic-market-report-surface-pressure-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: No Clear and Present Danger](https://clear-wealth.com/economic-market-report-no-clear-and-present-danger-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Path of Least Resistance](https://clear-wealth.com/economic-market-report-the-path-of-least-resistance-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: When The Levee Breaks](https://clear-wealth.com/gva-economic-market-report-when-the-levee-breaks-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Path Forward for Cryptocurrencies](https://clear-wealth.com/gva-economic-market-report-the-path-forward-for-crypto-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: The Return of Diversification](https://clear-wealth.com/gva-economic-market-report-return-of-diversification-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Flashing Lights](https://clear-wealth.com/gva-economic-market-report-flashing-lights-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Reality Check](https://clear-wealth.com/economic-market-report-reality-check-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Falling Slowly](https://clear-wealth.com/economic-market-report-falling-slowly-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Turning the Bend](https://clear-wealth.com/turning-the-bend-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: We Are Where We Are BUT….](https://clear-wealth.com/we-are-where-we-are-but-2/) **Published:** April 2, 2024 **Author:** Clear Wealth Planning **Content:** **Categories:** Insights --- ### [Economic & Market Report: Outlook 2024 – 3/4 Pole](https://clear-wealth.com/economic-market-report-outlook-2024-3-4-pole/) **Published:** April 1, 2024 **Author:** Clear Wealth Planning **Content:** Hard to believe the first quarter of 2024 is drawing to a close. As we pass the 3/4 pole in our 8 furlong race through the calendar year, it is worthwhile to assess the key market events that are now behind us and what lies ahead in the horse race to the year-end finish line. Starting gates. A key market theme at the starting gates was that the U.S. stock market was due for some sort of consolidation. In the final two months of 2023, the S&P 500 following an August to October pullback that shaved -11% staged a furious +17% rally in the final two months of the year. This sent the headline index towards three challenging junctures from a technical analysis perspective. ![](https://clear-wealth.com/wp-content/uploads/Chart-1-SP-500-at-the-2024-Starting-Gates-e1711655132891.jpg "Chart-1-SP-500-at-the-2024-Starting-Gates-e1711655132891 - Clear Wealth Planning Solutions") Not only was the S&P 500 heavily overbought with a Relative Strength Index (RSI) reading well over 70, but the market had also returned to the top of its trading channel dating back to the October 2022 lows. At the same time, the benchmark index surged all the way back to its previous all-time highs set two years ago in January 2022 before the onset of the inflation fueled bear market. Why does this last point matter? Because selling pressure increasingly sets in among those investors that flooded into the market at the previous all-time highs subsequently spent the last two years waiting to get back to breakeven to get their initial investment back. Add to all of these technical forces the fundamental reality that stocks were historically overvalued and the economy was bracing for a potential recession in 2024, and the stage was set for stocks to start the year at a walk or trot at best. 3/4 Pole. The various forces pulling up the reins at the start of the year has made the galloping pace of the market all the more striking. Stocks barely paused for a few trading days to open the year before breaking out to the upside above its various resistance levels. ![](https://clear-wealth.com/wp-content/uploads/Chart-2-SP500-at-the-.75-Pole-Galloping-at-Full-Speed-e1711655176566.jpg "Chart-2-SP500-at-the-.75-Pole-Galloping-at-Full-Speed-e1711655176566 - Clear Wealth Planning Solutions") Put simply, stocks are off to the races in the first 8 furlongs of 2024. This has changed the complexion of what we should reasonably expect for the upcoming second quarter and the remainder of the year. From a fundamental perspective, expectations for an recession have faded to zero, as economic growth projections remain solidly robust and the latest stream of data releases are repeatedly coming in hotter than expected. As a result, arguably for the first time since before the Great Financial Crisis more than 15 years ago, the stock market is moving higher not on hopes and expectations for the next round of monetary policy easing from the U.S. Federal Reserve but instead on an economy that is bursting with growth at the same time that inflationary pressures continue to abate. As a result, an S&P 500 that initially was projected heading into the year to have the potential to crest the 5200 mark under more favorable scenarios by the end of the second quarter has ended up passing this mark before the end of the first quarter. At the same time U.S. mid-caps as measured by the S&P 400 Index have also surged to new all-time highs with U.S. small caps as measured by the S&P 600 and developed international stocks as measured by the MSCI EAFE Index also on the brink of fresh new bests. Final 6 furlongs. With the resoundingly brisk start to the year, what can we reasonably expect for the rest of the race? Expect the pace to remain strong for the foreseeable future. With the strong upside breakout in the first quarter, the S&P 500 is now tracking a pace to end 2024 with support in the 5400 to 5600 range. While a upper bound to the new trading range has not yet been set – the next still overdue pullback in stocks will help set the bar – an S&P 500 stretching toward the 6000 range is no longer entirely out of the conversation. We will learn much more in this regard over the next quarter mile of the race. ![](https://clear-wealth.com/wp-content/uploads/Chart-3-SP500-Final-6-Furlongs-Gallop-Set-to-Continue-e1711655221201.jpg "Chart-3-SP500-Final-6-Furlongs-Gallop-Set-to-Continue-e1711655221201 - Clear Wealth Planning Solutions") Of course, we are still early in the year, and much can happen from an economic, financial, political, and geopolitical perspective that has the potential to upend the market for extended periods along the way. To begin, the economic data remains sufficiently strong. Although both readings have faded somewhat in recent weeks and have the potential to fade further as we continue through the rest of the year, estimates for 2024 Q1 GDP growth remain solidly in the +2% range, which is hardly the signs of an oncoming recession. Moreover, such economic growth is supporting forecasts for double-digit corporate earnings growth through the remainder of 2024. If the economy holds strong and corporations deliver on earnings, stocks can continue to advance to the upside despite historically rich valuations. But what if the economy starts to disappoint and we fall into recession, dragging corporate earnings expectations to the downside with it? Then a reverse boomerang effect starts in support of the market. When we entered the starting gates for 2024, investors were expecting the Fed cut interest rates by a quarter point as many as seven times this year. This expectation was a primary reason why stocks surged +17% from their October lows and the 10-Year U.S. Treasury yield fell dramatically (and prices soared) from effectively 5.0% in October to below 3.8% by the end of the year. Over the last three months, expectations for Fed rate cuts have fallen sharply to a base case of two to three quarter point reductions with a growing chorus of prognosticators suggesting that we might not get any rate cuts at all in 2024. Markets have taken this dramatic downside shift in Fed rate cut expectations in full gait. Now, if the economy ends up slowing, the market will anticipate more rate cuts than currently expected, and investors will likely love it the same way they have for the years since the Great Financial Crisis first conditioned this investor response mechanism. Amid this good news is good news and bad news is good news state of the market, it will likely take an exogenous shock to unsettle the market in the coming months. What are some of the scenarios? First, a geopolitical event no matter how extreme is not likely to cause anything more than a temporary pullback in stock prices. Why? Because no matter how dramatic and unexpected the event might be, the fiscal and monetary policy makers will almost respond with “whatever it takes” to maintain stability in the U.S. and global financial system. We have to look no further to how the markets responded in the aftermath of COVID that effectively shutdown the entire global economy for an extended stretch and the 9/11 attacks at the turn of the millennium to see how quickly markets can bounce back even under the most dire circumstances. So even if Russia were to invade a NATO country, China were to invade Taiwan, another wave of U.S. bank failures erupted, or any various known unknown scenarios, the markets might lurch lower initially, only to subsequently rebound once the inevitable policy response takes hold. Instead, the real and sustained downside risk for the markets in the months ahead comes from a key primary source. This is liquidity. As long as liquidity is flowing freely into capital markets, the path for stocks (and bonds, and gold . . .) is higher. But if events arise that threaten to disrupt these liquidity flows, then the potential downside for stocks could suddenly have a 2022 feel to them. The leading risk in this regard is a renewed rise in inflation. Inflation has been steadily fading since its 2022 peaks. But the risk remains that a stronger than expected economy and/or extended supply chain disruptions from an unexpected geopolitical event could plant the seeds for a renewed sustained surge in inflation. If such an event were to come to pass, this has the potential to put a full stop to the 2024 stock market horse race and send stocks breaking resistance to the downside. But the good news is at the present time, inflation readings continue to trend on the disinflationary side and liquidity remains abundant as evidenced by a variety of signals including the price of Bitcoin surging to new all-time highs and the latest wave of Special Purpose Acquisition Company (SPAC) and meme stock surges (the latest example being a recently widely discussed SPAC with $3.3 million in revenues against $49 million in losses boasting an $8 billion market cap – such is the signs of abundant liquidity and speculative fervor regardless of one’s political views). As long as inflation continues to trend lower, or even if it simply levels out, we should continue to expect the liquidity environment to remain supportive for continued speculative activity and upside in risk asset prices. Bottom line. Stocks are off to a blazing gait so far in the 2024 horse race. And while periods of short-term downside should not only be expected but are arguably overdue at this point, the broader direction for stock prices remains higher as we enter the remaining 6 furlongs of the year. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 559850-1 **Categories:** Insights --- ### [Economic & Market Report: Winners & Contrarians](https://clear-wealth.com/economic-market-report-winners-contrarians/) **Published:** January 15, 2024 **Author:** Clear Wealth Planning **Excerpt:** A fresh new calendar year is underway for capital markets, so much focus is on what we can reasonably expect in the year ahead. But given that capital market movements flow across the beginnings and ends of our calendar pages, it is worthwhile to consider as investors get back up to speed from the holiday season what segments of the markets have been winning thus far, and what areas of the market may have been left behind and offering potential opportunity depending on how events unfold in the weeks ahead. **Content:** A fresh new calendar year is underway for capital markets, so much focus is on what we can reasonably expect in the year ahead. But given that capital market movements flow across the beginnings and ends of our calendar pages, it is worthwhile to consider as investors get back up to speed from the holiday season what segments of the markets have been winning thus far, and what areas of the market may have been left behind and offering potential opportunity depending on how events unfold in the weeks ahead. Winning. With all of the talk about the new calendar year lately, a key date to highlight from recent months is October 30. This is the day that the S&P 500 bounced from its bottom and slingshot to the upside by double-digits through the Thanksgiving and Christmas holiday seasons. What likely comes as no surprise to investors is one of the primary sectors that has been leading the rally over the past two and a half months is information technology. This sector contains several of the mega cap Magnificent Seven stocks that drove the broader market index higher throughout 2023, and these monster free cash flow generating companies have remained at it through the most recent rally. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-1-Winners-Technology-No-Surprise-Tough-Start-to-2024.jpg "- Clear Wealth Planning Solutions") It is worth noting, however, that no sector is perpetually invincible, and the tech sector is no exception. Those of us who can remember tech back at the turn of the millennium, financials in the mid-2000s, or for those more seasoned among us the energy sector back in the early 1980s, we know this reality all too well. Thus, the resounding thud from the tech sector at the start of the year, while quickly fading away in the days since, serves as a reminder that even the most persistent market segments can suddenly and swiftly turn to the downside once underlying market conditions change. Winning-er. While stocks in general and technology in particular typically dominate all of the financial news headlines, it is worth noting that two other major sectors have performed even better during the most recent market rally since late October. These are financials and real estate. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-2-Winner-Financials-Real-Estate-Even-Better.jpg "- Clear Wealth Planning Solutions") Of course, it should come as no surprise upon closer reflection that financials and real estate have led to the upside in the latest market rally. Investors have staked their bets during this surge that the U.S. Federal Reserve is not only done for the current cycle raising interest rates (this Chief Market Strategist agrees) but that the Fed may cut interest rates by a quarter point as many as seven times in 2024 (this Chief Market Strategist has a decidedly different view). Given that financials and real estate are highly interest rate sensitive sectors, they stand to benefit most from this bold optimism. Indeed, they also stand to feel more pronounced disappointment if these monetary policy expectations fall short in the months ahead. Bond, Long Bond. Speaking of interest rate sensitive investments, the bond market has also seen recent euphoria in part associated with the steady decline in inflation pressures coupled with expectations of easier monetary policy from the Fed in the year ahead. And knowing that the longer the duration of a bond, the more it trades like a stock, we see that the price on the 30-Year U.S. Treasury Bond has rallied almost as strongly as the S&P 500 since the late October rally got underway. This highlights the total return benefits that can come to your portfolio not only within the stock market but also across the asset allocation spectrum. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-3-Winners-Long-Bond-Battling-Back-with-Stocks.jpg "- Clear Wealth Planning Solutions") Calling all contrarians. OK. This all sounds great if things play out as the consensus expects. But what if things play out differently? What if inflation stops continuing to go down? What if an unexpected supply chain disruption or geopolitical event causes inflation to suddenly start sustainably rising again? What then? For considerations like these, it is worthwhile to sift through the rubble and identify those areas of the market that have been left behind during the most recent market rally. Leading among these is the natural resources segment generally and the energy sector in particular. Not only are natural resources barely positive, but energy stocks are down by more than -3% at a time when the S&P 500 has rallied more than +16%. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-4-Laggards-Energy-Natural-Resources.jpg "- Clear Wealth Planning Solutions") Why focus on this laggard in particular? Because they have likely underperformed in large part under the consensus expectation that inflation will continue to fall an Fed interest rates will soon come down aggressively. But if it turns out that inflation starts to rise anew and/or the Fed is compelled to resume raising interest rates further, these recently beleaguered segments of the market stand to benefit most. Bottom line. While the investor focus is understandably on the twelve months ahead with 2024 getting underway, it’s just as worthwhile to reflect over the past three months to consider the return potential and risks that we may see in the weeks ahead. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking: #526868-1 **Categories:** Insights --- ### [Economic & Market Report: Setting The Bar](https://clear-wealth.com/economic-market-report-setting-the-bar/) **Published:** January 8, 2024 **Author:** Clear Wealth Planning **Excerpt:** A New Year is underway for capital markets, and the consensus prognostications are tilted toward a favorable year for both stocks and bonds. **Content:** A New Year is underway for capital markets, and the consensus prognostications are tilted toward a favorable year for both stocks and bonds. Such a rosy outlook is not without risks, of course. As a result, it is worthwhile to consider where we are starting the year with some key indicators that will be important to monitor for stock market success as we progress through 2024. Notable start. The trading year is only two days old with roughly 250 more trading days still ahead in 2024. Thus, one should not draw any conclusions about what we have seen so far from such a limited sample. Nonetheless, some initial developments are of note. Leading the headlines is the long soaring technology sector stumbling off of the 2024 starting blocks. This suggests that at least a few investors that were riding the Magnificent Seven train into their 2023 year end statement station are wasting no time detraining with the New Year getting underway. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-1-Defense-Strong-Off-the-Starting-Block-in-2024.jpg "- Clear Wealth Planning Solutions") So what segments have been leading the stock market at the very start of 2024? While energy stocks have received a boost from the +3% rise in oil prices in the first few days of the year, more notable has been the pop in defensive sectors including health care and utilities. Once again, only a couple of days, but worth watching as the first week of the year draws to a close. Setting the bar. More importantly, considering where key economic and market metrics stand as we enter the New Year is a worthwhile exercise, as it sets the bar against which we will be monitoring and evaluating these key statistics going forward. Let’s start with U.S. GDP. Market watchers were trembling over the idea of a recession as 2023 got underway, but it has yet to materialize. But with signals like the Leading Economic Indicators at nearly -8% on a year-over-year basis still raising the recession warning flag, it will be important to keep an eye on the economic outlook in the months ahead. Why? Because economic recessions usually mean lower corporate profits that often lead to lower stock prices. Where do we stand today on the economic outlook front? So far, so good. GDP. First, consider that we are still waiting for the preliminary reading on 2023 Q4 GDP at the end of this month, but expectations for the just completed quarter remain in the solid +2% neighborhood according to both the Atlanta Fed GDPNow and the New York Fed Nowcast. Of course, the stock market typically does not price off of what has already been, but instead on what it thinks lies ahead. As a result, it’s arguably more important to consider what lies ahead for economic output. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-2-New-York-Fed-Nowcast-Favorable-GDP-Growth-Outlook-for-2024Q1.jpg "- Clear Wealth Planning Solutions") According to the New York Fed Nowcast, preliminary indications are for another +2% quarter of GDP growth in 2024 Q1. Good news for those that care about underlying fundamentals. Bad news for those hoping for rate cuts from the U.S. Federal Reserve sooner rather than later. Fed. Speaking of the Fed, what are the latest projections for monetary policy interest rates as we enter 2024? Check it. The CME FedWatch Tool is currently signaling a 73% chance of a quarter point rate cut at the Fed’s March meeting, a 62% chance of a second cut in May, another 62% chance of a third cut in June, 55% odds for a fourth cut in July, 51% odds (still better than a coin flip) for a fifth cut in September, and then a 35% chance for a sixth quarter point cut in November and 29% odds for a seventh in December. Let’s reiterate for emphasis – the market is currently pricing in better than 50% odds that the Fed will cut interest rates by 1.25 percentage points by September leading up to the next Presidential election that is likely to be a tad more contentious this time around. And this is in an environment where +2% GDP growth is still being projected in the first quarter of the year. Um, ok. Needless to say, I’m taking the hard over on these Fed funds forecasts (I’m not sure we’re going to get even one rate cut in 2024 much less five), but as long as the market is in anticipation mode, the markets are likely to benefit even if we don’t get the cuts as expected. Inflation. One critically important factor that would allow the Fed the flexibility to cut interest rates is the inflation outlook. Heading into 2024, the threat of a renewed rise in inflation remains my number one downside risk to watch for capital markets. But the good news is that pricing pressures continue to come down. Consider the latest projections from the Cleveland Fed Inflation Nowcasting. While much attention is placed on the Consumer Price Indices, it’s arguably even more worthwhile to track the Personal Consumption Expenditures (PCE) data. And according to the Cleveland Fed forecasters, the headline PCE annual rate is set to drop to 2.3% and the Core PCE to below 2.8% by the January reading. This is good stuff for both stock and bond prices as the year gets underway. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-3-Inflation-Outlook-Remains-Highly-Constructive.jpg "- Clear Wealth Planning Solutions") Moreover, with the 5-Year breakeven inflation rate hovering just above 2% near its lowest levels since the inflation outbreak, investors have reason for constructive optimism in the year ahead on the inflation and Fed policy flexibility front. Unemployment. One more economic indicator before we move on. The unemployment rate remains at just 3.7%, still at the lowest levels since the late 1960s. While employment is a coincident indicator from a market perspective, if we see this reading pushing steadily and solidly north of 4%, this would signal that an economic slowdown is taking hold. Whether markets choose to simply look past any such economic weakness along the way remains to be seen. Enough about the economy. Let’s move on to key market fundamentals. Corporate profits. Let’s start with the bottom line for the companies that make up our stock markets. S&P Global is currently projecting solid corporate as reported earnings growth in the year ahead. This includes an over 5% sequential quarter-over-quarter increase in the just completed 2023 Q4 along with 1.4% in 2024 Q1, 2.5% in Q2, 5.2 in Q3, and 4.4% in Q4. These are solid earnings growth numbers. Now this Chief Market Strategist expects that these profit growth readings are likely to come in a bit lower than currently forecast, but will likely remain positive nonetheless. Valuations. Companies delivering on profit growth will be important in the year ahead. This is due to the fact that the S&P 500 is now trading at a frothy 26 times trailing 12-month as reported earnings. And with T-bills still kicking of 5.5% yield and the 10-Year U.S. Treasury yield trading at 3.9%, there are reasonable alternatives to a stock market currently offering only a 3.8% earnings yield (read: negative equity risk premium) to “compensate” investors for the added liquidity, default, and equity related uncertainty at current valuations. The good news is that despite this seemingly rich headline valuation on the S&P 500, when one removes the mega big Magnificent Seven stocks from the mix, valuations suddenly become a lot more reasonable for longer-term investors. Same holds true when considering mid-caps and small caps, both of which remain near historically discounted valuations dating back over three decades. Bottom line. These are just a few of the key indicators to watch and monitor as we progress through the year ahead. And the good news is that many of these indicators continue to point in the right direction as the New Year gets underway. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #:523742-1 **Categories:** Insights --- ### [Economic & Market Report: Giddy Yap, Let’s Go](https://clear-wealth.com/economic-market-report-giddy-yap-lets-go/) **Published:** December 18, 2023 **Author:** Clear Wealth Planning **Excerpt:** Christmas came early to capital markets on Wednesday. The U.S. Federal Reserve emerged from its latest Open Market Committee meeting on Wednesday with good tidings for investors, sharing tales that inflation continues to come down and labor markets coming into balance. **Content:** Christmas came early to capital markets on Wednesday. The U.S. Federal Reserve emerged from its latest Open Market Committee meeting on Wednesday with good tidings for investors, sharing tales that inflation continues to come down and labor markets coming into balance. But the biggest gift under the tree was the Fed’s median projection for three quarter point rate cuts in the New Year. Much like Christmas, maybe not all that was dancing in the head of investors, but still an abundance of monetary gifts under the market tree. What does this all mean for markets heading into 2024? Come on, we’re going for a sleigh ride. Capital markets are rightfully ebullient in the wake of the Fed news. The S&P 500 Index had already jumped by more than +13% since the end of October heading into the Fed meeting, and it added another +1.4% on Wednesday by the close of trading after the Fed’s press conference. Bottom line – new all-time highs on the headline benchmark are now within striking distance by the end of 2023 at only +2.4% more above current levels as we close out the second week of December. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-1-US-Stocks-Giddy-Yap-Lets-Go.jpg "Economic & Market Report: Giddy Yap, Let’s Go - Clear Wealth Planning Solutions") **Spreading investor cheer for all to hear**. It’s not just the Magnificent Seven and the very top of the stock market Christmas tree that is shining in the wake of the Fed’s cheer. Market breadth burst higher, with nearly 75% of all companies in the S&P 500 now trading above their respective 200-day moving averages. In short, the stock market party is on and more and more stocks are coming to town. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-2-Spreading-Yuletide-Cheer.jpg "Economic & Market Report: World Make Way - Clear Wealth Planning Solutions") We see this in particular among U.S. small cap stocks. Unlike U.S. large caps that managed to shake off 2022 and rally throughout much of 2023, U.S. small caps never really shed the bear market blue Christmas from a year ago. But following the Fed’s latest spiking of the monetary policy punch bowl, U.S. small caps have broken decisively to the upside. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-3-All-Stocks-Great-and-Small-1.jpg "Economic & Market Report: All Things Mid & Small - Clear Wealth Planning Solutions") **Green sleeves**. The capital market merriment is not limited to the stock market in the wake of the Fed meeting, as the bond market is also flying to the upside. For example, U.S. long-term Treasury bonds had already bounced by +15% from the October lows heading into the Fed meeting, and subsequently tacked on another +3% in the wake of the Fed announcement. This sent the 10-year U.S. Treasury yield slicing through its 200-day moving average resistance and down below 4% for the first time since Christmas in July. ![](https://clear-wealth.com/wp-content/uploads/2024/01/Chart-4-Down-the-bond-yield-chimney-with-gifts.jpg "Economic & Market Report: All Things Mid & Small - Clear Wealth Planning Solutions") Treasury yields from effectively 5% in mid-October to below 4% less than two months later in mid-December is a total return rally of epic proportions not only for the prime quality bond market in general but risk asset markets in general. **White Christmas**. In the midst of all of this capital market yuletide cheer, it is important for investors to not lose sight of the things that remain paramount in managing and investment portfolio over time. This includes keeping a sharp eye on the potential downside risks that may emerge down the road from policy actions today. To begin, both stocks and bonds have had a phenomenal upside run over the last month and a half. As a result, both U.S. stocks and bonds are meaningfully overbought from a relative strength (RSI) perspective. So while the good news is that a favorable upside runway still exists for both stocks and bonds to advance in the New Year, investors should be prepared over the coming weeks for at least a period of sideways consolidation if not a short-term pullback following recently frothy gains. Next and much more importantly, what I had viewed as the primary downside risk for capital markets in the second half of 2023 has now reemerged as a primary downside risk heading into 2024. This is the threat of a renewed rise in inflation. Pricing pressures have been steadily falling since their peak in mid-2022, and they continued to drop in recent months despite concerns that they could reignite due to pressures such as higher oil prices. If the prospects for easier monetary policy ends up sparking a renewed rise in inflation, it would require a 1970s/1980s era style policy response to get it back under control, and markets would like that about as much as a kid likes getting coal in his stocking for Christmas. **Bottom line.** Markets have taken flight in the wake of the latest Fed policy announcement. And these gifts being brought by the Fed, even if they are only conceptually what may come in the next year, are likely to go a long way in propelling capital markets to a good start in 2024. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 517339-1 **Categories:** Insights --- ### [Economic & Market Report: ‘Tis the Season](https://clear-wealth.com/economic-market-report-tis-the-season/) **Published:** December 12, 2023 **Author:** Clear Wealth Planning **Excerpt:** The age-old stock market adage has rang so true over the past year.  The notion of “sell in May and go away” is based on the historical trend of relative underperformance by stocks during the period from May 1 to October 31.  Of course, the flip side of this adage is the historical trend of relative stock outperformance during the period from November 1 to April 30. **Content:** The age-old stock market adage has rang so true over the past year. The notion of “sell in May and go away” is based on the historical trend of relative underperformance by stocks during the period from May 1 to October 31. Of course, the flip side of this adage is the historical trend of relative stock outperformance during the period from November 1 to April 30. And as we put the first month of the latest “relative outperformance” phase behind us, what is the speculative appetite among investors to keep the buying going through April 2024? **Adage in action.** The S&P 500 set its latest bear market bottom on October 13, 2022. And over the subsequent period from November 2022 to April 2023, the headline benchmark index posted a cumulative positive return of nearly +8%. These positive results came despite the outbreak of a potentially major banking crisis toward the end of this stretch in March 2023 along the way. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-1-Nov-22-April-23-Nice.png "Economic & Market Report: Red Alert - Clear Wealth Planning Solutions") The stretch from May to October ended up a bit more turbulent, as stocks travelled up one side of the mountain and back down the other. By the end of this less favorable six month stretch, stocks ended effectively flat. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-2-May-23-to-Oct-23-Nah.png "Economic & Market Report: Leaves Turning Brown - Clear Wealth Planning Solutions") The adage held true again this year, but it’s important to reflect on the journey along the way to their respective end points. Yes, stocks soared by the time the November to April period came to a close, but the path was not without its extended bouts of downside volatility along the way. And while stocks ended up going nowhere from May to October, embedded in this journey was a plus +10% cumulative run to the upside. As a result, it is always important for investors to look deeper beyond the headlines, as the story is always far more nuanced than the end results might suggest. **Tis the season**. We find ourselves today at the beginning of the latest semiannual cycle, and the results so far have been dramatic even by historical perspectives. The U.S. stock market just put a wrap on its third best November return performance in history, and stocks are holding their ground in December so far in consolidating some of these recent gains. But given that we’ve seen wild swings on the road to a positive ending as recently as last year, what are market signals telling us we should expect as we turn the corner into the New Year? We have a few notable positive signals in this regard. ***Refreshed speculative appetite***. The first positive development is signed of renewed speculative zeal that had otherwise been missing for much of the middle part of the year. While I wouldn’t be inclined to touch the category with a ten foot pole from an asset allocation modeling perspective, cryptocurrencies in general and Bitcoin in particular remain highly useful instruments to monitor from an investor risk appetite perspective. This perspective is best highlighted by the price relationship between the tech heavy NASDAQ 100 Index and Bitcoin, the latter of which is an asset that has no intrinsic value and is not backed by anything, and thus is a holding for the most speculative investors among us. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-3-Refreshed-Speculative-Appetite.png "Economic & Market Report: Leaves Turning Brown - Clear Wealth Planning Solutions") For nearly a decade, the path of the NASDAQ 100 has been very highly correlated with the price trajectory of Bitcoin. In instances when their paths have deviated, they have eventually reconverged. So when Bitcoin began fading lower in the spring at the same time that the NASDAQ 100 was spiking to the upside amid an AI mini bubble, it raised concerns that stocks may eventually fade and rejoin Bitcoin prices to the downside. Fortunately for stock investors, the exact opposite has played out. Bitcoin prices have surged to the upside to catch up with the NASDAQ 100, supporting a continued move to the upside. And potentially more significantly from a market signaling perspective, it is worth noting that Bitcoin prices began rallying in early October, a few weeks before the stock market finally bottomed on October 30. ***Spreading good cheer***. Another increasingly positive development is the steadily broadening market participation. Through November, one notable point of concern was that a relatively smaller percentage of stocks were driving the market higher. But as we continue into December, we are seeing a broader array of stocks participating to the upside. This development has been particularly notable among U.S. small cap stocks, which have been long out of favor relative to their large cap brethren. Small caps rallied strongly from their October lows, but emerging from the end of November, they remained trapped up against their 200-day (red line) and 400-day (pink line) moving average lines. Thus, one of the keys to watch entering December was whether small caps could follow through and breakout above these key resistance levels. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-4-US-Small-Caps-Pushing-Higher.png "Economic & Market Report: Seeing Red - Clear Wealth Planning Solutions") The good news is that small caps have since decisively broken to the upside. The next key to watch is whether the S&P 600 Small Cap Index can continue its climb and breakout above a downward sloping trendline dating back to the broader market highs at the start of 2022. A decisive move above these levels could suggest a major broadening reversal trend continuing well into 2024. ***Coming closer together***. A third positive sign suggesting upside support for stocks in the months ahead is ongoing trends in the yield differential between U.S. Treasuries and comparably dated high yield corporate bonds, otherwise known as the spread. When this spread is low, or tight, it signals that investors do not require much of an additional yield premium for taking on the additional risk of owning bonds that have a meaningfully higher probability of default. Why does this matter to stocks? Because if investors feel more comfortable taking on the risk of owning the bonds of companies that have a higher default risk, then they are just as likely to feel comfortable taking on the risk of owning stocks. The converse is also true – wider spreads, greater risk aversion. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-5-Lowest-Quality-High-Yield-Spreads-Continue-to-Narrow.png "Economic & Market Report: Seeing Red - Clear Wealth Planning Solutions") So what are we seeing today? When looking at high yield spreads, I like to focus on the CCC and lower rated space. Why? Because if investors are even starting to feel jittery about taking on risk, it is with the lowest quality securities where we will very likely see this sentiment manifest first. And over the past year, we have seen CCC and lower spread continue on a narrowing trend. Even following the recent mini spike in spreads during the August to October correction, the trend has returned to the narrowing path. These are positive developments from a speculative risk taking perspective. **Bottom line.**We are now well into a seasonally favorable time of year for capital markets. And while we may see bouts of downside volatility along the way, a variety of signals are supportive of a favorable speculative backdrop and further upside ahead in risk assets. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking:** #514426-1 **Categories:** Insights --- ### [Economic & Market Report: All Things Mid & Small](https://clear-wealth.com/economic-market-report-all-things-mid-small/) **Published:** December 4, 2023 **Author:** Clear Wealth Planning **Excerpt:** It has been a November to remember. Following a three-month slide from August to October that saw U.S. stocks decline by more than -10% and the 10-Year U.S. Treasury yield jump by more than a percentage point (ouch and ouch), capital markets roared back to life this month. **Content:** It has been a November to remember. Following a three-month slide from August to October that saw U.S. stocks decline by more than -10% and the 10-Year U.S. Treasury yield jump by more than a percentage point (ouch and ouch), capital markets roared back to life this month. Overall, the S&P 500 posted its third best monthly return for November in history – only 1935 and 1998 were better – and the 10-Year U.S. Treasury yield has come back down by three quarters of a percentage point from recent highs to the 4.25% range. With such a furious rally over such a short period of time, it is reasonable to wonder if investors have missed their chance to participate in the rally. The good news is that the stock market is still filled with upside opportunities as we head into the final month of the year. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-1-SP-Time-for-a-Breather.png "Economic & Market Report: The Four Horses for Portfolio Gains - Clear Wealth Planning Solutions") Room for broader participation. Yes, the rally in U.S. stocks has been strong in November, but it’s also worth highlight that participation in the rally has been somewhat concentrated so far. Whereas we normally see upwards of 80% of stocks in the S&P 500 move above their 200-day moving averages during a major market rebound, to date only 57% of stocks in the Index have climbed back above this key resistance level. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-2-Room-for-Greater-Breadth.jpg "Economic & Market Report: Outlook from Jackson Hole - Clear Wealth Planning Solutions") Now the pessimist might view this as a downside risk under the notion that if the stocks leading the rally falter, the rest of the stocks in the market that are already weak are not going to be able to pick up the slack. And in many market environments, I might be inclined to agree with this notion. But today I am inclined toward a more optimistic view, particularly in an environment of generally stable and to date stronger than expected economic growth coupled with falling Treasury yields, fading inflationary pressures and a Federal Reserve that is likely done with hiking interest rates in the current cycle. So although only a subset of stocks have been driving the rally to date, the opportunity exists to see broader market participation including among those stocks that have not fully lifted thus far playing catch up to the upside. And where are these opportunities most abundantly found? Among mid-cap and small cap stocks. Balancing the scales. The first place to find such opportunities is within the S&P 500 Index itself. The S&P 500 is a market cap weighted index, so that the mega huge stocks that make up the so called Magnificent Seven – Apple, Microsoft, Amazon, Alphabet, Meta Platforms, NVIDIA, and Tesla – make up nearly 29% of an Index that also includes 496 other stocks (yes, the S&P 500 Index has 503 stocks – go figure – we can blame Alphabet (nee Google) among others for this anomaly). And since these mega stocks have done mega well so far in 2023, they have driven the overall S&P 500 higher in a year where the rest of the market has been varying degrees of meh. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-3-Room-to-Run-within-the-SP.png "Economic & Market Report: Outlook from Jackson Hole - Clear Wealth Planning Solutions") So while the S&P 500 Equal Weighted index where all stocks in the Index have the same 0.2% allocation has kept pace with the headline benchmark S&P 500 Index for the month of November, we can see from the chart above that there is still a lot of room for the rest of the stocks in the S&P 500 to catch up to the biggest names in the Index going forward. All things mid and small. We see the same phenomenon playing out among mid-cap and small cap stocks in the U.S. ![](https://clear-wealth.com/wp-content/uploads/2023/12/Chart-4-Ditto-Mid-caps-and-Small-caps.png "Economic & Market Report: A Closer Look at Corporate Earnings Season - Clear Wealth Planning Solutions") Much like the S&P 500 Equal Weighted index, both U.S mid-caps and U.S. small caps as measured by the S&P 400 Mid-Cap and S&P 600 Small Cap indices, respectively, have meaningfully trailed the headline S&P 500 for the year to date so far. As a result, these market segments have meaningful room to catch up to the upside. Why now? The natural question to consider when thinking about potential opportunities smaller large caps, mid-caps, and small caps is understandable. If the S&P 500 Index driven largely by seven “magnificent” monsters have been driving the market higher for so long to date, why should we expect this to change going forward? In short, what is the catalyst? To be certain, I’m not suggesting that investors spurn the mega caps when considering investment opportunities in the smaller size segments of the equity market. Instead, to quote the closing scene from arguably one of the greatest movies about trading frozen concentrated orange juice of all-time, “can’t we have both?”. Indeed we can in the context of building an asset allocation strategy – lobster and cracked crab as well as a variety of other surf and turf and some wholesome starches and vegetables to boot as part of a well balanced portfolio construction diet. And when it comes to why these smaller segments of the market may be poised to catch up to the headline index going forward, several reasons lead the list. The following are just a few. First, both relative and absolute valuations have become increasingly attractive across these smaller sized market segments. For while equal weighted S&P 500 Index is trading at its most attractive multiples since the late 2010s, both mid-caps and small caps are now trading at deeply discounted valuations last seen in the early 1990s. Also, after more than a decade following the Great Financial Crisis where interest rates were pinned at 0% and monetary policy liquidity was gushing into the market, still nervous investors that needed to do something with this excess capital would frequently direct it to the most reliable free cash flow generators, regardless of the price (after all, when your risk free rate is 0%, your market valuation models can start to go bonkers). But now, following the inflation fever of 2021-2023, the Fed funds rate is now well off the ground at over 5%, and we are likely finally back in a normal monetary policy environment after so many years (in other words, the free money spigot has FINALLY been shut off, and none too soon!). In such an environment, valuations matter more and investors will likely need to work harder and dig deeper to find outperforming total return opportunities in stocks going forward. Such opportunities are most often found in mid-caps and small caps. Bottom line. It’s been a November for the ages in 2023 for capital markets. And while investors may be left wondering if they’ve already missed the upside run as the calendar flips to December, the good news is that upside opportunities are still widespread and abundant across capital markets including with the U.S. stock market. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking – #511313-1 **Categories:** Insights --- ### [Economic & Market Report: World Make Way](https://clear-wealth.com/economic-market-report-world-make-way/) **Published:** November 28, 2023 **Author:** Clear Wealth Planning **Excerpt:** For more than a decade, the U.S. stock market has been the place to be for global equity investors. But as we continue to emerge from the inflationary induced bear market over the last two years, developed international and emerging markets may be worth a closer look. **Content:** For more than a decade, the U.S. stock market has been the place to be for global equity investors. But as we continue to emerge from the inflationary induced bear market over the last two years, developed international and emerging markets may be worth a closer look. Long time gone. U.S. stocks have enjoyed a global stock market dynasty since the start of the last decade. While the U.S. benchmark S&P 500 Index moved in lockstep with the developed international’s MSCI EAFE Index and the emerging market bogey MSCI Emerging Market Free Index from the onset of the financial crisis in 2008 through its immediate aftermath in early 2010, U.S. stocks subsequently diverged and took off into the skies, leaving its developed international and emerging market counterparts stuck on the ground. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-1-US-Home-Bias-Profoundly-Rewarded-Since-2008.png "Economic & Market Report: The Return of Diversification - Clear Wealth Planning Solutions") In the time since, the relative performance has been striking. While the S&P 500 Index has cumulatively risen by over 200% on a price basis alone since the start of 2008 through today, both the MSCI EAFE and MSCI Emerging Market Free indices have cumulatively fallen on a price basis by -8% and -21%, respectively, over this same time period. Put simply, outside of brief pockets of relative performance along the way, U.S. home bias has been resoundingly rewarded for domestic investors for as long as many investors can even remember. **Time to fly.** Before going any further, it’s important to emphasize that asset allocation is not a binary choice. Just like a traveler deciding to spend more time in Europe doesn’t mean that they have decided to sell their home and move their belongings to a new continent, an investor considering an increased non-U.S. equity exposure is likely doing so on the margins in the context of their already established asset allocation strategy. More specifically, for an investor that may have had a prolonged minimal to zero weighting to developed international and emerging markets in the equity category of their asset allocation models, any such increase in weightings may result in taking on positions that still represent a relative underweight. But even if it is a smaller underweight, such a shift can still have a measurable impact on portfolio returns. So why then should investors consider placing a greater emphasis on developed international and emerging market equities today? The following are a few key reasons. ***The world has evolved***. First, the fundamental and policy environment that had supported U.S. stocks over developed international and emerging markets for so many years has changed. In the wake of the financial crisis, the global economy was mired in a rut of chronically sluggish growth and the threat of disinflation if not outright deflation. This caused monetary policy makers from around the world to engage in continuously easy monetary policy marked by zero if not negative interest rates and successive rounds of asset purchase programs such as quantitative easing. In short, the global financial system was awash in liquidity but with limited prospects of robust sustained growth for this capital to find a destination. Understandably, global equity investors migrated to where their capital would be safest and treated best, which was the U.S. market in the select few names, many of which were found in the technology or technology adjacent sectors (consumer discretionary, communications services), where outsize growth and free cash flow was being generated. This concentrated migration of capital continued for years regardless of the valuations of the underlying stock names. But in the wake of COVID and the excessive policy response that resulted in our worst outbreak of inflation since the hyperinflationary 1970s, underlying fundamental conditions have dramatically changed. Instead of chronically sluggish economic growth and stubbornly low inflation, we have bigger swings in economic activity and an inflation rate that while still coming down appears set to settle in measurably above the 2% target rate that proved elusive for so many years. Why? The increasing shift toward deglobalization and the potential for ongoing supply chain disruptions are just a few of the reasons. The positive result is that global central banks were finally able to break the zero bound policy spell. This includes the U.S. Federal Reserve, which has been able to raise the Target Fed Funds rate above 5% and keep it there without breaking too much along the way save a few systemically important financial institutions (SIFI) along the way to date. And the opportunities that investors are likely to pursue going forward in an environment of more uneven economic growth, relatively higher inflation, and historically more normal policy rates are likely to be considerably different than before. This includes a greater sensitivity to valuation versus what we have seen in the past. ***Great travel deals abound***. It is important to note that the U.S. economic outlook is stronger going forward relative to many of its global peers. For example, the growth outlook across Europe is far more challenged than the U.S. heading into 2024. But just as a good company does not necessarily make the best stock to own right now, a relatively stronger economy does not necessarily make the best market to allocate all of your capital right now. A key question that is worth asking in this regard is the following: at what price? A key fundamental factor confronting U.S. stock investors emerging from the recent bear market is valuation. While down from the 22x to 24x multiples from a few years ago, U.S. stocks are still trading at nearly 19x forward earnings today. This still marks some of the highest forward P/E multiples we have seen in U.S. stocks in history and has the risk of creating a mounting headwind for further gains in U.S. stocks, particularly in an environment where the Fed funds rate may stay “higher for longer” in the 5% range (negative equity risk premium means TINA “there is no alternative” has become TARA “there are reasonable alternatives”). But this valuation hurdle does not exist in most parts of the world outside of the U.S. Instead, many developed and emerging markets are trading at their most deeply discounted valuations in decades. This includes absolute multiples in many cases that have fallen toward if not well into the single-digits. As just a few examples, the United Kingdom is now trading at 10x forward earnings, which is its cheapest multiple since at least the early 1990s, Greece is trading at 9x that marks its lowest multiple since the “PIIGS” era of the early 2010s, and Turkey is trading at less than 5x forward earnings that speaks for itself. All of these economies have deep challenges and growth obstacles to varying degrees. But at such deeply discounted absolute and relative valuations, many foreign markets like these represent outsize total return opportunities going forward for those investors that have the specialized knowledge and expertise to navigate these markets. In other words, markets. In other words, just like a value investor in the U.S., you need to know where you are going and what you are doing (or have someone who knows what they are doing) when considering allocating to some of these deeply discounted non-U.S. markets. ***Foreign exchange***. An added tailwind supporting the case for traveling abroad in an investment portfolio comes from the foreign exchange side of the equation. The U.S. dollar is still coming off of its highest exchange rates relative to leading global foreign currencies. The latest sharp U.S. dollar run up was driven by the outbreak of high inflation in the U.S. and the realization that the U.S. Federal Reserve needed to hike interest rates sharply and aggressively in order to combat and defeat flaming pricing pressures, as tightening monetary policy and sharply rising interest rates will strengthen your currency relative to the rest of the world. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-2-US-Dollar-The-End-of-a-Strong-Run.png "Economic & Market Report: Flashing Lights - Clear Wealth Planning Solutions") But where we increasingly stand today is that the U.S. Federal Reserve is almost certainly finished raising interest rates with inflationary pressures continuing to come back down. Instead, the conversation that this Chief Market Strategist considers highly premature but is taking place nonetheless is around the Fed cutting rates as soon as early to mid-2024. This stands in sharp contrast to many other economies and central banks around the world, however, as many countries are still actively engaged in a monetary policy fight to bring inflationary pressures under control. A potentially easier U.S. monetary policy coupled with a still tightening monetary policy in many other parts of the world suggest the potential for a sustainably weaker U.S. dollar going forward. And this would create a meaningful tailwind for developed international and emerging stocks that derive a measurable percentage of their total return from currency exchange rate effects. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-3-Effects-of-Currency-Tailwinds.png "Economic & Market Report: Flashing Lights - Clear Wealth Planning Solutions") To highlight the relative return effects on developed international and emerging markets from a sustainably weakening U.S. dollar, consider the period from mid-2001 through early 2008 as shown in the earlier U.S. dollar chart above. During this time period, the U.S. stock market was the chronic laggard generating a cumulative price return of just over +10%. At the same time, developed international stocks were cumulatively higher on a price only basis by nearly +70%, while higher beta emerging market stocks advanced by more than +270% on the same measure. **Setting your travel itinerary**. A final point is worth emphasizing when it comes to allocating to developed international and emerging equity markets. The conventional approach for many investors is to simply allocate to these non-U.S. markets through a passive index approach where markets are weighted based on their size. It should be noted, however, that this may not be the most effective way to capture the total return potential from non-U.S. markets. For example, just because a country’s stock market happens to be relatively large based in large part on the size of its underlying economy, this does not mean that it is necessarily a good destination for equity allocations at a similar proportion to its market size. More specifically, just because China is the second largest economy in the world that makes up roughly 30% of the MSCI Emerging Market Free Index doesn’t mean that my best choice from a capital allocation standpoint is to send 30 cents out of every dollar of my emerging market equity allocation to China. Closer research may reveal that other markets that may be relatively much smaller (or not included in the benchmark indices entirely) may offer far better and sustainable total return opportunities that justify a meaningful overweight at the expense of an underweight to a relatively massive market like China. This is where identifying expert managers with proven track records has the potential to add measurable value when operating in these more specialized segments of capital markets. **Bottom line**. While the U.S. remains an ideal location to overweight equity capital allocations relative to the rest of the world, we have potentially arrived at a juncture where having developed international and emerging markets play an increasing role within a broader asset allocation framework may be warranted going forward. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking – #507965-1 **Categories:** Insights --- ### [Economic & Market Report: Savoring the Feast](https://clear-wealth.com/economic-market-report-savoring-the-feast/) **Published:** November 21, 2023 **Author:** Clear Wealth Planning **Excerpt:** Capital markets have had a remarkable run in recent weeks. After bottoming at the end of October, the S&P 500 Index has soared roughly +10%. The 10-Year U.S. Treasury yield has also plunged by more than a half percentage point since recently peaking at 5.00%, driving a comparable nearly +10% bounce in long-term U.S. Treasuries. Given these head turning gains for both stocks and bonds over such a short-term period of time, it is reasonable to consider what we should reasonably expect from here between now and when many across America are carving turkey for their Thanksgiving Day feasts. **Content:** Capital markets have had a remarkable run in recent weeks. After bottoming at the end of October, the S&P 500 Index has soared roughly +10%. The 10-Year U.S. Treasury yield has also plunged by more than a half percentage point since recently peaking at 5.00%, driving a comparable nearly +10% bounce in long-term U.S. Treasuries. Given these head turning gains for both stocks and bonds over such a short-term period of time, it is reasonable to consider what we should reasonably expect from here between now and when many across America are carving turkey for their Thanksgiving Day feasts. **Eyes on the couch.** The strength of the recent run in U.S. stocks cannot be overstated. After bottoming right at its ultra long-term 400-day moving average support (pink line below) on October 30, the S&P 500 exploded to the upside. This included gains in 11 out of the last 13 trading days, with five of these up days in excess of +0.90% and three greater than +1.50%. Put simply, stocks have been absolutely rockin’ in recent weeks. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-1-US-Stocks-Time-for-a-Post-Feast-Nap-e1700156397286.png "- Clear Wealth Planning Solutions") But following such a strong advance over such a short period of time, we should not be surprised to see U.S. stocks take a breather as we coast into the Thanksgiving Day holiday. The S&P 500 is now effectively at overbought levels with an RSI reading close to 70, and the Index is at or above the top of its Bollinger Bands range, indicating that stocks would typically expect to be at or above current levels less than 2.5% of the time (or put differently, stocks would typically expect to be below current levels more than 97.5% of the time). As a result, don’t be surprised if we see U.S. stocks whip some of the froth off the top of the post rally feast coffee in the coming trading days. This would not be a bad development by any means. Instead, it would be a healthy period of consolidation as part of a broader advance that may only be getting started through the remainder of the year and into 2024. With this in mind, what are the key targets on the S&P 500 that investors should be watching in the coming weeks if the upside advance resumes after a short respite on the proverbial holiday couch? Two key levels in particular stand out. The first is 4607, which was the level reached by the S&P 500 at their late July 2023 peak before the August through October swoon got underway. The next is 4818, which is the all-time high on the S&P 500 reached back on January 4, 2022 before the most recent bear market got underway. Expect stocks to confront resistance at these two key technical levels, but if stocks were to break definitively above these key lines in the sand before the end of the year, this would be resoundingly bullish heading into 2024. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-2-SP-500-Key-Levels-to-Watch-for-the-Rest-of-2023-e1700156523908.png "- Clear Wealth Planning Solutions") **Time to watch the game**. While stocks may now be ready for a short nap after the big rally feast, bonds may still be charged up enough to go back for more. Keeping in mind that as bond yields fall, bond prices rise, the fact that the 10-Year U.S. Treasury yield recently broke below strong 50-day moving average resistance now at 4.60% for the first time since the spring was a decidedly bullish development. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-3-US-Stocks-Short-Break-Then-Ready-For-Seconds-e1700156578902.png "- Clear Wealth Planning Solutions") At the same time, the fact that the move lower in the 10-Year from 5.00% back in mid-October to as low as 4.44% today has been a more uneven back-and-forth move means that Treasury yields have not fallen too far, too fast. So as long as inflationary pressures continue to abate – the latest Consumer Price Index (CPI) readings from the U.S. Bureau of Labor Statistics were a definite step in the right direction in this regard – and Treasury yields continue their zig zag descent from recent highs suggests that bonds may have a good deal further to run through the rest of this year into 2024. So what are the key levels worth watching on the 10-Year Treasury yield from where it stands today in the 4.50% neighborhood? The 10-Year yield recently burst out above a key trading range between 3.40% and 4.10% that had been in place from September 2022 through August 2023. As a result, it would not be unreasonable to expect the 10-Year yield to gradually descend and eventually return into this trading range. It’s worth noting that this move alone would imply a meaningful upside return across the bond market landscape. If and when the 10-Year returns to this range, it would be reasonable to expect a period of consolidation in this zone that could last as long as a few months as bonds sort out their next move. And if inflation pressures continue to fade in the months ahead, it would imply the 10-Year Treasury eventually settling in toward the lower end of this trading range if not potentially drifting below it. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-4-10-Yr-Treas-Yield-Key-Levels-to-Watch-for-Rest-of-2023-e1700156659539.png "- Clear Wealth Planning Solutions") **Bottom line**. Both stocks and bonds have been filled with a feast of notably strong returns since late October. And while a period of consolidation following recent gains is now overdue, the set up remains strong for stocks and bonds to continue their positive moves through the remainder of 2023 and into 2024. **Disclosure**: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking: #506485-1 **Categories:** Insights --- ### [Economic & Market Report: The Running of the Bulls](https://clear-wealth.com/economic-market-report-the-running-of-the-bulls/) **Published:** November 13, 2023 **Author:** Clear Wealth Planning **Excerpt:** Just over a week ago, both stock and bond markets were long overdue for a bounce. And bounce they have. Just like a slingshot, the further and deeper capital markets pulled back through late October, the greater the energy released once the upside rally finally arrived. In the wake of this recent capital market burst, it is worthwhile to evaluate both where we stand today and what we can reasonably expect in the weeks ahead through the end of the year. **Content:** Just over a week ago, both stock and bond markets were long overdue for a bounce. And bounce they have. Just like a slingshot, the further and deeper capital markets pulled back through late October, the greater the energy released once the upside rally finally arrived. In the wake of this recent capital market burst, it is worthwhile to evaluate both where we stand today and what we can reasonably expect in the weeks ahead through the end of the year. **Abrivado.** The upside momentum came in a hurry for the U.S. stock market last week. After failing at medium-term 50-day moving average resistance (blue line in chart below) back on October 17, the forward path for the S&P 500 appeared increasingly bleak. Stocks quickly retreated and subsequently sliced through key support at its long-term 200-day moving average support (red line in chart below). By October 27, the S&P 500 had fallen all the way back to its ultra long-term 400-day moving average (pink line in chart below), a key support level that historically is rarely crossed and often signals major directional changes in the market once breached. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-1-Running-of-the-Bulls.png "- Clear Wealth Planning Solutions") But no sooner did the new trading week begin on October 30, and U.S. stocks were exploding off of support to the upside. By the end of last week, the S&P 500 had not only decisively reclaimed its 200-day moving average support, but it also edged back above its 50-day moving average resistance for the first time since early August. And while the magnitude of gains have slowed into the current trading week, the S&P 500 continued to push to the upside having notched gains for eight straight trading days in a row through Wednesday, its longest winning streak since 2021. With such a big move to the upside over such a short period of time in stocks, what can we reasonably expect from here? First, underlying fundamentals support the stock rally. The U.S. economy remains strong, the labor market tight, corporate earnings have been revised higher so far this reporting season, profit margins continue to widen, inflation continues to subside, and stocks outside of the Magnificent Seven stocks of Apple, Microsoft, Amazon, NVIDIA, Alphabet, Meta Platforms, and Tesla are now trading at their most attractive valuations in years if not decades. In short, any further rally in stocks is well grounded. Second, we are on the brink of entering the most seasonably favorable time of year for U.S. stocks from mid-November through mid-January. Stocks have historically performed well this time of the year (2018 being a notable recent exception) regardless of how they travelled through the fall, but they tend to generate particularly favorable seasonal returns during this period following a weak stretch from early August to mid-November. Given that stocks posted three consecutive monthly declines in August, September, and October this year for the first time this millennium, the table has been set for a potentially meaningful bounce with follow through. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-2-US-Stocks-Further-Room-to-Run.png "- Clear Wealth Planning Solutions") Third, while the upside move in stocks has been swift since the start of last week, technicals suggest the market has further room to run. Not only are stocks nowhere close to being overbought with an RSI at just over 60 (a reading of 70 or higher indicates overbought conditions, and thus a market that has risen too far, too fast and is due for a pullback), but the S&P 500 is also trading well within its Bollinger Band range (solid green lines in the chart above) with space as high as 4450 at present before entering statistical outlier territory. **Correbous**. Another key potential upside driver for stocks comes from its asset allocation foil in the bond market. Just as stocks have struggled in recent months, so too have bonds. In fact, long-term bonds performed nearly twice as badly as the S&P 500 since the end of July through late October. And this poor bond performance provided a notable headwind for stocks. Why? Because as bond prices went lower, yields went higher, which caused the equity risk premium for stocks to remain small to negative despite the fact that stock prices were falling. Thus, the recent swift rally in the bond market has provided an added jolt to the stock market rally. And looking ahead, it appears that the bond rally may only be getting started. Bonds were long overdue to rally even more so than stocks. This has been particularly true for Treasuries in recent months given the fact that inflation is the primary determinant of U.S. government bond returns and both the headline and core inflation rates continue to steadily fall from their 2022 highs. Thus, the fact that the 10-Year U.S. Treasury yield was pushing as high as 5% as recently as two weeks ago had the benchmark yield running waaaaaay above its medium-term, long-term, and ultra long-term moving averages. For those “regression to the mean” fans out there, the bond market rally slingshot was pulled way back. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-3-Running-of-the-Bulls-US-Treasury-Edition.png "Economic & Market Report: Falling Slowly - Clear Wealth Planning Solutions") The bond market rally has been swift to date, and a key threshold was crossed in the rally during the trading day on Wednesday. A key resistance level for the 10-Year U.S. Treasury yield has been the 50-day moving average (remember in the chart above, higher bond yields mean lower bond prices). Since mid-May, the benchmark Treasury yield has traded above this key resistance level and failed both in mid-July and late August in breakout attempts. Today, the key yield level to watch has been in the 4.57% range. And following a soft bounce after first hitting this resistance level last Friday, the 10-Year sliced definitively through its 50-day moving average resistance on Wednesday for the first time in half a year. The key question is whether bonds can sustain this breakout and continue the rally. For answers, investors must look no further than the 5-Year U.S. Treasury, which foreshadowed the resistance break in the headline benchmark Treasury when it made its own breakout last Friday and has held its ground since. In fact, what was once resistance has already become support for the 5-Year in the trading days since. All of this bodes well for further declines in U.S. Treasury yields in the days and weeks ahead. In fact, one should not be surprised if we see the 10-Year stampeding its way back toward 4% or below before the end of the year. Not only would this provide a welcome boost to long suffering bond investors, but it would give a meaningful added tailwind to support additional moves higher in stocks too. **Bous al carrer**. If the rally in stocks is indeed fully underway, how much higher can we reasonably expect the S&P 500 to go? Given that the upward sloping trading channel for stocks dating back to October 2022 remains intact and recognizing that stocks historically do not go up in a straight line but instead oscillate, sometimes widely, within a larger market trend, this provides the framework to establish some key target levels for the S&P 500 in the coming months. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-4-The-Upside-Corral-for-stocks-through-early-next-year.png "Economic & Market Report: Falling Slowly - Clear Wealth Planning Solutions") For the remainder of 2023, while the S&P 500 could be as low as 4250 by late December under this trading channel framework, it is far more reasonable to expect U.S. stocks to be hovering around the 4600 range by the end of the year. This would be another +5% upside from current levels. And while stocks would be trading at the very high end of their range to pull it off, it’s not beyond the realm of possibility that the S&P 500 could be striking a new all-time high above 4818 eclipsing its January 4, 2022 peak by the time 2023 draws to a close. Moving into the first quarter of 2024, stocks would reasonably be trading in the 4300 to 5100 range if the current S&P 500 uptrend remains intact. And while north of 5000 in Q1 starts to get a bit pricey on U.S. stocks, this range is not entirely unreasonable given supportive underlying fundamentals. **Bottom line**. The bulls are now running in both the stock and bond market as we enter the most seasonally favorable time of the year. While further bouts of downside volatility certainly cannot be ruled out, the risk-reward for both stocks and bonds is tilted meaningfully to the upside through the remainder of 2023. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 503306-1 **Categories:** Insights --- ### [Economic & Market Report: Three Market Scares This Halloween](https://clear-wealth.com/economic-market-report-three-market-scares-this-halloween/) **Published:** November 7, 2023 **Author:** Clear Wealth Planning **Content:** It’s been a haunted ride for capital markets over the last two years. And just when it looked like the horrors were finally coming to an end this past summer, the last few months have seen the stock and bond market demons rise again. While a new dawn may still lie ahead for capital markets in the coming months, here are a few scary risks confronting investors today. Shrinking monster. Monetary policy actions from the U.S. Federal Reserve have been a primary determinant of market returns dating back to the Ben Bernanke “Green Shoots” interview coming out of the Great Financial Crisis in March 2009. Over the 13 year period from early 2009 to early 2022, the Fed exploded its balance sheet by nearly five times through a series of “quantitative easing” large scale asset purchase programs. The goal of these programs was to stimulate sustainably strong economic growth through a “wealth effect” while also warding off the deflation demons by bringing inflation up to the somewhat arbitrary target rate of 2%. While the programs continuously failed in generating much more than sluggishly artificial economic growth and chronically below target inflation, they did wonders in stoking asset prices like stocks in a big way. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-1-Fed-Shrinking-Its-Monstrous-Balance-Sheet-e1698937697646.png "- Clear Wealth Planning Solutions") So what’s scary about the Fed balance sheet monster today? Once the Fed finally went a few trillion too far with their balance sheet expansion in response to the COVID crisis (a health crisis, mind you, not a financial crisis), they’ve been fire fighting to bring inflation back down since early 2022. While much of the attention thus far has focused on how the Fed slammed their foot through the car brake floor with more than five percentage points in rate hikes in just over a year (breath taking, break a bunch of bad credit risk taking regional banks kind of wow), what I worry about far more now that the inflationary beast continues to be tamed is the ongoing and marginally accelerating shrinking of the Fed’s balance sheet going forward. Put simply, if trillions of Fed balance sheet expansion for more than a decade helped propel stock prices to the moon, it’s not beyond reason to think that Fed balance sheet contraction may bring these same stock prices back down to earth. Red market scare. The China economy and its markets have been struggling for some time now. The commercial real estate boogeyman that remains elusive here in the United States has been alive and well and on a rampage in China. And asset management firms have been buckling under the challenging operating environment and increased regulatory intervention by Chinese authorities. Given that U.S. assets are intertwined with financial activity in China in many ways, we have seen this downside pressure feed through to weakness in the U.S. Treasury market in a meaningful way over the past two years. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-2-China-Spooking-Treasury-Markets-e1698937813806.png "- Clear Wealth Planning Solutions") What is notable is that U.S. stocks as measured by the headline benchmark S&P 500 were also following a similar path from late 2021 up until June of this year until suddenly U.S. stocks broke off to the upside as China stocks rolled back over to the downside. Given the gap that now exists between the recent performance of the S&P 500 and the Shanghai Stock Exchange Composite Index coupled with the pace of the recent U.S. stock market decline, it is reasonable to worry that the S&P 500 may ultimately fall down to the price currently implied by the Shanghai index at around 3750. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-3-Shanghai-Surprise-for-US-Stocks-e1698937877198.jpg "Economic & Market Report: We Are Where We Are BUT…. - Clear Wealth Planning Solutions") The good news is that when one takes out the Magnificent Seven stocks of Apple, Microsoft, Amazon, NVIDIA, Tesla, Alphabet, and Meta Platforms from the returns over this recent time period, we see that the equal weighted S&P 500 not to mention the S&P 400 Mid-Cap and S&P 600 Small Cap are all already trading effectively at their corresponding respective price implied by the China stock market. In short, the feared downside is already baked in for nearly all of the U.S. stock market outside of a select few really big names. Ghosts of inflations past. So what is arguably most worrisome as we move through the remainder of 2023 is the ongoing threat of a renewed rise in inflation from the grave. Let’s get straight to it – everything lines up well things getting back to a bullish normal going forward with persistently strong economic growth coupled with diminishing inflation concerns. Good stuff, and this has been what has been playing out to date as inflation pressures continue to subside. ![](https://clear-wealth.com/wp-content/uploads/2023/11/Chart-4-Fearing-the-Ghost-of-Inflations-Past-e1698937940719.png "Economic & Market Report: We Are Where We Are BUT…. - Clear Wealth Planning Solutions") But what if it turns out that the inflation pressures reignite in a meaningful way? This would be decidedly bad news for both stocks and bonds, as it would mean that corporate earnings would almost certainly take a hit and corporate profit margins would likely start to shrink. Perhaps more importantly, the Fed would likely restart raising interest rates even further so that they don’t repeat the same 1970s style inflationary and/or stagflationary outcome. Fortunately, inflation continues to trend in the right direction and even periodically exceeds expectations by coming in softer than anticipated in recent months. As long as these gradual, still above trend pricing declines continue, then waning inflation will likely be an increasing marginal tailwind. Bottom line. While my outlook for stocks and bonds remains constructive in the months ahead, we are also not without meaningful potential market scares that may arise like those described above. These among others remain worth watching closely for developments as we navigate the weeks and months ahead. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: 500065-1 **Categories:** Insights --- ### [Economic & Market Report: Investment Market Battle Lines](https://clear-wealth.com/economic-market-report-investment-market-battle-lines/) **Published:** October 30, 2023 **Author:** Clear Wealth Planning **Content:** The volatility across capital markets continues. Following a great summertime stretch, U.S. stocks have been tumbling to the downside since the start of August. As for the bond market, it was just three months ago in mid-July when the 10-Year U.S. Treasury yield rallied its way back to 3.75% before fast tracking its way up to 5.00% in the time since. While the fundamental case for why stocks and bonds may see better days ahead – strong economic growth, persistently tight labor market, declining inflation pressures, modest inflation expectations, improving corporate earnings, widening corporate profit margins, and historically attractive valuations (outside of the so called Magnificent Seven stocks) – the fact remains that capital markets remain under steady pressure during this historically challenging time of year from early August to mid-November from a seasonality perspective. As a result, it is worthwhile to take a look from a technical perspective by more closely examining the battle lines across capital markets. Stocks. The U.S. stock market has been a model of resilience in recent months. Despite the sharp rise in yield across the Treasury curve (particularly the long end) that has sent the equity risk premium more meaningfully into negative territory, the U.S. stock market as measured by the S&P 500 Index has held up impressively. Yes, the headline benchmark index is off by -9% from its end of July highs, but it’s still trading above levels from last May before the summertime burst got started. And we are still +20% above the lows from October 2022. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-1-US-Lrg-Cap-Stocks-Battle-Lines-Converging-e1698332651599.png "- Clear Wealth Planning Solutions") So what are the technicals indicating that we should expect from U.S. large cap stocks going forward? Basically, two key battle fronts are set to converge in the coming weeks. The first is the upward sloping 200-day moving average (red line in chart above), which is a key support level for the S&P 500 from which stocks bounced earlier this month. The second is the downward sloping 50-day moving average (blue line in chart above), which has served as resistance for the S&P 500 dating back to August. The market is currently bouncing back and forth between these two converging technical levels. If current trends persist, the 200-day MA support and 50-day MA resistance are set to meet by the second week in November. This intersection will force an outcome – either the S&P 500 will burst to the upside above these two trendlines or break to the downside below these two trendlines. What does this Chief Market Strategist anticipate will happen given this convergence plays out, all else equal (ceteris paribus)? Odds favor a burst to the upside given underlying economic and corporate earnings fundamentals not to mention the fact that the S&P 500 remains oversold from a technical perspective (see RSI reading just above 30). Of course, not all else is equal (mutatis muntandis?), so a lot can happen over the next three weeks between now and mid-November. And if a downside break were to occur, the next key support level is 4115 at the ultra long-term 400-day moving average (pink line in the chart above). What about the rest of the stocks in the U.S. market? Looking a step down the size spectrum to U.S. mid-caps, we see a more challenged story (important note: what is about to be described here is virtually the same for U.S. large caps as measured by the S&P 500 Equal Weighted Index, highlighting how relatively strong the Magnificent Seven stocks of Apple, Microsoft, Amazon, NVIDIA, Tesla, Alphabet (Google), and Meta Platforms (Facebook) have been throughout 2023). ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-2-US-Mid-Cap-Stocks-Testing-Key-Trendline-Support-e1698332745992.png "- Clear Wealth Planning Solutions") U.S. mid-cap stocks as measured by the S&P 400 Mid-Cap Index are lower by a more pronounced -15% since the end of July. In the process, they have returned to a key trendline support level for the Index at 2350. Mid-caps bounced on three previous occasions when arriving at this trendline support level, all of which took place amid oversold conditions (RSI around 30 or less) similar to today. While this Chief Market Strategist is expecting at least a short-term bounce from this level, if mid-caps were to break to the downside, the next key support level for the Index is at 2185, which is -7% below current levels. U.S. small caps have a more challenging picture still. The S&P 600 Small Cap Index never really stopped trending lower following its late 2021 peak, and the most recent -16% lurch to the downside has the index closing in on retesting its October 2022 lows. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-3-Sm-Cap-Stocks-Approaching-Oct-Lows-PreCOVID-Highs-e1698332843700.png "- Clear Wealth Planning Solutions") Providing reassurance for a potential bounce from this key support level beyond the fact that U.S. small caps are already oversold (once again, RSI around 30) is the fact that the October 2022 lows were also effectively the February 2020 highs right before the outbreak of COVID. As the old technical analysis saying goes, what was once resistance has now become support. It will be interesting to see if this holds true for small caps today. Bonds. The pain in bonds over the last few months has been real. But before going any further, it is important to put the recent backup in yields in context. The monstrous move higher in bond yields took place over a year ago now when the 10-Year U.S. Treasury yield exploded higher from a low of 1.35% in December 2021 when inflationary pressures were already simmering to a high of 4.25% less than a year later in October 2022. Breaking this down, we saw a near 3 percentage point jump in 10-Year U.S. Treasury yields in just 10 months. This is an epic level of pain for bond investors. So what have we seen more recently? Bonds did rally fairly strongly for nearly seven months coming off of the October 2022 lows, with the 10-Year Treasury yield falling back as low as 3.37% by early May 2023. But once it started to dawn on investors that the long anticipated economic recession was not coming (not to mention China and Japan increasingly coughing up Treasuries), yields started pushing back higher through today. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-4-US-Treas-Overdue-for-Drop-in-Yields-and-a-Rally-in-Price-e1698332989474.png "- Clear Wealth Planning Solutions") The echo move higher in bond yields this year has been fairly swift in its own right. And where we stand today, Treasuries are both oversold and overdue for a fairly meaningful rally given how far beyond the moving average trendlines we stand today in an environment no less where inflation pressures continue to sustainably decline. Nonetheless, the major battle line for the 10-Year U.S. Treasury is the 5% yield level. Let’s take a closer look on an intraday basis below. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-5-US-Treas-The-Battle-at-5-is-About-to-be-Rejoined-e1698333811428.png "- Clear Wealth Planning Solutions") The 10-Year Treasury market took its first sustained run at breaking above a 5% yield late in the day last Thursday, only to get quickly turned back. Another run was taken early the next morning last Friday, only to be once again swiftly swatted back through the remainder of the trading day. Like a battering ram, the Treasury market made a third run at breaking above 5% at the open of trading this Monday, but once again buyers at this key yield level firmly held the line, pushing the 10-Year lower by nearly 20 basis points through the close of trading on Tuesday. But by the time markets reopened for Wednesday, bond investors were gearing up for another charge at 5%, having pushed the yield steadily higher to 4.95% by the end of the trading day. It is very possible that by the time this article is broadly published, that this 5% support level in the 10-Year Treasury yield has been taken out. If so, the next support line in the sand is 5.25%. But if bond investors can hold the line at 5% between now and the end of the week, the longer they hold this support level, the more likely it is that sellers will capitulate and buyers will take the upper hand. Now for some stock only investors, they may read the above content about bonds and say “why should I care about what the 10-Year Treasury market is doing?”. Beyond the fact that the bond market plays an important role in determining stock valuations and the equity risk premium, stock investors should be particularly interested in how bonds in general and Treasuries in particular perform from here. Treasuries are overdue to rally. Way overdue, as a matter of fact. And when and if they finally do, this is likely to put some rocket fuel behind stocks to the upside as well. Why? As Treasury yields come back down, they become a less attractive alternative to own versus stocks for the same stock valuation and equity risk premium elements mentioned above. In short, if Treasuries start to rally and the 10-Year yield starts to drop, look for stocks to fully join in on the upside action. **A quick word from gold**. What about the investor that is suffering the current market environment that might be saying to themselves “I don’t want to endure the risk right now, so maybe I’ll sit things out until the stock and bond market settle down”. Given the strong fundamental backdrop described above along with technically oversold levels, such attempts to time the market are likely ill advised at the present time. And gold gives a good example of the perils of trying to wait things out until volatility subsided. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-6-Lessons-from-the-Gold-Market-Rallies-Can-Come-Fast-and-Furious-e1698333975856.png "- Clear Wealth Planning Solutions") Starting in mid-September, gold suddenly started to get kneecapped. Over the course of twelve trading days from September 20 to October 6, gold shed more than -7% of its value amid a wave of relentless selling. But no sooner did the first week of October come to an end and the gold market took off like a bottle rocket to the upside. Over the course of eleven trading days, not only did the yellow metal move more than +2% above its September 20 starting point, but it briefly broke back above $2,000 per ounce in the process. Try to time such market moves at your own peril. For just as suddenly as gold was melting to the downside was as quickly as it was surging right back to the upside. And if I pulled a mini Rip Van Winkle and checked out in mid-September for a few weeks, I’d come back looking at a tidy incremental gain none the wiser about the price ravine that came and went along the way. This is just one of countless examples of the importance of sticking with your discipline and remaining fully invested. **Bottom line**. The battle lines are currently drawn across capital markets including stocks and bonds. And how these engagements are resolved in the coming days and weeks will go a long way in determining whether deeply oversold levels in both stocks and bonds will start to be resolved, or if further short-term downside lies ahead. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #: #496848-1 **Categories:** Insights --- ### [Economic & Market Report: Forests Over Trees](https://clear-wealth.com/economic-market-report-forests-over-trees/) **Published:** October 20, 2023 **Author:** Clear Wealth Planning **Content:** Global financial markets are shrouded in uncertainty, and the risks to the downside remain pronounced. Stocks continue to waver amid a difficult stretch dating back to the end of July. And bond yields continue to spike to levels last seen nearly two decades ago. While it is reasonable that investors may wish to recoil amid the swirling geopolitical and market risks, drawing back and taking in the views across the capital market landscape provides constructive reasons to stay the course. Stock Reflections. While it is sometimes difficult to focus on the longer-term capital market forest when navigating the investing trees on a daily basis, it is remarkable to consider how far we have come over the last several years. Remember the 2010s? Do you recall how monetary policy makers were stuck deep in a rut with the fed funds rate chronically stuck at the zero bound? And remember the Fed’s repeated compulsion to quickly intervene first with jawboning and then promises of easier monetary policy including another round of quantitative easing asset purchases anytime the U.S. stock market fell by more than -5% to -10% over a few weeks? This was the investment environment in which the financial world was trapped for years. Every few years throughout the decade, Federal Reserve Chairs Ben Bernanke, Janet Yellen, or Jay Powell would start the conditioning process by first strenuously entertaining the idea of interest rate hikes, then creeping toward actually delivering them. We finally got our first quarter point hike in 2015 before quickly backing off. We then got eight more gradual and painstakingly telegraphed quarter point hikes over a two-year time period from December 2016 to December 2018 before the Fed backed down again once markets started freaking out with their worst December monthly return since 1931. Only a few months later, the Fed was back to cutting rates again to close out the decade. And then COVID happened, bringing us back to where we started at the zero bound. So why such reminiscences on monetary policy? Imagine throughout this decade long time period the idea that the U.S. Federal Reserve would have to pull a complete transformation and instead of coddling the markets through the idea of a quarter point rate cut they would instead have to slam their foot through the monetary policy floor and jack interest rates by a whopping 5.25 percentage points in less than 18-months (while simultaneously shrinking their bloated balance sheet b.t.w.)? Presented with this scenario throughout the post Great Financial Crisis period, most investors would have reasonably presumed that U.S. stocks would be headed toward a major crash. As was feared for so long, the U.S. stock market simply wouldn’t be able to take having to stand on its own. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-1-Stocks-Resilient-Despite-Previously-Unthinkable-Interest-Rate-Levels.png "- Clear Wealth Planning Solutions") As it turns out, capital markets are a lot more resilient than believed for so long. Sure, the S&P 500 descended into a bear market from January to October 2022 that saw the headline index decline by as much as -32% peak to trough, but this outcome likely had much more to do with the fact that the global economy was dealing with a scorching case of inflation. But once it became clear by late 2022 that inflation was coming back under control thanks in good part to the strong interest rate response from the U.S. Federal Reserve, stocks swiftly staged a comeback. In the year since, the S&P 500 has regained as much as 85% of the ground lost in the 2022 bear market along the way. And this strong rebound has come despite the death of TINA (There Is No Alternative) for stocks, as both Treasuries and money market funds now offer attractive alternatives to owning stocks from a rate of return perspective. In short, despite all of the challenges currently pressuring stock prices, it is worthwhile to consider how well U.S. stocks have held up over the last couple of years in what were previously unthinkable market conditions as recently as a couple of years ago. Despite all of the threats, stocks are still within striking distance of new all-time highs. **Bond views**. Stocks are not the only major asset class that has seen their share of recent difficulties. The largest outbreak of inflation since the 1970s sent bond yields soaring in 2022. And following a brief respite in the first part of 2023, yields have since surged to new cycle highs. While the 10-Year U.S. Treasury yield pushing north of 5% seems unimaginable but recent standards, it is important to put today’s rates into historical context. While the move in Treasuries has been sharp over such a short period of time, the net result has been yields essentially reverting back to their 150-year long-term average at 4.5%. Moreover, what was more of the outlier is the fact that Treasury yields were so low for such a prolonged period in the 2010s and early 2020s, not that they are as high as they are today. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-2-Bonds-Yield-Reverting-to-LT-Average-e1697573047239.png "- Clear Wealth Planning Solutions") Doesn’t this mean that Treasury yields could have much further to climb from here? Not necessarily. It should be noted that the long-term U.S. Treasury yield average was pulled meaningfully higher by the hyper-inflationary period from the late 1960s to early 1980s. If one were to exclude this period and focus on the period from 1871 to 1967 prior to the inflation outbreak, the long-term average was only 3.6%. As a result, unless we see a renewed and meaningful rise in inflation going forward, today’s Treasury yields are already running well above the long-term historical average in non-inflationary market environments. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-3-Bonds-the-bull-market-may-be-over-but-not-all-at-once.png "- Clear Wealth Planning Solutions") Moreover, when examining the 10-Year U.S. Treasury yield in the context of its more than 40-year bull market channel where yields dropped from the mid-teens in the early 1980s to below 1% in recent years, we see that yields have spiked well above the top end of the range too far, too fast. Even if the long-term bull market in bonds is over and yields remain higher going forward, some amount of mean reversion is long overdue at this stage. This is particularly true as inflationary pressures continue to subside and particularly in the wake of oil prices pulling back sharply in recent weeks. **Bottom line**. While both stock and bond markets are providing a lot of risks for investors to consider and navigate, drawing back from the current data and taking a longer-term view informs us that stocks are holding up much better to date than might have been expected only a few years ago, while bonds are not only behaving much more normally than might otherwise be believed and are now long overdue for a bounce. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #493164-1 **Categories:** Insights --- ### [Economic & Market Report: The Market Impact of War](https://clear-wealth.com/economic-market-report-the-market-impact-of-war/) **Published:** October 13, 2023 **Author:** Clear Wealth Planning **Content:** The world was shaken this past weekend by the sudden and unexpected outbreak of war in Israel. As we continue to watch closely as the geopolitical and humanitarian crisis unfolds, it is also understandable to wonder about the potential impact on capital markets going forward. And history provides a useful guide to our understanding of what to expect from here. **Initial reaction.** The invasion of Israel by Hamas took place on October 7, which was a Saturday when capital markets across most of the world were closed. As a result, most investors had a few calendar days to assess the potential market implications before taking any action. This was particularly true for bond investors, as the U.S. bond market was closed on Monday for Columbus Day. These factors likely helped diffuse any abrupt market movements associated with the unexpected attack. Nonetheless, it remained uncertain how investors would initially react once financial markets reopened. But after a -0.6% decline in the S&P 500 over the first 90 minutes of trading, stocks bottomed out by around 11AM on Monday and were off to the upside through the remainder of the trading day, ending higher for the session. The advance continued into mid-day Tuesday before leveling out through Wednesday’s trading. In short, the U.S. stock market reaction has been minimal to none so far. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-1-US-Stock-reaction-to-war-virtually-none-e1697135302283.png "market-impact - Clear Wealth Planning Solutions") What about bonds and gold? The market reaction here was far less surprising, as geopolitical instability frequently sparks a safe-haven flight to quality. And given that both Treasury and gold were already heavily oversold following a relentless selling wave during the second half of September though the first week of October, this provided added fuel for the more than +1% jump in 10-Year U.S. Treasuries and +3% surge in gold. **Looking closer toward the epicenter**. What about the financial markets most directly impacted by the invasion? Stocks most directly affected would be those in Israel. And unlike the U.S. where trading takes place from Monday through Friday, the Tel Aviv Stock Exchange is open from Sunday through Thursday. As a result, the financial market impact was to be felt sooner in Israel. The downside among Israel stocks was initially swift as would have been reasonably expected, as the Tel Aviv 125 Index dropped by more than -7% in the first three hours of trading on Sunday, but much like the U.S. on Monday, Israel stocks effectively bottomed and have been slowly making their way back to the upside in the trading days since. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-2-Israel-Stocks-Initially-Plunged-but-have-been-recovering-since-e1697135375969.png "howlow - Clear Wealth Planning Solutions") **The market impact of war**. While the market reaction to the unexpected outbreak of war may be surprising at first glance, it is consistent with history. Put simply, while the political and human impact of war is profound, financial markets have historically been largely unaffected by such conflicts over time outside of an immediate impact that is quickly traded away. Consider the following past examples that were more global in scale. ***World War II***. The first is the U.S. stock market reaction to the attack on Pearl Harbor on December 7, 1941, that effectively ushered the United States into World War II. The Dow Jones Industrial Average had already been declining for some time in December 1941 in the midst of the secular bear market dating back over a decade. And, while the U.S. stock market immediately dropped by more than -5% through December 23 that year, it subsequently bounced. By January 1942, stocks were +1.5% higher since Pearl Harbor. Of course, stocks subsequently rolled over in the next four months, declining a total of more than -17% through April 1942. But this late April bottom effectively represented the final secular bear market lows for U.S. stocks during the Great Depression period. For only three months later in July 1942, stocks had recovered most of their lost value since Pearl Harbor. By October 1942, they had recovered all of it. And, over the remainder of World War II, U.S. stocks steadily rose. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-3-US-Stocks-Following-Pearl-Harbor-in-Dec-1941-e1697135425133.png "q4outlookstocksbonds - Clear Wealth Planning Solutions") ***Cuban Missile Crisis***. The next is the Cuban Missile Crisis, which took place over the course of 13 days from October 16 to October 28, 1962. Many historians regard this incident as the closest the world has come to the outbreak of a global nuclear war. U.S. stocks, as measured by the S&P 500 Index, immediately dropped by -7% in the first four trading days of the crisis starting on October 16, but quickly bottomed and subsequently rallied. By November 1, they had recovered all of their lost value. And, by the end of the year, they were higher by double digits. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-4-US-Stocks-During-the-Cuban-Missile-Crisis-e1697135482697.png "- Clear Wealth Planning Solutions") ***September 11***. The third is the 9/11 terrorist attacks that included the collapse of the World Trade Center in New York City and the closure of the U.S. stock market for four trading days. Stocks fell by more than -8% immediately after the market reopened and proceeded to decline by as much as -15% over the next few trading days. But by September 21, stocks had bottomed. Less than a month later, they had recovered all of their lost value. And, by early December 2001, stocks were higher by more than +3% versus their pre-attack levels. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-5-US-Stocks-in-the-Wake-of-9.11-e1697135534942.png "- Clear Wealth Planning Solutions") **Bottom line**. Geopolitical events like the outbreak of war are unnerving in many ways. And the tragic human and personal impact of these events cannot be overstated. But when it comes to capital markets, we have seen throughout history that the associated impact outside of any immediate-term reaction to crisis is minimal. We are seeing evidence of this continuing to hold true today, and will likely continue to be the case in the years to come. **Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #:** 490763-1 **Categories:** Insights --- ### [Economic & Market Report: How Low Can You Go?](https://clear-wealth.com/economic-market-report-how-low-can-you-go/) **Published:** October 6, 2023 **Author:** Clear Wealth Planning **Content:** The period from mid-August to mid-November is a notorious time of year for capital markets. The pithy investment strategy “Sell in May and go away” is based on the idea of avoiding this stretch of time of year in stocks and picking back up after Halloween. And 2023 has been no exception in this regard. While U.S. stocks had a rousing summer through the end of July, the more than two months since have been particularly rough not only for stocks but even more so for bonds. How much lower should we reasonably expect stocks and bonds to go from here? Stocks are overdue for a bounce. U.S. stocks were hanging in there for a while. Despite peaking at the end of July, the S&P 500 was only marginally lower through mid-September. But things suddenly turned dark during the last few weeks of the third quarter. Driven lower in part by a market that seemingly finally woke up to the fact after the latest FOMC meeting that the Fed actually intends to keep interest rates higher for longer (like they have been saying for the better part of a year now but the market seemingly wanted to ignore), the S&P 500 has now fallen by more than -8% peak-to-trough from its late July highs. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-1-Stocks-Overdue-for-a-Bounce-e1696516657436.png "allthings - Clear Wealth Planning Solutions") So how much lower should we expect stocks to go? Stocks are now overdue for at least a short-term bounce. The S&P 500 had gotten waaaaay ahead of itself following the blistering summertime rally, which is evidenced in the chart above by how far the index was trading above its 200-day moving average (the smooth red line in the chart above). The pullback over the past two months has brought U.S. stocks all the way back to earth at this same upward sloping 200-day moving average support. **Healthy clearing of the froth**. Thus, the recent correction in stocks has all of the looks of a healthy consolidation and regression to the longer-term uptrend mean that is still well above where we were trading back in March during the outbreak of the banking crises and the market bottom from roughly one year ago in October 2022. And with stocks now trading at -2 standard deviations below its short-term 20-day moving average trend line at oversold readings according to its Relative Strength Index (that’s the near 30 reading on the slim chart below the larger price chart above), a short-term bounce on the S&P 500 from near 4200 to the 4350 to 4425 range in the coming weeks would not be unreasonable. **Lingering downside risks**. It is important to note, however, that we remain near the dead center of the historically turbulent mid-August to mid-November period. And we are not without forces such as spiking U.S. Treasury yields, steadily tightening monetary policy, ongoing policy uncertainty out of Washington DC, and signs of ongoing liquidation activity from China just to name a few that could still bat stocks back to the downside over the next four to six weeks following any short-term bounce. The key will be to watch whether key technical support levels hold such as the upward sloping 200-day moving average, the upward sloping trendline from the October 2022 lows, and the slowly upward turning 400-day moving average (the pink line in the chart above). **Constructive fundamentals**. The good news is that the fundamental outlook for stocks remains constructive looking beyond the coming weeks through the end of 2023 and beyond. Yes, valuations on the S&P 500 Index still look a bit frothy at 23.7 times trailing 12-month GAAP earnings, particularly with a 10-Year U.S. Treasury yield rising toward 5% in recent weeks. But the good news is that corporate earnings are now sustainably on the rise from the 2022 Q4 lows and corporate profit margins are increasingly expanding thanks to core inflation pressures continuing to subside. This helps make forward valuations on the broader market much more reasonable. **Pockets of attractive valuations**. Let’s take the good news for stocks one step further with a look at valuations. While the headline S&P 500 index may still look pricey, stocks still offer a variety of wide and deep pockets of attractive value. This includes both U.S. mid-cap and U.S. small cap stocks trading at their most deeply discounted valuations in nearly three decades outside of the depths of the Great Financial Crisis. On a sector basis, while the technology (Apple, Microsoft, NVIDIA) and consumer discretionary (Amazon, Tesla) sectors continue to trade at their highest multiples in decades, many other sectors such as health care and industrials are trading at their lowest valuations in years. Looking outside of the U.S., we see that stocks across the developed and emerging world are trading at their widest discounts relative to the U.S. in decades. **Watch Treasury yields**. The market outlook remains constructive despite short-term pressures. And while a bounce may be imminent, the potential for further short-term downside persists. A key reading to watch to determine when the stock market is likely to see some relief is the bond market in general and U.S. Treasuries in particular. If we think the U.S. stock market is oversold having retreated to its 200-day moving average, the U.S. bond market as measured by 10-year U.S. Treasuries is even more oversold. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-2-Bonds-Even-More-Overdue-for-a-Bounce-e1696516759685.png "worldmakeway - Clear Wealth Planning Solutions") Remember our discussion on the U.S. stock market being waaaaay ahead of itself by the end of July following its summertime surge? The same could be said even more so about the spike higher in U.S. Treasury yields today. Knowing that as yields rise, prices fall, the jump in the 10-year U.S. Treasury yield from 4.09% at the start of September to over 4.80% in recent days is a monster move, to say the least. This burst has taken the 10-year yield to “overbought” levels well above its 50-day and 200-day moving average trendlines. And just like the S&P 500 eventually regressed back to the mean of its 200-day moving average, the same should be expected of the 10-year U.S. Treasury yield in the weeks and months ahead. This is particularly true given that inflation, arguably the most important determinant of Treasury yields, continues to steadily come down from its 2022 peak. The fact that the 200-day moving average for 10-year Treasury yields is all the way back at 3.81% suggests that a meaningful bond market bounce could be seen in the short-term to intermediate-term before the end of the year. **Bottom line**. It’s been a tough stretch for both stocks and bonds over the last couple of months. Could we see further declines in stocks and bonds in the coming days? Absolutely, as we are right in the heart of a historically tough time of year for capital markets. But the good news is that both stocks and bonds are now overdue for a bounce, and the even better news is that both underlying fundamentals and valuations support the sustainability of any such bounce through the remainder of the year and into 2024. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Tracking #485090-1 **Categories:** Insights --- ### [Economic & Market Report: Seeing Red](https://clear-wealth.com/economic-market-report-seeing-red/) **Published:** September 25, 2023 **Author:** Clear Wealth Planning **Content:** It’s back. After spending much of the year watching pricing pressures abate, investor concerns are rising about a renewed rise in inflation. It’s easy to see why – U.S. economic growth has been much more resilient than expected, the labor market remains tight, wage pressures are rising, and oil prices are spiking to the upside. And summing all investor fears, U.S. Treasury yields are spiking to the upside, providing proof for many that the renewed inflation threat is real. But are investors as concerned as recently spiking bond investors imply? Let’s take a closer look. Price is truth. When it comes to capital markets, I have long been a firm believer in the notion that price is truth. One may be able to construct a compelling qualitative narrative about what should be in financial markets, but if actual market prices are not reflecting that reality, it is important to reevaluate the thesis. With this principle in mind, let’s take a look at what market prices are telling us. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-1-Treasury-Yields-Spiking.jpg "eric - Clear Wealth Planning Solutions") To begin, U.S. Treasury yields are signaling a potential problem. Since the very beginning of the inflation outbreak dating back to February 2021 through the present, the previous intraday high on the 10-Year U.S Treasury yield was 4.33% back in October 2022. Of course, this coincided with the bottom in the U.S. stock market. But after bottoming at 3.25% in April 2023, the 10-Year Treasury yield has been steadily on the rise including a spike this week toward the 4.50% level. Renewed concerns about inflation is driving this rise in yields, right? Perhaps, but let’s look further. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-2-Stocks-Not-Confirming.jpg "marc - Clear Wealth Planning Solutions") What about stocks? While bonds appear to be freaking out about inflation, U.S. stocks apparently have not gotten the memo. Remember when rising inflation was a concern back in late 2021 and early 2022? The headline benchmark S&P 500 started falling by more than -32% peak to trough through October 2022 led by big cap tech to the downside. Where are we today? Sure, U.S. stocks have been in a bit of slog since the start of August, but if anything it looks more like a market working to consolidate a robust summertime advance during a historically challenging time of year more than a any signs of jitters about inflation. In short, stocks are not confirming the message that bonds are sending. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-3-Gold-Not-Confirming.jpg "IMG_8330 - Clear Wealth Planning Solutions") Seeking a third party opinion, we take a look at gold. While gold is widely regarded as the classic inflation hedge, it’s true identity is actually a bit different. More broadly, gold is a hedge against economic and geopolitical instability. Can this include inflation? Yes, and this was certainly true in the 1970s, but the key is that inflation needs to be spiraling out of control as it was roughly fifty years ago. Otherwise, gold will fall when inflation is rising, as investors anticipate the U.S. Federal Reserve will intervene with tightening monetary policy to fight these pricing pressures, which drains liquidity from the marketplace and puts downward pressure on gold prices. This helps explain why gold struggled along with stocks and bonds back in 2022, as investors believed that the Fed would tighten as they did with a vengeance to defeat the inflation problem. What are we seeing today? While gold prices have been grinding since April, they are largely holding steady. In short, gold is also not signaling a burgeoning inflation resurgence either. What about Jay? OK. But what about the U.S. Federal Reserve. They finished their latest FOMC meeting on Wednesday with a press conference that included Fed Chair Jay Powell pounding the table about “higher for longer” on interest rates including signals that one more quarter point interest rate hike may be in the offing before the end of the year. Cause for concern, right? I recently spent quality time talking with a former Federal Reserve Bank President about monetary policy and what investors should take away from the Fed at any given point in time. One of the biggest things this individual emphasized to me was that investors should take the Fed at their word. FOMC members are not trying to trick the market with doublespeak and saying one thing but doing another. Put simply, the Fed intends to do what it says it’s going to do. And in the case of the Fed, they’ve been reiterating “higher for longer” for more than a year now. Perhaps investors are finally listening, but nothing really new came out of the Fed meeting yesterday that wasn’t already out there in one form or another from the Fed for months now. Even the upward revised economic growth outlook has been signaled by the Atlanta Fed GDPNow forecast for months now. But what about the additional Fed rate hike before the end of the year? Back on August 28, the CME FedWatch Tool was signaling nearly a 60% probability for a quarter point rate hike from the Fed at its November meeting. This had faded to below 30% in the weeks since heading into the Fed press conference. And after the Fed meeting, probability for a Fed rate hike in November actually dropped even further to just 28%. It did marginally rise in December, but at 46% it is still well below the near 60% probability being priced in by the market less than a month ago. So what is driving U.S. Treasury yields higher? Indeed, concerns about rising inflation may help explain why U.S. Treasury yields are rising. But the fact that concerns about a renewed rise in inflation are receiving little to virtually no support outside of the bond market suggests that perhaps other forces may be at work in driving yields higher. A primary candidate to consider for why Treasury yields are rising is China. As has been widely documented, the China economy is struggling. The rebound in growth following their COVID lockdowns earlier this year has been muted at best. Perhaps more importantly, China is coping with a mounting wave of commercial real estate insolvencies and instability among their leading asset management firms that deal with trillions of dollars of securities. Historically, such periods of instability have resulted in liquidation pressures that have hit asset markets in the U.S. including Treasuries. Taking a closer look at the Major Foreign Holders of Treasury Securities data from the U.S. Treasury, we see that China has reduced their holdings by more than -12%, or roughly $120 billion, over the past year through July 2023. And when looking at other countries where China Treasury ownership has historically transacted like Belgium, we see another roughly $40 billion coming off the table over the last year through July 2023. Given that China is still among the largest holders of Treasury securities in the world, the fact that they have been selling in size may be contributing to the upward pressure in Treasury yields, particularly in an environment where the U.S. Federal Reserve is now shrinking their balance sheet. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-4-Treasuries-Seeing-Red.jpg "IMG_8834 - Clear Wealth Planning Solutions") This notion is further evidenced when considering the performance of China stocks relative to U.S. Treasury note prices. For if China investors are truly liquidating, they are presumably selling their stocks along with their Treasury bonds. And when looking back over the last two years, we see a high correlation between the Shanghai Stock Exchange Composite and 10-Year U.S. Treasury note prices. This includes the period since April 2023 when U.S. Treasury yields bottomed and started to rise (and thus prices peaked and started to fall), as it coincides almost to the day to the China stock market also rolling over to the downside. Bottom line. Talk about a renewed rise in inflation is likely to persist in the coming weeks. And while this risk is real and warrants close monitoring, the underlying market evidence suggests that the market is more sanguine on the inflation outlook than what the current headlines might suggest. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Compliance Tracking #481875-1 **Categories:** Insights --- ### [Economic & Market Report: Leaves Turning Brown](https://clear-wealth.com/economic-market-report-leaves-turning-brown/) **Published:** September 18, 2023 **Author:** Clear Wealth Planning **Content:** The U.S. stock market continues to hold its ground as summer gradually turns to fall across capital markets. While the headline benchmark S&P 500 Index has been middling at best since the end of July, its overall performance over the past year has been impressive and if anything stocks are continuing to hold their ground following particularly strong early summer gains. With that said, a few metrics a worth watching as the seasons change from summer to fall for potential early signs of downside risk. **Waning speculative fervor.** Liquidity driven speculation has been a particular driver of stock market returns during prolonged stretches for more than a decade now. A useful metric to measure the speculative appetite among investors has been the price of cryptocurrencies such as Bitcoin, which has had a notably strong correlation with the tech heavy NASDAQ 100 since the mid-2010s. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-1-Bitcoin-Breaking-to-the-Downside-Rel-to-the-NASDAQ_9.14.23.jpg "check - Clear Wealth Planning Solutions") What has been increasingly notable since the early spring is the widening divergence between Bitcoin and the NASDAQ 100. For a while the tech heavy index has marched higher driven by the mega cap “Magnificent Seven” of Apple, Microsoft, Amazon, Alphabet, NVIDIA, Meta, and Tesla. Bitcoin prices have been sideways at best and increasingly fading as of late. Such deviations have eventually reconverged over much of the past decade, typically with Bitcoin falling back down to the path of the NASDAQ 100. It will be interesting to see whether it might be the NASDAQ 100 catching down to Bitcoin prices this time around. **Maples versus oaks**. Just as the leaves of maple trees typically turn before those of oak trees, so too have small cap stocks historically led the performance of large cap stocks. Small caps frequently lead their larger counterparts to the upside shifting into expansions, and they also typically lead the trail to the downside heading into slowdowns and recessions. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-2-Large-caps-remain-gree-small-caps-are-browning_9.14.23.jpg "divider - Clear Wealth Planning Solutions") Today, we see that while large caps continue to perform strongly coming off of the October 2022 lows, the initial spark of small caps has increasingly trailed off. Perhaps small caps will eventually regain their verve and catch up to the upside. Conversely, it will be worth watching whether the languid performance of small caps is ultimately a harbinger for both large caps and the broader market. **Falling leaves.** A third notable development has been the notable rise in corporate defaults so far this year. As of August 2023, we have seen the number of corporate bankruptcies spike to their highest levels since the outbreak of the COVID pandemic and the Great Financial Crisis before that. Moreover, the number of bankruptcies today exceed the totals seen during the bursting of the technology bubble at the turn of the millennium. ![](https://clear-wealth.com/wp-content/uploads/2023/10/Chart-3-highyield-spreads-not-showing-stress-of-recent-defaults_9.14.23.jpg "- Clear Wealth Planning Solutions") But unlike these past episodes when the spreads between high yield corporate bonds and comparably dated U.S. Treasuries widened out to reflect the additional yield required by investors to take on the additional risk including the threat of default that comes with owning more speculative corporate debt, these readings remain largely unmoved today. In fact, spreads are continuing to marginally narrow if anything. Whether this is a notable sign of justified confidence or misguided hubris among investors remains to be seen, but we should continue to watch high yield credit spreads in the months ahead, for any such rise to catch up to the trend implied by recent bankruptcy would provide an early warning signal for potential downside pressure eventually making its way to the stock market. **Bottom line**. Risks are almost always prevalent in any market environment, and today is certainly no exception as we make our way from summer to fall. And while I would not rank any of the risks detailed here as imminent threats to the nearly year long stock market rebound, they warrant monitoring in the weeks ahead for any signs of decay as we travel our way through what historically can be the most unsettled time of the year for U.S. stocks. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* Tracking #479024-1 **Categories:** Insights --- ### [Economic & Market Report: Red Alert](https://clear-wealth.com/economic-market-report-red-alert/) **Published:** September 12, 2023 **Author:** Clear Wealth Planning **Content:** The U.S. stock market has hit a rough patch in recent weeks. Just as notable has been the sharp rise in U.S. Treasury yields over the past month. While it is understandable for U.S. investors to look inward in seeking explanations for why both stocks and bonds are performing poorly as of late despite a domestic economy that remains solid as it continues to shed inflationary pressures, the more likely culprit for recent market woes may be coming from overseas from the world’s second largest economy in China. We’ve seen this story before. Remember the “Taper Tantrum”? More than a decade ago now on Wednesday, June 19, 2013, then Fed Chair Ben Bernanke took to the podium after the latest FOMC meeting to say that the Fed maybe, kinda might think about possibly scaling back on its QE3 asset purchases perhaps at some point in the months ahead, maybe. Supposedly, these words from Bernanke sent U.S. stocks plunging lower and U.S. Treasury yields spiking higher for the next several trading days despite a chorus of Fed member backtracking and reassurances along the way until Monday, June 24 when the downside pressure finally relented. What is almost never recalled from this episode was the crisis that was unfolding at the exact same time. For it was on that very same day on Wednesday, June 19, 2013, that the Chinese banking system was entering into its own seizure following an active effort to drain liquidity from their own financial system to reduce systemic risks. Financial institutions in China stayed open late that day in a frantic effort to secure liquidity as banks were becoming increasingly reluctant to lend funds to one another. By the next day on Thursday, June 20, the overnight lending rate in China had spiked into double-digit territory, suggesting that liquidity in the banking system was quickly drying up. Initially, the People’s Bank of China (PBOC) declared that sufficient liquidity existed in the financial system, and markets recoiled further. It was not until the PBOC finally intervened with targeted liquidity injections on – wait for it – Monday, June 24, 2013, that the Chinese financial system finally calmed down. A few more past examples. Remember the U.S. stock market flash crash that took place on Monday, August 24, 2015? What is almost always forgotten is that China’s Shanghai Stock Exchange Composite entered into a freefall four trading days earlier on Tuesday, August 18, shedding nearly -30% of its value in the process as Chinese authorities actively worked to prick the stock market bubble they had grossly overinflated earlier that summer. And remember in November 2016 the massive 57 bps spike in the 10-Year U.S. Treasury yields from 1.79% to 2.36% in the days following the U.S. Presidential election that was supposedly caused by the reaction among U.S. investors to the unexpected political outcome? Turns out we learned a few months later from the Major Foreign Holders of Treasury Securities report from the U.S. Treasury that the primary cause for the spike in yields was selling from China and that U.S. investors were actually net buyers of Treasuries during this time period. These are just a few examples of sudden and sharp downside events taking place in U.S. markets whose attribution at the end of the day ends up coming from the other side of the world in China (and even if the conventional historical narrative still remembers it differently). So what’s happening in China today? The China economy has already been struggling for months. The much ballyhooed economic surge from the world’s second largest economy coming out of its latest national bout with COVID earlier this year (yeah, this is still a major issue in some parts of the world) has failed to materialize. Instead, the China economy is grappling with insufficient domestic and foreign demand coupled with a deepening property market crisis. The latter has included the bankruptcy declaration of Evergrande Group, once China’s second largest property developer, and the debt restructuring of major Chinese asset management firm Zhongzhi Enterprise Group, a major player in China’s $3 trillion shadow finance system. And if we learned anything from the Great Financial Crisis here in the U.S., major financial institution failures bring with it major spillover effects and widespread financial asset liquidations. So what have we seen in recent weeks as these events in China have unfolded? The Shanghai Stock Exchange Composite has plunged by nearly -7% since the end of July to its lowest levels of the year. The Chinese yuan has also depreciated by as much as -3% relative to the U.S. dollar in recent weeks and more than -8% year to date. What about in the U.S.? Over virtually the same exact time frame since the decline started to unfold in China, the S&P 500 has dropped by -6%. As for U.S. Treasuries, of which more than $1 trillion is owned either directly or indirectly in China, the yield on the 10-Year U.S. Treasury has spiked in recent weeks by nearly 60 bps to their highest levels of the year. Even the highly liquid precious metals of gold and silver have shed as much as -4% and -13% since the end of last month. Bottom line. As a difficult August draws to a close and investors seek direction on where U.S. stocks and bonds are heading as the historically more challenging month of September gets underway, keep a close eye on events coming out of China. If conditions continue to deteriorate, it may be difficult for U.S. assets to escape the spillover effects. **Disclosure**: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Tracking #470270-1 **Categories:** Insights --- ### [Economic & Market Report: The Dog Days of Summer](https://clear-wealth.com/economic-market-report-the-dog-days-of-summer/) **Published:** August 21, 2023 **Author:** Clear Wealth Planning **Content:** The dog days of summer have descended on capital markets in recent weeks. Following a blistering rally that began with the government resolution to the banking crises in March and accelerated as we moved into the summer months, U.S. stocks have been fading to the downside since the start of August. What can we take away from this recent pullback and how much further can we reasonably expect stocks to fall from here before finding a bottom? Summer swelter. The last few weeks have been wilting for U.S. stocks. After peaking at a 2023 high of 4607 back on July 27, the S&P 500 has dropped more than -4% since toward the 4400 level. While the descent has been gradual, it has also been a consistent grind to the downside. For example, the large cap S&P 500 has fallen in nine out the last twelve trading days and the small cap S&P 600 has been lower in all but one trading day over the same time period. It should be noted before going any further that this recent retreat in stocks thus far in August was long overdue. In the preceding months of June and July, the S&P 500 had soared by more than +12%. In the process, the headline benchmark index was running well ahead of trend and had become meaningfully overbought. As a result, it could be argued that the relatively modest decline following such a sharp rally is a healthy consolidation of recent gains. If anything, clearing some of the froth from the recent market rally should help set the market up for the next sustained move to the upside. Nonetheless, we are seeing some potentially troubling cracks that warrant closer investigation and may be signaling that we could see further downside in the weeks ahead before the current pullback has fully run its course. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-1-Tech-Support-Potentially-Breaking.jpg "iwp_log_65b4e788c1662 - Clear Wealth Planning Solutions") **Losing support**. One problematic development has been the potential break of key technical support. The S&P 500 had been trading above its medium-term 50-day moving average since the end of March. And even though it had been trading more than +7% above this key support level as recently as a few weeks ago in late July, the S&P 500 broke below its 50-day M.A. on Tuesday and failed in its first attempt to reclaim this support level on Wednesday. While it is too early to declare the 50-day moving average support officially breached, some related indicators suggest that this technical break on the benchmark index will eventually be confirmed. One key signal is the recent trend in information technology stocks. Over the last several years, leading tech stocks like Apple, Microsoft, and NVIDIA along with a few tech adjacent names found in other sectors like Amazon and Tesla in consumer discretionary, Alphabet and Meta in communications services (the so called Magnificent Seven) have grown so far ahead of the market that they now make up nearly 30% of the weighting of the S&P 500. This is historically an extraordinary degree of market concentration in so few names. Why does this matter? Because if these stocks falter, they will likely bring the entire S&P 500 lower with them. Over the past month, a number of these Magnificent Seven names were foreshadowing the broader market move to the downside. For while the S&P 500 peaked on July 27, names like NVIDIA, Tesla, and Microsoft had topped more than week earlier in mid-July and have dropped between by -13% and -25% in the month since. Other names like Apple and Meta have also fallen by double-digits in recent weeks as well. As a result, all have sliced through their respective 50-day moving averages to varying degrees and most are still trending decisively to the downside. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-2-Tech-Struggling-with-the-Technicals_new-underlying-Index.jpg "iwp_log_65b8f508ab51e - Clear Wealth Planning Solutions") Thus, we see the technology sector as a whole having already left 50-day moving average support behind weeks ago and now searching for its next support level to find its footing. Having already declined by -9% since its mid-July peak, the next likely landing spots including the 100-day, 150-day, and 200-day moving averages at -2%, -7%, and -11% below current levels. And if big tech and friends still have room to the downside in the near-term, anticipate that it will drag the broader market S&P 500 lower with it. Putting this all together, we should not be surprised to see the S&P 500 falling further toward 4300 and its own 100-day moving average in the coming weeks. **Liquidity thirst**. While tech may be the main culprit dragging the market lower right now, it should be noted that it is not the only sector moving to the downside in recent weeks. For while energy, health care, and communications services continue to hold up well, materials, industrials, consumer discretionary and staples, financials, real estate, and utilities have also recently taken sharp cuts to the downside to varying degrees. This broader based decline suggests that liquidity forces may also be at work in dragging the market lower at a time of the year in August where trading volumes are already notoriously light (i.e. if you’re lounging on the beach in the Hamptons, you’re probably executing fewer trades than normal). ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-3-The-Feds-Incredible-Shrinking-Balance-Sheet.jpg "iwp_log_65b99eb85f85d - Clear Wealth Planning Solutions") One key liquidity reading for financial markets is the Fed’s balance sheet, which is shown in the chart above. Now, we’ve all come to understand that the best way to propel the U.S. stock market to a new high +40% above the previous peak during a global pandemic is to inject trillions of dollars of monetary policy rocket fuel from the U.S. Federal Reserve. The only problem is that you can leave the global economy with a scorching case of inflation in the process, which is the battle that we’re still fighting for more than 18 months and counting to date. The same can happen when you drop $400 billion in a month like March in response to banking crises, which may help to explain why the stock market did so well through the spring and into the summer. On the flip side, if the Fed is draining liquidity from the financial system through shrinking its balance sheet, this can serve as a drag on stock performance. The Fed finished mopping up its spring liquidity injection by the end of June, and continues to steadily reduce its balance sheet by $100 billion per month on average. As long as the Fed continues to reduce the assets on its balance sheet, it will likely serve as a financial market drag on the margins. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-4-Banks-Continue-to-Tighten-Lending-Standards.jpg "iwp_log_65ba950ec785b - Clear Wealth Planning Solutions") Another potential drag for stock prices and the broader economy in the months ahead, particularly if broader liquidity conditions continue to tighten going forward, is a further reduction in available credit from the banks. According to the Fed’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices, the net percentage of U.S. banks tightening lending standards jumped to just over 50%. Put simply, more than half of all banks in the U.S. are planning on being more restrictive on who they lend money to and how they lend it out this quarter. And less availability of bank credit means less available liquidity in the economy and financial markets all else equal, which can serve as an additional drag on asset prices. These are just two of the various liquidity signals worth watching in relation to stock prices as we continue through the remainder of the year that have the potential to drag down stock prices further than we might expect at any given point in time. **Disclosure**: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Tracking #469055-2 **Categories:** Insights --- ### [Economic & Market Report: Cool Inflation Summer](https://clear-wealth.com/economic-market-report-cool-inflation-summer/) **Published:** August 14, 2023 **Author:** Clear Wealth Planning **Content:** The primary risk for financial markets in the second half of the year in this Chief Market Strategist’s view is a renewed rise in inflation. Over the past year, capital markets have been cheered by the notion that the surge in inflation that began in 2021 and peaked in mid-2022 is increasingly fading into the rearview mirror, thus enabling the U.S. Federal Reserve to end its aggressive interest rate hiking cycle and even contemplate the possibility of cutting rates if needed in the months ahead. As a result, monitoring the latest inflation data as it becomes available will be important as we continue through the second half of 2023. The latest such release came Thursday morning from the Bureau of Labor Statistics with the release of the Consumer Price Index for July. **Cool inflation breezes.** A primary concern heading into this latest CPI report was a hot reading on inflation. It was just a month ago when markets rejoiced following a June CPI reading that saw the headline annual inflation rate plunge from 4.2% to 3.1%, which included a month-over-month increase of just under 0.2%. While both readings for June were resoundingly encouraging, concerns quickly started to build heading into the July CPI print that the June numbers may represent the lows for the year on inflation. With the economy chugging along stronger than expected and oil prices having risen by as much as 25% since the end of June, worries were building that inflation might start to take a renewed turn to the upside as we progressed through the second half of the year. And given that the period from early September to mid-November has been a notoriously choppy calendar year stretch for capital markets, such a rise might be the catalyst for an already overdue stock market consolidation during this time period. Fortunately, the latest inflation reading for July brought even more notable encouragement on the inflation front. Indeed, the annual inflation rate ticked back higher as was expected, but instead of retracing as high as 3.4% for July as predicted by the historically reliable Cleveland Fed Inflation Nowcasting, the reading from the BLS came in a hair below 3.3%. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-1-Cool-Inflation-Reading-Slight-Annual-Uptick.jpg "- Clear Wealth Planning Solutions") Even more constructive was the monthly reading in the CPI Index for July. For while the Cleveland Fed was projecting a month-over-month percentage increase of 0.4% on both headline and core inflation, both of which would have been considered fairly hot numbers, the announced readings came in at a far more modest 0.2%. The numbers look even better under closer examination, as the already cool 0.180% monthly reading for June actually edged a skosh lower to 0.167%. This is good stuff for the markets on the inflation front. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-2-Inflation-Staying-Cool-this-Summer.jpg "- Clear Wealth Planning Solutions") **What to watch going forward.** While the markets are rightfully responding positively to the promising latest headlines on the inflation front, it remains far too soon for the Fed or investors to raise the “Mission Accomplished” banner on the inflation fight. It is important to consider the ongoing challenges that lie ahead and the key indicators to watch as we continue through the second half of the year. A key challenge on the inflation front is ironically the economy holding up much better than expected. Heading into 2023, the consensus base case was an economic recession in 2023 Q2-Q3. As we moved through the spring, the recession forecast shifted back to 2023 H2. And as we make our way through the summer, those dwindling analysts still anticipating a recession have moved the timeline back to the turn of the year in 2023 Q4 and 2024 Q1. But when considering that the labor market remains chronically tight with the unemployment rate lingering at historical lows and home prices continue to steadily rise supported by favorable supply/demand fundamentals, the potential remains high for the economy to remain stronger than anticipated well into 2024. To this point, the Atlanta GDP Fed Now readings as we continue through the third quarter of 2023 show an economy that is gradually accelerating, not fading, as we head toward the fall. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-3-US-Economy-Looking-Stronger-in-2023-Q3-Not-Weaker.jpg "- Clear Wealth Planning Solutions") If it turns out that there is still too much money chasing fewer goods in a stronger than expected economy, such could be the spark for renewed inflation pressures. Given that the current folks on the Fed almost certainly do not want to repeat the missteps of the stagflationary 1970s, they are likely to act as needed by raising interest rates even further to quell any echo pricing pressures in the months ahead. And while capital markets have absorbed the overtime Fed rate hikes we’ve seen so far in 2023, they have come in the context of inflation still falling and priced in expectations that the Fed will eventually be cutting rates in 2024 (don’t count on it – a topic for another article coming to a electronic screen near you in the coming weeks), investors are not likely to be as sanguine about the Fed turning back up the dial along with inflation heating up again. Given this primary risk, three key indicators among many others are worth watching in the days and weeks ahead. The first is the breakeven inflation rate, which is an indicator of what the market anticipates the average inflation rate will be over a future time period, say 5 years or 10 years. We can find reassurance so far when looking at the 5 year breakeven inflation rate, for while it has crept higher from recent lows at the end of May, it remains at a relatively low and very manageable 2.2% today. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-4-Inflation-Expectations-Remain-Subdued.jpg "- Clear Wealth Planning Solutions") Another sign of encouragement comes from the Producer Price Index, which can be viewed as a leading indicator for the Consumer Price Index because it shows how likely producers that are making products might be to pass along costs to consumers when sending their products to market. The next PPI reading for July is set to come out on Friday, August 11, so stay tuned, but the most recent reading for June showed producer prices falling at their fastest rate outside of the Great Financial Crisis since the 1930s. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-5-Producer-Prices-Are-Plunging.jpg "- Clear Wealth Planning Solutions") A third is oil prices as measured by West Texas Intermediate Crude (Brent Crude also works for those that are so inclined). Here we see some cracks in the armor. While oil prices matter for the headline CPI and not the Core CPI that excludes food and energy, it still matters if energy prices are screaming to the upside. And while we still remain within the oscillating range for oil prices in 2023, it is notable that we appear ready to break out above the $85 per barrel level in a push back toward $100. This is worth monitoring in the weeks ahead. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-6-Oil-Prices-Are-Back-on-the-Rise.jpg "- Clear Wealth Planning Solutions") **Bottom line**. The good news on the inflation front keeps coming. And as long as disinflation leads over inflation, the markets are right to rejoice. But know that while the battles continue to be won, the war on the inflation front is not yet over. ***Disclosure****: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* Tracking #466388-2 **Categories:** Insights --- ### [Economic & Market Report: Strange Market Bedfellows Worth Monitoring](https://clear-wealth.com/economic-market-report-strange-market-bedfellows-worth-monitoring/) **Published:** August 7, 2023 **Author:** Clear Wealth Planning **Content:** When monitoring capital markets, strange and unexpected relationships can exist between two market segments. Correlation without causation? Perhaps, but these bedfellows often come together for understandable reasons when considered more thoughtfully. Three particular relationships stand out today as worth monitoring for risk and opportunity as we continue through the second half of the year and beyond. The NASDAQ 100 and Bitcoin. Technology stocks and cryptocurrency? At first glance, it seems these two buckets would have very little in common. But the NASDAQ 100 and Bitcoin do share one very important distinction that has them moving in virtual lockstep with one another, the latter with much greater price volatility, over the last seven years and counting as demonstrated in the chart below. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-1-The-NASDAQ-100-and-Bitcoin.jpg "iwp_log_65a28b6066908 - Clear Wealth Planning Solutions") So what is it that brings the NASDAQ 100 and Bitcoin prices together in such a strong relationship? Because they are both measures of the magnitude of excess liquidity in the financial marketplace and its impact on risk asset prices. When it comes to stocks, the most popular destination for excess liquidity has been big technology stocks. How else do we end up in a situation where the seven largest stocks in the U.S. today that make up a staggering 28% of the entire S&P 500 market cap weighting all hail from the NASDAQ and are all from technology (Apple, Microsoft, NVIDIA) or tech adjacent sectors (former tech sector heavyweights Alphabet and Meta Platforms now in the Communications sector and tech-focused consumer giants Amazon and Tesla found in the Consumer Discretionary sector). As for Bitcoin, regardless of its long-term viability in potentially decentralizing business activity in many parts of the world, it is today the quintessential speculator’s instrument for the deployment of excess liquidity. So what are these pair telling us today? First, that sufficient excess liquidity continues to course through the veins of capital markets as evidenced by both the NASDAQ 100 and Bitcoin advancing back to the upside thus far in 2023. Also, the fact that the NASDAQ 100 is now meaningfully leading Bitcoin prices should cause investors to take notice. If anything in recent years, the tendency was for Bitcoin to get ahead of itself before falling back to its NASDAQ 100 implied price. It remains to be seen whether tech stock prices fall back to their Bitcoin implied price, or whether Bitcoin catches up with the NASDAQ 100. My base case? The mega cap tech stocks that drive the NASDAQ 100 higher have gotten waaay ahead of themselves with their AI related euphoria and are looong overdue for a breather and a period of consolidation, particularly at current frothy valuations. But recognizing that liquidity conditions remain abundant in asset markets despite the Fed’s best efforts, it would not be surprising to see the NASDAQ 100 and Bitcoin to meet somewhere in the middle over the course of the next six months to a year. Gold and Long-Term U.S. Treasuries. So how exactly are these two related? On one hand you have gold, which is supposedly the legendary inflation hedge. On the other hand, you have long-term U.S. Treasuries, which are highly sensitive to the threat of inflation. Seems like they should be polar opposites of one another. Upon closer consideration, we find that gold and long-term U.S. Treasuries have much more in common than one might initially think. While gold has garnered the reputation for its inflation protection chops, in reality it is far more a hedge against economic, market, and/or geopolitical instability. Such potential upheaval may include inflation as it did in the 1970s and early 1980s, but it may also include deflation as it did in the 1930s and the potential collapse of the global financial system as it did in the late 2000s in the midst and immediate aftermath of the Great Financial Crisis and again in the midst and wake of the COVID crisis in 2020. These characteristics bring gold much more in line with long-term U.S. Treasuries, which long has been and remains to this day a premier safe haven destination for global capital during periods of crisis and uncertainty. Taking this one step further, gold actually doesn’t perform nearly as well as one might think during periods of high inflation despite its reputation. This is due to the fact that while gold prices may receive upward pressure from inflation, it is often neutralized if not more than offset by the drain in liquidity resulting from the U.S. Federal Reserve moving aggressively to raise interest rates to fight inflation. This helps explain why gold prices effectively chopped back and forth over the past two years despite the biggest bout of inflation in this country in more than four decades. Putting this all together, gold and long-term U.S. Treasuries have much more in common than might reasonably be first thought. And the strength of this relationship over time is evidenced in the chart below, as the price of gold and long-term U.S. Treasuries moved in lockstep with one another from the start 2015 through the beginning of 2022. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-2-Gold-and-Long-Term-US-Tresuries.jpg "Chart-1-Winners-Technology-No-Surprise-Tough-Start-to-2024.jpg - Clear Wealth Planning Solutions") Over the past 18 months, we have seen this once close relationship deviate widely with gold holding its ground while Treasuries plunged to the downside. This raises the key question? If these two unlikely bedfellows reconverge, will it be gold plunging down to the long-term U.S. Treasury implied price of $1,200 per ounce, or will it be long-term U.S. Treasury yields falling back toward the 2% range that was prevalent throughout much of the last decade prior to last year. My base case? While inflation is likely to remain persistently higher than it was pre-COVID due to ongoing supply chain disruptions, chronic labor market shortages, and a global shift toward deglobalization and nationalism, pricing pressures are likely to remain muted by the chronically high levels of sovereign, corporate, and household debt that exists not only in the U.S. but across many parts of the developed and emerging world. As a result, my base case is that long-term U.S. Treasury yields will ultimately find their way lower and prices make their way higher to catch up with gold prices, particularly if the annual rates of headline and core inflation in the U.S. continues to make their way down the other side of the proverbial mountain from its mid-2022 peaks. With that said, if inflation pressures were to reignite in the second half of 2023, which is my primary downside risk to monitor in the months ahead, then all bets would be off. U.S. stocks and lumber. A third relationship worth monitoring going forward is that between the S&P 500 and lumber prices. The strong relationship between U.S. stocks and lumber prices over time is understandable upon further consideration. The housing market is a primary driver of the U.S. economy, and lumber is a primary input used in building and maintaining a home. Thus, if demand for lumber is rising, more homes are being built most likely in response to consumer demand. And if consumers that make up roughly two-thirds of GDP are buying more houses, this is supportive of sustained economic growth. The following charts demonstrate this close relationship over time. The first is a chart showing the relationship between the S&P 500 and lumber from 2007 to 2014. While lumber shown by the orange line certainly traded with meaningfully greater price volatility over this time period, the relationship between the two was clearly very strong throughout the Great Financial Crisis period and its aftermath. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-3-US-Stocks-Lumber-2007-2014.jpg "Chart-2-Winner-Financials-Real-Estate-Even-Better.jpg - Clear Wealth Planning Solutions") The next is a chart continuing forward this relationship between the S&P 500 and lumber from 2015 through to today. The correlation between these two bedfellows remained high through the summer of 2018. But then some meaningful deviations began to take place. Over the course of the next 18 months, lumber prices meaningfully trailed the S&P 500. That is until the onset of COVID and its associated recession sent U.S. stocks catching down with lumber prices. ![](https://clear-wealth.com/wp-content/uploads/2023/08/Chart-4-US-StocksLumber-2015-Present.jpg "Chart-3-Winners-Long-Bond-Battling-Back-with-Stocks.jpg - Clear Wealth Planning Solutions") Both U.S. stocks and lumber prices rose sharply, the latter of course with particularly notable price volatility, following the turbo fiscal and monetary policy injections in response to COVID, but since the start of 2022, we have seen a marked deviation between the two indices. For while U.S. stocks stumbled through October 2022, they have subsequently rebounded sharply. In stark contrast, lumber prices continued to decline into early 2023 and have only stabilized with back-and-forth price action through the year-to-date. Putting this together, it remains to be seen and will be worth monitoring whether lumber prices ultimately catch up to their U.S. stock market implied price toward $2,000, which would be bullish for the economic and market outlook, or if U.S. stocks catch down to their lumber implied price toward 3000 on the S&P 500 Index. The latter outcome, of course, would imply the onset of an economic recession and an echo bear market. My base case? Lumber ultimately catches up with U.S. stock prices, as the shortage of housing stock and the persistent strength of the U.S. economy provide support for lumber to eventually catch up. With that being said, higher mortgage rates and the threat of further banking instability have the potential to upend this base case scenario before it’s all said and done. This is a downside risk worth monitoring in the months ahead. Bottom line. It is the beauty of asset allocation and considering the broad range of categories across the capital market spectrum. For while trying to determine the likely path forward for the most commonly known and followed asset classes like stocks and Treasuries, assessing their relationship with various more specialized segments can help inform what we should reasonably expect from capital markets in general going forward. And strange bedfellows like these are worth monitoring in the months ahead for the useful information that they can provide in the asset allocation decision making process. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Putting Junk to Good Use](https://clear-wealth.com/economic-market-report-putting-junk-to-good-use/) **Published:** July 31, 2023 **Author:** Clear Wealth Planning **Content:** The debate remains ongoing across the economic landscape and financial markets. Will the economy fall into recession between now and the end of the year? And will any looming economic slowdown push the U.S. stock market back into bear market territory? While a number of indicators are flashing conflicting signals, one historically reliable reading within capital markets is emoting a decidedly positive story. It is the junk bond market. **Default risk.** High yield corporate bonds (a.k.a. junk bonds) represent loans issued to companies with credit ratings that are BB or lower. In contrast to investment grade bonds rated AAA to BBB that have a relatively low expectation of default risk, high yield bonds rated BB or lower are considered speculative grade in that they come with a higher probability that the issuer of the bond may not be able to make their interest payments or pay back the principal value of the loan. More simply, when it comes to high yield bonds, investors must worry more about getting their money back. **How junk can be useful.** So how is the high yield bond market useful in predicting the likelihood of an economic recession and/or stock bear market? To answer this question, we consider the high yield option-adjusted spread, which at the risk of oversimplification is essentially the additional yield required by investors to take on the added risk of owning speculative grade bonds versus comparably dated U.S. Treasuries. This is shown in the chart below. [![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-1-High-Yield-Spreads.png "- Clear Wealth Planning Solutions")](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-1-High-Yield-Spreads.png) What we have seen over the past quarter century is that the additional spread required by investors to take on the added risk of owning high yield bonds has started to increase measurably in the months if not years before the onset of an economic recession and its associated stock bear market. Where do we stand today? High yield spreads have been steadily declining from their 4.17% June 2022 cycle peak to 2.52% today. This represents a spread tightening of 165 bps, which is in stark contrast to the sharp widening seen prior to the bursting of the tech bubble, the onset of the Great Financial Crisis, or the outbreak of COVID. This is a positive signal against the notion of any looming economic recession or bear market. **The junkier the junk, the more useful the signal.** A valid criticism could be levied against high yield bond spread and their predictive ability. Yes, they blew out sharply as we descended into the last three economic recessions and bear markets. But while they provided a solid lead time ahead of the bursting of the tech bubble in early 2000 as spreads started widening out more than two years prior in 1998, relatively little advance warning was provided in 2007 and 2020. To help address this issue, it is worthwhile to concentrate our focus toward the junkiest of the junk bonds. This is the CCC-rated and lower high yield bond space, which consists of bonds from issuers where default risk is not just highly possible in many cases but downright probable in the case of CCs in this group. Why is focusing on these bonds in particular useful? Because in the earliest stages of investors starting to worry about the threat of an oncoming economic slowdown, they typically will begin parting ways with their most risky investments first. Thus, spreads have a tendency to start widening among CCC-rated and lower bonds even before we start to see it bubble up across the overall high yield space. [![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-2-CCC-Lower-Spreads-Signal-Improving-Outlook.png "- Clear Wealth Planning Solutions")](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-2-CCC-Lower-Spreads-Signal-Improving-Outlook.png) Looking back through recent history over the past quarter century, we see that the spreads on CCC-rated and lower bonds started widening in late 1997 and widened far more dramatically ahead of the tech bubble finally bursting. And while the widening of CCC and lower spreads was effectively coincident with the broader high yield bond space in 2007, we saw these lowest quality spreads widening measurably as early as mid 2018 well in advance of the recession that finally came with the onset of COVID. What are CCC-rated and lower bonds signaling today? Not only are we not seeing any signs of stress in the form of widening spreads from this area of the bond market, instead we are seeing a marked narrowing of spreads that is even more pronounced versus what we are seeing across the broader high yield space. Since peaking at 12.81% in September 2022, CCC-rated and lower bond spreads have tightened by 368 bps to 9.13%. **Bottom line**. The measurable tightening of high yield bond spreads in general and lower quality CCC-rated and lower bonds in particular is providing a decidedly positive signal for the economic and financial market outlook in the months ahead. Not only are these areas of the market not signaling any discernible mounting level of stress and risk aversion, they are instead signaling an increasing level of confidence among investors to take on additional risk through the rest of the year and into next. ***Disclosure****: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. *Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.* **Categories:** Insights --- ### [Economic & Market Report: A Closer Look at Corporate Earnings Season](https://clear-wealth.com/economic-market-report-a-closer-look-at-corporate-earnings-season/) **Published:** July 20, 2023 **Author:** Clear Wealth Planning **Content:** Corporate earnings season is underway once again. With the second quarter of 2023 having just drawn to a close at the end of June, publicly traded companies will soon be coming forward to not only reflect on their recent operating results, but perhaps more importantly to update their projections on performance through the remainder of the this year and next. Overall, roughly 85% of companies in the S&P 500 Index will report their results and outlook over the next four weeks. What should we reasonably expect? **Grim at first glance.** Expectations are already firmly set heading into the latest earnings season. Annual earnings per share on the S&P 500 are expected to decline when the reporting season draws to a close. The latest annual GAAP earnings projection for the S&P 500 in Q2 according to S&P Global is $178.18 per share, which is lower by more than -7% versus the $192.26 final reading from the same time last year in 2022 Q2. This would also mark the third consecutive quarter of annual GAAP earnings declines versus year ago levels. And it would also reinforce the bearish narrative for the economic and stock market outlook. **Signs of improvement when looking closer.** Of course, looking at the annual earnings numbers on year-over-year basis does not tell the entire story. And when digging into the details, we find a much more constructive story for corporate earnings than first meets the eye. For example, while annual GAAP earnings may still be declining versus a year ago, the per share value of earnings actually bottomed in 2022 Q4 at $172.75 and has been improving on a sequential basis over the last two quarters to $175.17 in 2023 Q1 and $178.18 currently estimated for the most recently completed quarter in 2023 Q2. Quarterly GAAP earnings are also providing signs of encouragement following a previously tough spell. Quarterly GAAP earnings per share also bottomed at $39.61 in 2022 Q4 and are projected to come in more than +15% higher today at $45.75 once the 2023 Q2 season ends. In addition, as inflation pressures have subsided, we have also seen a sequential quarterly improvement in corporate profit margins on the S&P 500 from 10.92% in 2022 Q4 to 11.93% in 2023 Q2. This is more than 100 bps of net income margin expansion over the past two quarters. So while the headline annual numbers may still be signaling a declining earnings situation for the corporate sector, the data is much more encouraging for the bulls when digging down into the quarterly metrics. **Finding its footing on a high perch.** Another positive associated with this measurable improvement in corporate earnings that began in 2023 Q1 and is projected to continue in 2023 Q2 is the fact that per share profits managed to stabilize and push back higher near the high end of their historical range. ![](https://clear-wealth.com/wp-content/uploads/2023/07/closer1.jpeg "Chart-2-US-Mid-Cap-Stocks-Testing-Key-Trendline-Support-e1698332745992.png - Clear Wealth Planning Solutions") Given that annual per share earnings on the S&P 500 could have reasonably been expected based on historical precedence to fall as far as the $110 per share range, the fact that they appear to have stabilized and started to rebound at such a high level is most supportive of stock prices that rely on earnings in the denominator of the price-to-earnings ratio to sustain more reasonable valuations. **What about valuations?** Now that’s great that corporate earnings are providing support to valuations, but this still does not take away from the fact that stocks today are still mighty expensive from a long-term historical perspective. For example, the more than 150 year average price-to-earnings multiple on the S&P 500 Index or its historical equivalent that preceded its existence (Dow Jones Industrial Average, etc.) is 16 times as reported earnings. Today, the S&P 500 is trading at more than 25 times GAAP earnings. This, of course, represents a +60% premium valuation relative to long-term history, which put simply is a lot. Now it should be noted that stocks have been trading at a much higher multiple on average in more recent history. Over the past 36 years since the advent of the “Fed put” and the implicit (and sometimes explicit) understanding among stock investors that the U.S. Federal Reserve if able will likely hyperventilate with either the suggestion or delivery of policy support when the stock market falls by anywhere between -7% to -12% over any four week period, stocks have traded at a much higher 22 times earnings on average. But even with this more recent context, stocks are still trading at a +15% premium valuation today, and this is an environment where the risk-free rate is not pinned at 0% like it had been for so many years along the way during the post financial crisis period but instead north of 5%. There are reasonable alternatives, TARA! **A market of stock sectors.** Yes, the stock market as measured by the S&P 500 is expensive today, but this does not mean that each of the 503 stocks that currently make up the S&P 500 Index are expensive. Instead, when taking a closer look, we actually find that most of the stock sectors within the S&P 500 are actually trading at their most reasonably priced valuations in five years. How can this be possible? The answer lies with the Magnificent Seven, or the seven largest stocks by market cap in the S&P 500 Index. These include Apple, Microsoft, Amazon, Google, NVIDIA, Tesla, and Meta Platforms. Combined, these companies make up more than 27% of the entire benchmark index. Allow me to repeat for emphasis. Seven companies, or 1.4% of the more than 500 names in the S&P, make up 27% of the entire size. This is an extraordinary degree of market concentration we are seeing today. And the average price-to-earnings multiple associated with these seven giga cap stocks is a whopping 42 times earnings. Why does this matter? Because exclude these seven stocks and then determine the P/E ratio of what remains of the S&P 500. Where do we end up? At a multiple less than 19 times earnings, which now represents a -15% discount relative to the 36 year “Fed put” era historical average. ![](https://clear-wealth.com/wp-content/uploads/2023/07/closer2.jpeg "Chart-3-Sm-Cap-Stocks-Approaching-Oct-Lows-PreCOVID-Highs-e1698332843700.png - Clear Wealth Planning Solutions") Taking this to the next level, we see that most of the major sectors within the S&P 500 are actually trading at a reasonable if not healthy discount, as the only sectors trading at a measurable premium are Information Technology and Consumer Discretionary, both of which of course are led in size by the Magnificent Seven that come from these tech and tech adjacent stock market categories. Such discounts still on offer in a broader market that has performed so well overall this year is yet another constructive signal moving into the second half of the year. **Bottom line**. As we enter a new earnings season, a respectable cadre of analysts and experts are likely to detail how corporate earnings are still on the wane and stock prices are too expensive in such an environment. But when digging deeper into the numbers, we find a far more constructive story suggesting that not only are corporate earnings on the mend, but that valuations across many areas of the stock market are not nearly as expensive as what may be implied by the market as a whole. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Outlook from Jackson Hole](https://clear-wealth.com/economic-market-report-outlook-from-jackson-hole/) **Published:** July 14, 2023 **Author:** Clear Wealth Planning **Content:** On Wednesday, I had the opportunity to attend the GIC Teton Economic Outlook conference in Wyoming. The event brought together some of the best and most thoughtful economic and financial minds in the industry today for an interactive discussion about the broader macroeconomic and investment outlook as well as more focused discussions on labor markets and cryptocurrencies. What made this event even more exceptional was the chance to spend quality time engaging in a variety of friendly and enjoyable one-on-one conversations with some of the smartest and most innovative people in the business. If you ever have the opportunity to attend a GIC event, I highly recommend it, as you will find it worthwhile in so many ways. Here are some of the key takeaways from the so many great topics discussed and explored. **Jackson Hole.** Jackson, Wyoming was a tremendous venue for the GIC event. Although I’ve heard about it for years, it was my first time in Jackson Hole, and it did not disappoint. The scenery was beautiful, and the atmosphere was friendly and welcoming. And as a long-time distance runner, Jackson was a great location to log a few miles at a higher altitude while taking in the sights. If you have not been and get the opportunity to visit, jump at the chance. What also struck me during my time in Jackson Hole was the vibrancy of the local economy. For those that may not know, Teton County where Jackson is located is by far the wealthiest county in the United States. To highlight the wealth concentration found in Jackson Hole, Teton County has the highest per capita income in the nation by far and has a median home value in the seven-digit dollar range. Of course, Jackson Hole is also a popular tourist destination. As a result, visiting Jackson Hole provided a few key anecdotal takeaways. First, while overall visitor traffic and sales tax receipts are apparently down incrementally versus last year according to the Jackson Chamber of Commerce, the volume of visitors still descending on the area and the spending activities they were engaged in during their stay were still robust and gave little indication of a broader vacationing economy across the country that is measurably weakening anytime soon. Also, the widespread new construction activity and the number of cranes dotting the relatively small Jackson skyline gave a strong anecdotal signal that marginal spending at the high end of the economic spectrum in this country is charging forward full speed ahead despite the increasingly higher interest rates over the past 18 months. And like so many regional economies across the U.S., the relatively limited available housing supply is continuing to place upward pressure on housing prices despite higher mortgage lending rates. Lastly, the fact that Jackson currently has 1.5 jobs for every resident in Teton County provided yet another data point supporting the continually tight labor markets that exist all across the country. Overall, witnessing first-hand Jackson Hole’s economic backdrop as we got settled into town helped foreshadow the topics discussed at the GIC forum. **Economic outlook.** We find ourselves with an interesting paradox for the U.S. economy as we start the second half of the year. We continue to have a variety of economic and market signals suggesting a recession is looming directly on the forecast horizon. This includes the still steeply inverted yield curve, persistently high core inflation that may require a more hawkish monetary policy response, and the increasing economic impact from the lag effects associated with the Fed’s most aggressive monetary tightening campaign in nearly half a century. As a result, several conference participants emphasized the fact that while current growth remains solid, we should still be prepared for an economic downturn in the month ahead. As for when such a slowdown would take place, while some participants indicated that the current quarter was still a possibility, the more likely timing would be around the turn of the year in 2023 Q4 and 2024 Q1. With that said a number of other attendees persuasively argued that the economy is sufficiently resilient at this stage that we may pass through the coming quarters without a recession at all and that growth conditions are set to not only stabilize but start to gradually improve as we enter 2024. Steadily diminishing inflationary pressures, a persistently strong housing market, and an improving corporate profit outlook were just a few of the reasons cited in support of this view. While not completely unanimous, the resounding consensus among conference participants was that even if we do enter into recession in the months ahead, it is likely to be relatively mild and potentially short lived. If anything, the threat of a reacceleration in inflation through the second half of the year loomed as a more prominent downside risk than recession among many conference participants, although a few even dismissed this possibility. As one attendee in this camp put it well, if you are a business worried about the looming threat of a recession and whether your customers are going to buy your product in the second half of the year, the last thing you are likely to do is start raising your prices. One economic factor in particular has the potential to be a source of pricing pressures in the coming months, which leads us one of the focused topics at the conference on labor markets. **Labor market.** A key theme that resonated from the discussion on labor market was the chronic shortage of workers across so many sectors of the U.S. economy. Whether you are running a large business with operations all across the country or a small business focused in a local market, the ability to first identify, eventually higher, then maintain qualified workers remains frustratingly elusive for so many industries. A variety of factors are driving today’s labor market shortage. These include the still slow return to work for many in the aftermath of the COVID-19 crisis. Another factor is the aging workforce and the notable increase in the retirement ratio since COVID as well. This includes the labor force participation rate among workers aged 55 and older falling off a cliff by more than two percentage points in recent years. These are just a few of the forces that are driving persistently high wage inflation and resulting in job openings that remain difficult to fill for many employers. Adding to the challenge has been the notable drop off in labor productivity, as both labor and retail productivity have seen their sharpest declines in the past year since the Great Financial Crisis. The persistent unwillingness of so many employees to return to the office from a remote or hybrid working situation adopted during the COVID-19 crisis is adding to the challenge. Another complication for employers is trying to successfully accommodate various employee demands around their specific work arrangements. For example, you may not need some employees to come into the office, and others may have specific circumstances justifying their need to stay remote – in these instances, how does an employer navigate saying yes to some and no to others about maintaining a remote or hybrid work arrangement, particularly when they can’t afford to lose these employees. While we are seeing increasing signs that excess consumer savings accumulated during the COVID-19 crisis is being burned off and that more workers are returning to the office (some willingly, arguably more at the request of their employers), these shifts are taking place incrementally and at an insufficient pace to provide any measurable relief to current labor market tightness. It was argued in some circles that a resolution to this persistent labor market tightness would be a more pronounced economic recession. After all, nothing would likely motivate a worker more than the prospects of getting fired from a job and not being able to find another one right away. But this would likely require far more aggressive monetary tightening versus what we have seen to this point, but this comes with its own risks (what else gets unintentionally broken in the process?). Higher taxes on the fiscal policy side would also likely be needed, but find me the politician in Washington that is willing to even suggest the idea of raising taxes and I’ll show you the pictures of the unicorn we saw walking the streets of Jackson during our stay (we did see Harrison Ford at the restaurant we ate at on Tuesday night – great guy – but that’s a discussion for another blog post!). As a result, employers are likely left waiting for labor market slack to gradually improve. And the fact that the job market remains so persistently tight is likely to keep consumers feeling good about their current circumstances and help encourage them to continue spending at the stores and booking vacations to popular destinations like Jackson Hole. **Market outlook.** So, what does all of this mean for financial markets? The economic resilience we have seen thus far in 2023 in the face of continued tightening by the U.S. Federal Reserve certainly put a tailwind behind capital markets in the first half of the year. And given how far markets have come since the October 2022 lows, a more measured outlook was encouraged by many conference participants for the second half. More specifically, stocks may continue higher in the months ahead, but gains may be a bit more uneven with sustained pullbacks along the way. Two primary concerns were cited as downside risks for stocks in the months ahead. One was the extreme market concentration that has largely driven stocks higher in recent months. In the latest hot stock moniker, “The Magnificent Seven” is the new phrase to describe the seven stocks in Apple, Microsoft, Google, Amazon, NVIDIA, Tesla, and Meta Platforms – technology or tech adjacent all – that explain the vast majority of the positive return on the S&P 500 Index year to date. More specifically, for an S&P 500 that is higher by +18% year to date, these seven stocks that now make up a jaw dropping 28% of the headline benchmark and have risen anywhere between +40% to +220% so far in 2023. Take away these seven super-sized power performers, and the returns on the S&P 500 were lower for the year as recently as a few weeks ago and are only marginally positive today. Why does this big-name market concentration matter? Because it may be obscuring greater challenges for the market lurking right below the surface. In addition, if investors suddenly decide that they no longer want to buy the likes of NVIDIA for 40 times sales – not earnings, mind you, but sales – then the market may lose a key leadership group in these seven stocks with the remaining 493 stocks in the S&P 500 not having sufficient size or strength to make up the difference. The other was the notably high valuations associated with owning U.S. stocks today. The S&P 500 is trading at a heady 21x operating earnings and 24x GAAP earnings today, and between 20x to 21x forward earnings for the year ahead. These are rich valuations in any market environment, much less one where investors are actively mulling the possibility of an economic recession. And when considering that short-term interest rates have recently risen above 5% and are still climbing, TINA (“there is no alternative”) has given way to TARA (“there is a reasonable alternative”), particularly with an earnings yield and equity risk premium on the broader U.S. stock market that is now negative. While these risks are not necessarily considered significant enough to turn the market back lower during the second half of the year, they may be the source for extended periods of consolidation and pullbacks toward the bottom end of a still upward sloping trend through the remainder of the year. **Cryptocurrency.** I had the honor of serving on a panel at the conference with Jim Bianco of Bianco Research and Lisa Shaw of Cygnus Asset Management, both of which I hold in very high esteem and have great respect for their expertise and perspectives. Our hour-long conversation was focused on cryptocurrencies and their role both as a prospective investment asset class today as well as their likely long-term evolution and purpose in the coming decades. The following were some of the key conclusions coming out of our discussion. Cryptocurrencies and the supporting block chain technology promise to provide a key fundamental purpose for the global economy in the coming decades, which is the decentralization of transactions and decision-making in support of commerce activity. And while the cryptocurrency space has garnered understandable enthusiasm for transformative potential, the evolution and adoption is likely to take place much more gradually and in a much different form relative to how the financial marketplace has responded thus far. So what then should we make of the cryptocurrency craze that continues to infatuate the retail investor and draw in the institutional crowd today? It has been and will likely continue to be a game for speculators. As we all know, cryptocurrencies come in all different forms, some of which striving hard for credibility and legitimacy, and others teetering on the brink of silliness and even contempt. But it remains well outside of the realm of being a credible asset class for broad portfolio diversification purposes and instead are largely pure speculator instruments relying on the red chip, black chip game of chance that some greater fool will want to pay more than the purchase price for an asset that in most cases has no underlying intrinsic value. Unfortunately, this has distracted and undermined the longer-term legitimacy and viability that is still likely to come to the space over time. It is important for today’s cryptocurrency speculators to remember, however, is that like the dot.com bubble, only a small single-digit handful (maybe even as few as two or one) of the more than 10,000 to 100,000 cryptocurrencies in existence today are bound to still be in existence when this future time finally arrives. Where should we be watching in the coming years for the sustainable development of cryptocurrency in establishing its viable place in global commerce? Not from the top down in major developed economies like the United States with relatively stable currencies and well-established rules of law. And also not imposed from the top in an emerging economy like El Salvador experimenting with declaring Bitcoin legal tender on a wide scale. Instead, it is far more likely to come from the bottom up in local and regional communities within emerging and frontier markets that wish to overcome the detrimental effects of currency instability and/or chronically high inflation along with a limited confidence in the prevailing rule of law. In these instances, communities are likely to adopt cryptocurrencies to take greater control from their currency issuing nation to create more consistent and sustainable conditions for local and regional commerce to survive and thrive. It is here at the bottom-up level where adoption is likely to increasingly take hold, and it will allow for the overall cryptocurrency space to mature and effectively work out the glitches in becoming true stores of value, units of account, and mediums of exchange. And this is an evolution that is more gradual and will take time over the coming decades. This raised a key point about cryptocurrency regulation going forward that was critical to the discussion. While U.S. financial market overseers like the U.S. Treasury, the Federal Reserve, and the SEC may be inclined to look the other way and disregard getting actively involved in regulating the cryptocurrency space today under the notion that it simply does not matter and serves no purpose, they will do so at their own peril. This is because cryptocurrencies and the decentralization of transactions and commerce is likely to still be coming on an increasing scale over the coming decades as indicated above. And while cryptocurrencies and how they are regulated may not matter today, it may matter a very great deal at some point in the future. If we in the U.S. forfeit our seat at the head of the table in leading how this area of the market is regulated, other major global sovereigns with a vested interest in dominating global finance and commerce through the remainder of the 21st century and into the 22nd century like China may seize the mantle. And if we defer today, by the time the U.S. realizes they need a seat at the table, it may be too late with the ability to control having been lost. So how can investors utilize cryptocurrencies in the meantime even if they are not buying and selling them? First, know that cryptocurrencies today trade with a very high directional correlation to the NASDAQ 100 (NDX). The key difference is that cryptocurrencies like Bitcoin have a beta anywhere between six to thirty relative to the NDX. This is high octane stuff to be sure. But what is particularly useful is that cryptocurrencies like Bitcoin have moved with a slight lead relative to the NDX and the broader S&P 500. For example, the price of Bitcoin peaked at the very end of 2017, nearly a month in advance of the global stock market correction that got started at the end of January 2018. The same was true when Bitcoin peaked in early November 2021, as the S&P 500 peaked not long after at the very beginning of 2022. Thus, cryptocurrencies in general and Bitcoin in particular have proven on several occasions to be a reliable leading indicator to signal whether liquidity is pouring into or out of capital markets to drive asset prices higher or lower, respectively. **Bottom line.** The above only scratches the surface of the interesting and in-depth analysis and perspectives that were discussed and debated at the GIC Teton Economic Outlook conference. And the fact that a majority but certainly not unanimous view formed around the notions of a shallow economic recession if at all, a persistently tight labor market for the foreseeable future, and a stock market that may move higher with fits and starts through the second half of the year are notable summary takeaways that do not do justice to all of the focused discussion and analysis along with agreement and disagreement among the various participants in exploring and challenging these views and others throughout the conference. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #: 457045-1** **Categories:** Insights --- ### [Economic & Market Report: The Four Horses for Portfolio Gains](https://clear-wealth.com/economic-market-report-the-four-horses-for-portfolio-gains/) **Published:** July 6, 2023 **Author:** Clear Wealth Planning **Content:** The outlook is strong for asset allocation portfolios heading into the second half of 2023. From a broad diversification perspective, markets are providing good reasons for optimism across the key asset class spectrum. Of course, the outlook is not without risks that must also be considered. **Stocks.** The trend for stocks as measured by the S&P 500 is definitively to the upside as we pass the halfway point in 2023. Moving in a trading channel that first began to form roughly a year ago, U.S. stocks have been moving increasingly more decisively to the upside since bottoming last October. A variety of fundamental factors support stocks continuing to the upside through the rest of the year. This includes consistently fading inflation pressures, resilient economic strength in the face of persistent recession expectations, a still strong housing market with favorable supply/demand characteristics, steadily declining high yield bond spreads, reaccelerating corporate profits, and corporate profit margins that have started to widen again. ![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-1-This-Stock-Market-Wants-to-Go-Higher.jpg "Economic & Market Report: A Closer Look at Corporate Earnings Season - Clear Wealth Planning Solutions") Putting all of this together and if stocks continue to move in their current upward sloping channel, it implies an S&P 500 Index that is on track to potentially trade at new all-time highs by the end of 2023. With that said, investors should also be prepared for extended periods of consolidation along the way in traveling this upward sloping path. For example, the S&P 500 could retreat by -6% or more from current levels toward 4200 and the uptrend would still be very much intact. **Bonds.** While stocks and bonds are often noted for their tendency to move in different directions at any given point in time, the outlook is also favorable for bonds in general and Treasuries in particular as we enter the second half of the year. Why Treasuries? While several factors impact bond prices at any given point in time, inflation is the primary determinant of Treasury bond returns. And the longer the duration of the Treasury securities, the more pronounced the impact of inflation is likely to be on the bond price. Thus, with inflationary pressures continuing to fade both on a headline and core basis dating back to mid- to late 2022, this is creating an increasing tailwind for lower Treasury bond yields and higher prices. ![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-2-US-Treasury-Yields-Drifting-Lower.jpg "iwp_log_64c46629a5871 - Clear Wealth Planning Solutions") Not long after the core inflation rate peaked last September, the 10-Year U.S. Treasury yield also peaked. And in the nine months since, Treasury yields have drifted steadily lower. And while bond yields moved higher over the course of 2023 Q2, they start the second half of the year at the very top of their trading range on the 10-Year U.S. Treasury. As a result, it would not be a surprise to see the 10-Year Treasury yield fall toward the mid to low 3% range over the course of the third quarter and possibly back below 3% by the end of 2023, as both outcomes would fall within the current trading channel whose foundation dates back over the past year. What would drive Treasury yields lower in the coming months? In addition to a continued decline in inflation, concerns about the economic outlook and the threat of a recession is likely to resurface at some point along the way as we move through the second half of the year. And given that Treasuries remain the global destination for capital seeking safe haven, such forces would likely move yields to the bottom end of the trading channel in a hurry. **Gold.** The yellow metal is also set up well to have a favorable second half of the year. Gold is widely regarded as an inflation hedge, which raises questions around why we should expect it to perform well if inflation is steadily falling. But the reality is that gold is much more a hedge against economic uncertainty and potential instability than inflation. This is particularly true since any benefit for gold from higher inflation is likely to be more than offset by a Federal Reserve that will move to tighten monetary policy aggressively to fight said inflation, thus draining the liquidity from capital markets that is the lifeblood of moving the gold price higher. Thus, the fact that the Fed is hawkishly pausing on raising interest rates further at a time when inflation continues to fall and ongoing threats to the economic and geopolitical outlook abound provides a favorable backdrop for gold to hold up well in the second half. ![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-3-Gold-Working-its-way-toward-a-long-term-breakout.jpg "Chart-1-High-Yield-Spreads.png - Clear Wealth Planning Solutions") In order to assess the upside opportunity set for gold going forward, it is worthwhile to draw far back from the 2023 tree and look at the more than decade long forest. Gold has been in a sustained uptrend dating all the way back to the Great Financial Crisis. The gold price got waaaay ahead of itself by 2011 and spent the first half of the last decade consolidating back to upward sloping trendline support. And since the end of 2015, gold has been moving steadily higher along this upward sloping trend line support. Where do we stand today with the gold price? It should not be ruled out that gold could retreat all the way back below $1,700 per ounce in the coming months, and the uptrend in gold would remain intact. If this trendline support continues higher through the remainder of 2023 and into 2024 as expected, pressure would continue to be applied against gold price resistance in the $2,080 per ounce range to eventually push the gold price to the upside through this level. **Cash.** Another favorable advantage in the current market environment, particularly for risk averse investors, is the fact that for the first time since what seems like the Van Buren administration (actually the GW Bush administration), investors are being paid an attractive interest rate north of 5% for holding their cash in short-term instruments like money market mutual fund accounts. And with a Federal Reserve lining up for another quarter point hike in July and maybe squeezing out even one more 25 bps move before the end of the year, investors are set to continue to get paid a decent yield for effectively hanging out on the sidelines. So as we ride into the second half of 2023, the good news for investors is that the four main horses pulling the asset allocation wagon are moving into stride. Of course, investors are not without discernable and very real risks that could readily derail this otherwise bullish capital market outlook. **Inflation reversal.** The most significant risk confronting investors as we move into the second half of the year is the threat of a renewed surge in inflation. The good news so far this year has been a much stronger than expected economy. Good news, right? That is, of course, as long as the economy does not prove too strong that it starts to put upward pressure on prices. ![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-4-Important-that-inflation-continues-to-fall.jpg "Chart-2-CCC-Lower-Spreads-Signal-Improving-Outlook.png - Clear Wealth Planning Solutions") For if instead of continuing to come down the other side of the inflation mountain, if we start to turn back higher to a new peak, then all bets are off across all asset classes. The downside would likely be particularly pronounced for stocks under this scenario for the following second risk on the list. **Bank crisis.** Although it seems like a distant market memory, it was less than four months ago in mid-March when we stood on the brink looking down into the latest financial crisis rabbit hole. But while swift emergency measures from the U.S. Treasury, the Federal Reserve, the FDIC, and even the Swiss National Bank (nothing like spending a late winter weekend holding your breath hoping a bunch of policy makers on the other side of the planet are going to save our collective portfolio bacon) managed to salve the wounds, the underlying problem has not gone away. At all. ![](https://clear-wealth.com/wp-content/uploads/2023/07/Chart-5-Banks-continue-to-struggle.jpg "Economic & Market Report: Putting Junk to Good Use - Clear Wealth Planning Solutions") A simple way to highlight the fact that many small and mid-sized banks (and some really big ones like Bank of America to a certain degree too) continue to hang by a string is to consider the KBW Bank Index. For while the U.S. stock market in general continues to surge to the upside, the regional bank index is still languishing at levels where it first descended when Silicon Valley Bank and Signature Bank quickly evaporated into the financial ether. If we enter another round of bank failures in the fall, this would be bad for stocks, but good for bonds, gold, and cash. This brings us to the potential one-two punch. Banks may be hanging on as we move through the summer and inflation continues to fall, but if we see a renewed rise in inflation that forces the Fed to start raising interest rates aggressively even further, such an outcome would likely be more than enough to push a whole set of teetering banks over the edge. And depending on the number of banks that succumb, this could not only drive the economy into a full blown recession but also start to pressure overall financial stability. This is a one-two to watch as we move through the second half of the year. It should be noted that neither or both of these downside risk scenarios are my base case, but a sufficiently meaningful probability can be assigned to these outcomes that they warrant close monitoring in the months ahead. **Bottom line.** The outlook for risk assets as well as safe haven assets across the capital market spectrum appears strong as we enter the second half of the year. Seek to capitalize while keeping measured expectations, recognizing that periods of consolidation are likely along the way, and monitor what are still meaningful downside risks. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Compliance Tracking #:454058-1** **Categories:** Insights --- ### [Economic & Market Report: Bonds Are Back](https://clear-wealth.com/economic-market-report-bonds-are-back/) **Published:** June 22, 2023 **Author:** Clear Wealth Planning **Content:** **Summary** - The bond market is regaining its footing as inflationary pressures continue to wane, with investors showing confidence in improving conditions for the asset class. - Favoring U.S. Treasuries over investment-grade corporate bonds and mortgage-backed securities is recommended for the second half of 2023 due to the current market environment. - The yield premium for owning corporates remains thin relative to history, and Treasuries typically perform better than investment-grade corporates during periods of economic weakness. Bonds are back. Much like the stock market that bottomed last October, the bond market also struck a peak in interest rates around the same time. But while stocks have been striding to the upside in the months since, the rebound in bonds has been more gradual and uneven thus far. Fortunately, a tailwind is accumulating behind the bond market, particularly with inflationary pressures continuing to wane. Thus, it is reasonable to consider which segments of the bond market are best positioned to benefit as we move into the second half of the year. **Bond believers.** Overall, bond investors are showing confidence that conditions will continue to improve for the asset class. One way this is most clearly represented is through inflation expectations. Recognizing that inflation expectations is one of the primary determinants of bond returns along with time to maturity, liquidity, and default risk, it is worthwhile to consider how the market sees inflation playing out over the coming years. And when looking at the 10-year breakeven inflation rate, which represents investor expectations for inflation over the coming decade, the view is increasingly constructive. ![](https://clear-wealth.com/wp-content/uploads/2023/06/1.jpeg "Economic & Market Report: Surface Pressure - Clear Wealth Planning Solutions") After peaking at a still fairly reasonable 3% in March 2022, inflation expectations have steadily declined in the fifteen months since. And at just over 2% today and still trending lower we are already back to inflation expectations levels that defined the disinflationary post Great Financial Crisis (GFC) period prior to the onset of the COVID crisis. So while the decline in inflation has recently been more gradual than expected, the market maintains confidence that the Fed will get the job done in bringing pricing pressures back lower. The notion that inflationary pressures will continue to fade is supported further from a fundamental economic perspective, as the probability for a recession over the coming year remains high, bank lending standards are likely to tighten further as banks continue to deal with the threat of deposit flight and depressed asset values, and global sovereign and institutional indebtedness levels remain chronically high. **Assessing the landscape.** Given the upside opportunity developing in bonds, it is reasonable to consider where the most favorable opportunities are concentrated in the current market environment. Put simply, favor U.S. Treasuries over investment grade corporate bonds and mortgage-backed securities (MBS) as we move into the second half of 2023. The reasons for tilting toward Treasuries over MBS today are fairly straightforward. While selected relative value opportunities may certainly exist in the MBS space today, the reality remains that what was once a relatively short duration category as homeowners regularly refinanced their mortgages at historically low interest rates has become over the last many months a relatively long duration category as mortgage rates have shifted markedly higher and homeowner refinancing has slowed dramatically. Put simply, for the many homeowners that refinanced over the last decade to get their mortgage rate as low as possible, they are now content to lock in their rate for the next 30 years. And just as many banking institutions have unpleasantly discovered, investor demand for mortgage bonds that have locked interest rates in the 2% to 2.5% range is relatively low in an environment where inflation and mortgage rates have moved meaningfully above these levels. **Spread too thin.** But what about investment grade (IG) corporates? After all, investors have historically been well compensated for the yield premium they have received for taking on the additional liquidity and default risk of lending money to creditworthy corporate borrows. What about corporates in the current environment? It is prudent to favor Treasuries over corporates in the current environment. The following are some key reasons. First, the yield premium investors are receiving today for owning corporates remains thin relative to history. For example, the additional yield being paid to investors for owning corporate credits at the lowest rung of the IG credit rating spectrum in the BBB/Baa space is roughly 2%. This tight spread is not only below the long-term historical average, but also remains near the lowest levels seen in the post GFC period. ![](https://clear-wealth.com/wp-content/uploads/2023/06/2.jpeg "iwp_log_649adf0aa1a68 - Clear Wealth Planning Solutions") Next, for those investors that might still be inclined to take this relatively meager premium, they are likely still well served to opt for comparably dated Treasuries today instead. This is due to the fact that the probability for economic recession in the months ahead remains high. And when the economy has fallen into recession, IG corporate bond spreads have historically widened, in some cases dramatically depending on the length and/or magnitude of the economic slowdown. But even in the case of a mild recession, spreads have historically widened by as much as two percentage points or more. This means that Treasuries typically perform much better than IG corporates during periods of economic weakness. This often includes lower yields and positive returns from Treasuries versus higher yields and negative returns from IG corporates during the periods in and around recessions. ![](https://clear-wealth.com/wp-content/uploads/2023/06/3.jpeg "iwp_log_649f7eae6fd37 - Clear Wealth Planning Solutions") **Bottom line.** While 2022 brought a particularly difficult period for the bond market, the asset class is increasingly regaining its footing as we continue through 2023. And when considering an allocation within the bond market going forward, the environment favors Treasuries over corporates and mortgage backed securities. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Implications of the Recession Outlook](https://clear-wealth.com/economic-market-report-implications-of-the-recession-outlook/) **Published:** June 28, 2023 **Author:** Clear Wealth Planning **Content:** It has arguably been the most anticipated and predicted economic recession in U.S. history. It has many of the classic trappings leading up to the event including aggressively tightening central bank, inverted yield curve, contracting manufacturing activity, declining leading economic index, and tightening bank lending standards just to name a few. The only twist is that the actual recession that everyone including my dog has been bracing for remains elusive to date. So, what should investors expect from financial markets once (if?) this recession finally comes to pass? **Medicine taken.** A bear market in stocks typically accompanies an economic recession. Why? Because a slowdown in economic activity usually leads to a slowing if not outright decline in revenue and earnings growth. And since earnings and related cash flows help form the basis of how we value stocks (the “E” in the P/E ratio), a decline in earnings in an environment where economic times are tough results in investors being less willing to pay in price for stocks (the “P” in the P/E ratio). Hence the accompanying stock bear market, which some define as a peak-to-trough decline in the S&P 500 of more than -20%. Does this mean that we should anticipate stocks falling by -20% or more in the months ahead once (if?) the recession finally arrives? Not necessarily for the following reasons. ***Bear already unleashed?*** It is first important to note that economic recessions and stock bear markets typically do not happen simultaneously. While it is not unprecedented for stocks to fall into a bear market either at the same time or after the start of a recession, typically stocks will descend into bear territory in advance of an economic slowdown. This is because investors are forward looking, meaning that they are not buying stocks necessarily for what is taking place today but in anticipation of what they expect will be taking place in the future. In this context, it is important to consider where we have already been over the last 18 months. The U.S. stock market peaked in January 2022 and subsequently declined by more than -32% on an inflation adjusted basis from peak-to-trough through October 2022. Such a decline is consistent with the bear markets we have seen associated with economic recessions over the past century. Put simply, we may have already experienced the adjustment in stock prices and passed through the bear market associated with any pending recession ahead. The fact that the S&P 500 has rallied more than +20% since last October and recently broke decisively above its ultra long-term 400-day moving average are constructive signs in this regard. ***Mild recession already endured?*** Another point worth considering is that the economic recession may have already unofficially happened, but it may have been so mild that we simply just missed it. Consider that the bear market in stocks began at the very beginning of the first quarter of 2022. Reflecting on the economic data, it is worth pointing out that we had two consecutive quarters of negative GDP growth at the same time in 2022 Q1 and 2022 Q2. Now, I recognize that several qualifying factors suggest that these negative GDP readings should be taken with a block of salt and help explain why an actual recession was not declared at the time. Nonetheless, it still fits the simple textbook definition of an economic recession – two consecutive quarters of negative GDP growth. Even if we dismiss the phantom recession notion, it’s not like economic growth was booming in 2022 H1 given the scorching case of inflation and the Russian invasion of Ukraine weighing heavily at the time. **Still looming threat.** So, we’re already coming out a bear market, and it’s even possible that we’ve already had the economic recession to go along with it but blinked and missed it. Regardless, it still does not take away from the fact that the threat of an economic recession still lingers ahead. After all, several of the forward-looking economic data are still signaling such an outcome. Maybe it will end up being a repeat of the recessions in 1980 and again in 1982. Only time will tell, but what should investors reasonably brace for if a recession ahead finally comes to pass? First, if we operate under the assumption that the stock market is a forward-looking indicator, today’s market is not acting like one that is on the brink of descending into a bear market. To the contrary, we are seeing several tailwinds gathering behind stocks. This includes the technical breakout above the 400-day moving average cited above and still steadily falling inflation. It also includes corporate earnings that have started to grow again – after three consecutive quarters of negative quarterly growth on a year-over-year basis, GAAP earnings just rose by more than +5% in Q1 versus the year ago period and are set to rise by as much as +10% in Q2. Still declining inflation is also giving a healthy boost to corporate profit margins, which is also a plus. Also, selected market signals are also supporting a more constructive outlook not only for stocks but also the broader economy. While employment is understandably regarded as a lagging indicator, it still cannot be ignored that the labor market remains tight with little sign of stress outside of the “quiet quitters” fading into the history books. Perhaps more importantly, high yield spreads, or the additional yield premium over comparably dated U.S. Treasuries paid to investors for taking on the risk of owning lower quality bonds, including the CCC and lower rated space in particular have for months been narrowing, not widening like they historically have done leading into recessions. This coupled with the fact that the price of Bitcoin, the quintessential speculators instrument today, is once back above $30,000 suggest that the markets remain more than sanguine about taking on potentially uncompensated risk. **Bottom line.** These are just a few readings that support the notion that barring a renewed rise in inflation (really bad, cannot be ruled out) or the outbreak of a full-blown banking crisis (bad, but potentially less likely than the inflation outbreak), if we do see the onset of an economic recession in the months ahead, it is likely to be relatively mild versus past recessions. Moreover, given the fact that we are still making our way back from a -30% real decline in stocks over the past 18 months, the associated impact on stocks is also likely to be muted. Compliance Tracking #452281-1 Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Surface Pressure](https://clear-wealth.com/economic-market-report-surface-pressure/) **Published:** June 1, 2023 **Author:** Clear Wealth Planning **Content:** **Summary** - The S&P 500 hit a new high for the year, but several signs of downside pressure continue to accumulate under the surface. - U.S. mid-caps and small-caps are lagging, and the stock market rally has an increasingly narrowing breadth. - The potential exists for this pressure to pull stocks back to the downside, but it also offers better entry points for investors in various sectors. All appears well with the U.S. stock market. Just this week, the S&P 500 hit a new high for the year, and the October 2022 lows look like an increasingly distant memory. And the threat of an immediate pullback in stocks does not at all appear imminent. Despite the feel good headline mojo for stocks as the summer gets underway, unfortunately a different story continues to accumulate under the surface. **The strong one.** At first glance, it looks like everything is looking up for U.S. stocks. Since the mid-October lows, the S&P 500 has rebounded more than +21% to date. Some might actually call this a new bull market depending on how you define such things. And while we continue to hear rumblings of an economic recession on the horizon at the same time that the Fed appears determined to continue to raise interest rates even further into the summer, the recent spate of banking failures has calmed and handwringing about the debt ceiling may soon be moving behind us. All of this coupled with the S&P 500’s move back above its ultra long-term 400-day moving average for the first time since last August are giving reasons for optimism. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/sp1.jpeg "- Clear Wealth Planning Solutions") **Under the surface.** Unfortunately, when we go beyond the headline index and look underneath the surface of the market, we find several straws in the stack. **SMID.** The first areas of concern are revealed when we look down the size spectrum of the U.S. equity market. First, while U.S. large caps are striding to the upside, the same cannot be said for U.S. mid-caps as measured by the S&P 400 Mid-Cap Index. Since early February, U.S. mid-caps are lower by more than -10%. In the process, the mid-cap index remains trapped below its 50-day, 200-day, and 400-day moving average resistance levels. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/sp2.jpeg "- Clear Wealth Planning Solutions") The look is even worse for U.S. small caps as measured by the S&P 600 Small Cap Index. Not only are small caps off by more than -14% since early February and the index is also locked below key technical resistance levels, but they are not all that far removed from their October 2022 lows at this point. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/sp3.jpeg "- Clear Wealth Planning Solutions") Why does the lagging performance of mid-caps and small caps matter? Because historically when stocks emerge from a bear market, it is small caps and mid-caps that are leading to the upside, not lagging if not absent from participating at all. **Breadthless.** Another blow against the ongoing U.S. stock market rally is the notable and increasing lack of breadth. Although the S&P 500 continues to rise from its October lows, it is doing so with fewer and fewer stocks driving the market to the upside. This is evidenced in one of many ways by considering the percentage of stocks within the S&P 500 that are trading above their 200-day moving average. In a typical bull market run, we can see as many as 75% to 85% or more of stocks trading above their respective 200-day moving averages. In contrast, today we have less than 40% of stocks trading above their 200-day moving averages, which is down from as high as 78% in early February and 62% in early April. Adding to the challenge, this is a reading that continues to track decisively to the downside. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/sp4.jpeg "- Clear Wealth Planning Solutions") Why does the increasingly narrowing breadth behind the stock market rally matter? Because if only a few stocks are leading the charge to the upside, they are likely doing so with outsized returns that may not be sustainable (cough…AI…cough …bubble…cough). More importantly, if these few leaders stumble and roll back over to the downside, there is little left in terms of stocks moving to the upside to help keep the rally going. Such is the risk associated with the ongoing stock rebound. **Line up the dominos.** So how narrowly defined is today’s S&P 500 advance? A review of sector performance is particularly revealing. Let’s line them up. The S&P 500 consists of eleven different sectors according to the Global Industry Classification System, or GICS. Of these eleven sectors, nine are trading lower since early February. Some decidedly so including energy, materials, financials, and real estate all down more than -10% and industrials, health care, and utilities lower in the neighborhood of -5%. What about the two sectors that are higher? Communications is up a solid +5%, but it is information technology that is soaring up more than +15%. In short, we have effectively one sector in technology that is almost solely responsible for dragging the S&P 500 higher since early February. Otherwise, it is likely that the U.S. large cap index would be following in the path of its mid-cap and small cap brethren. **Surface pressure.** So while the S&P 500 may continue to show resilience to advance to the upside as we make our way into summer, it is important to note that a variety of signs of downside pressure continue to accumulate under the surface. As a result, investors should resist the temptation to read too much optimism from the recent market advance, as the potential exists for this pressure to blow and pull stocks back to the downside for another spell. Fortunately, this pressure does have its benefits. While the headline S&P 500 may be advancing, a number of stocks across various sectors may be offering better entry points today following recent pullbacks. Moreover, attractive total return opportunities continue to exist outside of the stock market today in areas such as longer duration fixed income that may warrant a closer look while the crowds are distracted by this narrow breadth stock rally. Compliance Tracking #:442681-1. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Hold In May and Stay To Trade](https://clear-wealth.com/economic-market-report-hold-in-may-and-stay-to-trade/) **Published:** June 8, 2023 **Author:** Clear Wealth Planning **Content:** “Sell in May and go away” is an age-old stock market adage. It’s based on the principle that stocks historically have performed better during the period from November to April versus the stretch from May to October. Does this maxim still hold up today? **Meaningful historical outperformance.** The notion of “sell in May and go away” does have merit. For example, if one goes back over the last four decades and examines the returns of the S&P 500 over the November to April period, it outperforms the returns over the May to October period by more than 5% annualized. Compound this over time and you’re talking about a huge difference in wealth generation. **Some important caveats should be considered, however.** First, this outperformance gap is not something that we see on a year in and year out basis. We have seen many years along the way where the May to October period has meaningfully outperformed November to April. Most recently, this includes 2016, 2020, and 2022 where May/October beat November/April by 4%, 17%, and 4%, respectively. Also, it is also important to recognize that the May to October period has had some few really bad years along the way that drag down the overall number. Consider 1987, 2002, and 2008 where stocks were down -13%, -18%, and -30%, respectively. **More complex issues.** But suppose we still believe that an edge can be derived from gaming the November/April long-term relative outperformance versus May/October. This requires an investor to introduce market timing into their portfolio strategy, which historically can go unrewarded in a meaningful way. For example, if you launched into this strategy starting three years ago, you would be underperforming the broader S&P 500 by more than 20% to date. This is what I would call a big hole. **Tax considerations also become an issue.** Suppose I’m still undeterred in executing this rotation strategy. This means that I have a situation where I am potentially realizing considerable short-term capital gains in my non-qualified accounts. The associated tax bill alone can erode total returns in a meaningful way. And this doesn’t even consider any associated transaction costs whether explicit or imbedded that are incurred along the way in executing such a strategy. **Positive versus more positive.** Another important point is lost in the simplicity of the “sell in May and go away” axiom. While stocks may still have outperformed from November to April versus May to October over long-term periods of time, it’s not as though investors are losing money during the May to October period. For example, since World War II, stocks have returned a positive 7% from November to April, but still turned in a positive 2% return from May to October. So while the November/April period has historically been better, it’s not as though investors have been losing money by staying invested during May/October. **Closing the gap.** Another important point is worth highlighting. Over more recent time periods, May/October has been closing the gap versus November/April. For example, since the Great Financial Crisis, stocks have returned 7.65% over the November to April period versus 5.34% from May to October. Still outperformance, but just over two percentage points instead of five historically. Zooming in even closer, stocks since 2014 have returned 6.17% from November to April versus the same 5.34% from May to October, a difference of less than a percentage point. Whether this narrowing trend continues – May/October is leading November/April by more than 2% annualized since the start of the new decade – remains to be seen. But even if the gap starts to widen out again, trying to time this trade seems hardly worth it. This is particularly true when considering that so many sectors and industries exist within the stock market as well as asset classes outside of the stock market that can provide an uncorrelated returns experience in seeking to add consistent long-term value. **Bottom line.** While stock market themes like “sell in May and go away” are certainly interesting and are grounded in merit, the better approach to a long-term portfolio strategy is remaining focused on your long-term investment philosophy and adhering to your discipline no matter what time of year. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Blue Skies for Now](https://clear-wealth.com/economic-market-report-blue-skies-for-now/) **Published:** June 15, 2023 **Author:** Clear Wealth Planning **Content:** Investors are being provided with some meaningful signals for optimism as the sun brightens and the weather warms with the summer about to begin. This does not mean, however, that we should be ready for blue skies from now on, as the blue days that made markets challenging at times over the last eighteen months may not yet be gone. **Key breakout.** The chart below says it all. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/blue1.jpeg "1 - Clear Wealth Planning Solutions") After falling into a bear market and being stranded below its 400-day moving average for more than a year, the S&P 500 Index has broken out decisively above this key resistance level. Why is this breakout so significant? Over the last 100 years, the U.S. stock market as measured by the Dow Jones Industrial Average prior to 1950 and the S&P 500 since has descended below its 400-day moving average for a prolonged period on 18 different occasions. And in every past instance, when the U.S. stock market moved decisively back above its 400-day moving average, it signaled the eventual end of any bear market. In addition, U.S. stocks eventually proceeded to new all-time highs in all but two instances, both of which took place during the Great Depression and World War II period from 1937-38 and 1940-42. Thus, the fact that the S&P 500 has moved decisively above its 400-day moving average is a significant development that may be signaling further upside in the days, weeks, and months ahead if historical precedent is any guide. **Cooling jets.** Another trend is also providing clear skies for U.S. stocks. After a prolonged stretch of rising pricing pressures through the middle of last year, the inflation rate as measured by the Consumer Price Index continues to cool. The latest inflation reading for the month of May dropped by more than 80 bps from 4.9% to 4.1%, which is a meaningful move in the right direction for markets at least from a headline perspective. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/blue2.jpeg "3 - Clear Wealth Planning Solutions") Of course, it’s not just about where inflation is today, but also where it is expected to go in the future. And the news here is also promising, as the 5-Year Breakeven Inflation Rate, which implies what market participants expect inflation to be in the next five years, continues to descend lower toward 2%. This is the same 2% reading that was in place in the late 2010s prior to the onset of COVID. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/blue3.jpeg "4 - Clear Wealth Planning Solutions") These signals are meaningfully positive in suggesting blue skies ahead for U.S. stocks. **Blue days may not yet be gone.** If only investing were that easy. While the building optimism and relative strength of the U.S. stock market along with the fading inflation rate is certainly positive, it does not at all mean that capital markets are not without meaningful risks that may bring sudden and unexpected storm clouds at any point in time in the months ahead. First, while headline inflation is indeed coming down quickly, the same cannot be said for the core inflation rate. Exclude the more volatile food and energy components, and the core inflation rate is hardly budging, as the latest year-over-year reading at 5.3% is still troublingly high and not that far below the 5.7% to 6.6% range where the core rate hovered throughout 2022. Thus, while the inflation situation may be improving, a lot more work still needs to be done and the risk remains for inflation to start shifting back higher. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/blue4.jpeg "5 - Clear Wealth Planning Solutions") Another notable and related thundercloud lurks on the horizon. While all the clamor about U.S. banking stress has subsided for now, the underlying problem has not gone away. The following chart highlights the magnitude of the problem that many U.S. banks continue to confront today. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/blue5.jpeg "2 - Clear Wealth Planning Solutions") Relief could eventually start to come to U.S. banks if inflation continues to abate and long-term bond yields start to make their way back lower in a meaningful and sustainable way. But with asset markets like stocks accelerating anew and core inflation proving stubbornly high, such relief in meaningfully lower bond yields may not be coming anytime soon. As a result, we should not be surprised if renewed bouts of banking stress suddenly reappear on the investment skyline. **Bottom line.** The recent breakout in U.S. stocks along with cooling inflation data are certainly most promising signs for better days ahead. But investors should not lose sight of the significant downside risks that continue to linger just over the horizon. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: The Return of Diversification](https://clear-wealth.com/gva-economic-market-report-return-of-diversification/) **Published:** April 17, 2023 **Author:** Clear Wealth Planning **Content:** ***Summary*** - *It has been a recently tough stretch for traditional asset allocation strategies.* - *Both stocks and bonds plunged sharply to the downside since late 2021.* - *The economic and market environment is increasingly returning toward conditions that support bonds once again providing a diversification benefit relative to stocks.* It has been a recently tough stretch for traditional asset allocation strategies. Prior to the start of last year, an investor with a long-term time horizon seeking to manage risk in the short run could capture the appreciation potential of stocks while offsetting the potential downside by blending in a meaningful allocation to bonds. While such an approach had served investors well for decades, the diversification benefits from owning both stocks and bonds have gone out the window since late 2021. Fortunately, it appears we are increasingly returning to an environment where stocks and bonds are set to resume going their separate ways to the benefit of diversification seeking investors. **Strange bedfellows.** While the conditions for such an episode had already been brewing for several months prior, the trouble for investors got underway in earnest starting in late 2021. Up to that point, stocks as measured by the S&P 500 had been soaring to the upside on the rocket fuel of Fed stimulus in response to the COVID crisis. At the same time, bonds were holding their own following a dramatic surge in 2020 as short-term interest rates fell back to 0%. But as we moved through 2021, the long dormant inflation beast was increasingly stirring. By the end of 2021, inflation was suddenly surging past 5%. For the first time since the early 1980s, investors were confronted with a major inflation problem that was not going away. This inflation outbreak presented a problem for both stocks and bonds. Historically, the correlation of returns between U.S. stocks and long-term U.S. Treasuries has been around -0.11. On a scale from -1.00 to 0.00 to +1.00, this represented “very low negative” correlation teetering on the brink of being “uncorrelated”. In other words, stocks and bonds generally move in their own direction on any given trading day, which enabled both stocks and bonds to rise over long-term periods of time. This is shown in the chart below for the period from 1999 to 2020 where stocks and long-term U.S. Treasuries generated comparably positive cumulative returns despite travelling their own total return path at any point in time along the way. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/04/1.jpg "- Clear Wealth Planning Solutions")More significantly, during periods when stocks were steadily falling, a time when investors want the diversification benefit of bonds to kick in the most, the correlation between stocks and bonds as measured by long-term U.S. Treasuries shifted to a measurable negative correlation of -0.48. Put more simply, during periods when stocks were steadily falling, bonds were typically rising. This all worked beautifully for the investor diversifying with stocks and bonds until the end of 2021. Since that time, the correlation of returns between stocks and long-term U.S. Treasuries suddenly became a meaningfully positive +0.60. In short, the diversification benefit completely evaporated with stocks on the S&P 500 falling as much as -27% peak to trough with long-term U.S. Treasuries performing even worse over the same time period. **The return of diversification.** It has been difficult to discern so far, but broader economic and market conditions are supporting a more favorable environment for bonds to provide diversification for stocks. Since late October 2022, both stocks and long-term U.S. Treasuries have rallied strongly as shown in the chart below. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/04/2.jpg "- Clear Wealth Planning Solutions")But as we look forward to the rest of 2023 and into 2024, a few key factors suggest that these two main investment categories will return to following their own path. First, inflationary pressures continue to subside. The latest evidence to this point came with the latest release of the Consumer Price Index (CPI) for March that included the headline CPI annualized inflation rate plunging meaningfully below the core CPI rate, which historically has been a confirmation signal that pricing pressures are set to fall further in the months ahead. While both readings are still hovering uncomfortably above 5%, things continue to head in the right direction on the inflation front. Knowing that inflation is the primary determinant of bond returns, the fact that pricing pressures continue to fall is definitively bullish for bonds. As an added plus, it is also constructive for most stocks as well. Next, it appears increasingly likely that the U.S. economy is heading toward recession later in 2023 and potentially into 2024. This probability increased measurably over the last month in the wake of a run of bank failures, as the fallout effect is likely to be meaningfully tightened lending standards from banks that may be facing similar challenges with their credit risk management and loan portfolios in the months ahead. This is decidedly negative for stocks at least in the short-term, but it is decidedly positive for bonds including long-term U.S. Treasuries assuming inflationary pressures continue to fall (and tightening lending standards from banks should foster this outcome), as investors seek to protect against the potential downside in stocks by shifting to the safe-haven of U.S. Treasuries. ****The keys to watch for bonds going forward.**** Stocks have been surprisingly resilient in the face of accumulating downside pressures so far in 2023, but this may eventually turn. In such an event, bonds including long-term U.S. Treasuries still have meaningful room to advance to the upside following their precipitous decline through much of 2022. A key level I am watching in the current environment for signs of further sustained upside from the U.S. Treasury market is the $108.85 range on the iShares 20+ Year Treasury Bond ETF (TLT). Following the strong rally from its October lows, the TLT has approached this $108.85 level on four separate occasions since December, only to be turned back each time. If TLT can break decisively above this latest resistance level, the next stop would be measurably higher in and around the $118 level. This would imply a 30-year U.S. Treasury yield falling back toward 3.00%. The upside breakout that has already occurred in shorter duration Treasury instruments suggests that such a breakout for TLT may be imminent. And it should be noted that any such surge in bond prices and subsequent declines in yields has a feedthrough effect of helping to support stocks and their valuations. **Bottom line.** While it has been a difficult environment recently for bond investors including those that are seeking to diversify against stocks, the underlying economic and market conditions are increasingly shifting toward the long-term diversification benefit from bonds relative to stocks returning as we continue through 2023. The key will be that inflation needs to continue coming down, which will be worth watching in the coming months. **Disclosure:** I/we have a beneficial long position in the shares of TLT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I am long selected individual stocks as part of a broad asset allocation strategy. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Tracking #: 428148-1 **Categories:** Insights --- ### [Economic & Market Report: Flashing Lights](https://clear-wealth.com/gva-economic-market-report-flashing-lights/) **Published:** April 24, 2023 **Author:** Clear Wealth Planning **Content:** The stock market has been remarkably resilient so far in 2023 despite a steady stream of challenging news. Whether it has been persistently high inflation readings, a Federal Reserve continuing to raise interest rates longer and farther than expected, a set of sudden bank failures, or the lingering threat of arguably the most anticipated economic recession in history, the U.S. stock market as measured by the S&P 500 has held its ground and found the strength to push to the upside. With the October 2022 lows increasingly fading into memory, it is reasonable to wonder whether the worst of the ongoing bear market is now behind us. Unfortunately, flashing lights on the economic and market dashboard suggest that more stock market turbulence may lie ahead. **Epic inversion.** The first flashing light that simply cannot be ignored is the inverted U.S. Treasury yield curve. Why is this so significant? Because in the 110 years since the advent of the U.S. Federal Reserve, almost every time the Treasury yield curve became inverted with longer dated Treasuries (i.e. 10-year, 30-year) yielding less than their shorter dated counterparts (3-month, 2-year), the U.S. economy has subsequently fallen into recession and the U.S. stock market has entered into bear market territory. What is particularly notable about today’s inversion is that it is the deepest in more than forty years, which hints that the recession ahead may be a bit longer and deeper than usual. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/04/1-1024x704.png "- Clear Wealth Planning Solutions")**Still pricey**. Now the bullish among us could certainly make the argument that much of the anticipated economic weakness may already be reflected in the current bear market that began at the start of 2022 and stripped as much as -27% of the value off the S&P 500 peak-to-trough along the way. This may very well be true, but a couple of key facts favor the bearish side of the argument. First, corporate earnings remain at the high end of the historical range, and with profit margins already falling and an earnings biting recession still expected in the coming quarters, corporate profitability likely has quite a bit further to shrink in the current cycle. Second, the price-to-earnings (P/E) ratio on the S&P 500 remains elevated at a very unrecession like multiple north of 23 times earnings. Historically, the 12 to 14 times earnings range has marked recent past bear market bottoms, and the combo of an already high “P” facing the prospects of a potentially much lower “E” is another flashing light. **Widening spreads**. A third flashing light is the widening spread required by investors to own riskier securities such as high yield corporate bonds versus safe haven U.S. Treasuries. During much of the post financial crisis period save the energy sector related challenges of the mid-2010s, these spreads were historically tight. This implied that investors required a relatively small yield premium to take on the default risk of owning debt from issuers that had a measurable chance of not being able to repay these loans in the future. But since the start of 2022, these spreads have widened measurably, which has historically been a predictor of an economic recession ahead and an accompanying stock bear market. This has been particularly true of CCC-rated or lower high yield bonds, which tends to lead even the broader high yield bond market. Although they have tightened somewhat in recent months, which is certainly a constructive sign, the trend remains biased toward the further widening of spreads in the months ahead, particularly if fundamentally challenged banks increasingly tighten lending standards as anticipated going forward. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/04/2-1024x704.png "- Clear Wealth Planning Solutions")**Careful what you wish for**. The last flashing light for this bulletin (I have others, but I’ll return with these depending on how things unfold in the coming weeks) is related to expectations around monetary policy from the U.S. Federal Reserve. With less than two weeks to go before their next meeting, it appears highly likely based on the CME FedWatch Tool that the Fed will raise interest rates by a quarter point at their upcoming May 3 meeting. Looking further ahead to their next FOMC meeting in June, while the market is pricing in the chance for another quarter point hike, latest probabilities suggest that the May 3 rate hike may be the last from the Fed in the current cycle. What is much more notable is what we find when looking further ahead to second half of 2023 and into 2024. As the year progresses, the market is pricing in the meaningful probability for a steady series of rate cuts. By the end of 2023, the market is anticipating at least two quarter point rate cuts, and by the end of 2024 the market is pricing in a 1.5 percentage points reduction in the Fed funds rate. All of this sounds bullish at first glance. After all, the stock market was all hopped up on zero interest rate policy for more than a decade up until the calendar flipped to 2022, so what’s not to like about the prospects of the Fed getting “back to work” with more easy money policy, right? (I’d answer this question, but that’s a topic/rant for another article). But here’s the thing. The Fed isn’t likely to simply start cutting rates if the economy and the stock market are chugging along as they have so far this year. This is particularly true as the Fed is still busy trying to treat a scorching case of inflation. Instead, likely the only way the Fed makes a sudden about face and starts cutting interest rates is that the economy and the stock market start to take a sharp and sustained turn to the downside. In short, the Fed’s going to need a good reason to start cutting interest rates, and it does not yet have this reason today. So for those investors that are all whipped up about the idea that the Fed may be cutting rates by 2023H2, remember that we likely first must endure the reason for the Fed to take action on rates in the first place. **Bottom line.** Flashing lights continue to signal challenges ahead for the U.S. economy and the stock market. As a result, it remains prudent for stock investors to remain patient and selective as the current cycle continues. On the constructive side, fundamental conditions have become meaningfully more favorable for bonds and gold, which would help to provide a portfolio diversifying offset if stocks took a turn to the downside. **Disclosure**: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Tracking #: 430334-1 **Categories:** Insights --- ### [Economic & Market Report: The Path Forward for Cryptocurrencies](https://clear-wealth.com/gva-economic-market-report-the-path-forward-for-crypto/) **Published:** May 1, 2023 **Author:** Clear Wealth Planning **Content:** ***Summary*** - *Learning about cryptocurrency from the experts in the field.* - *Three key takeaways about cryptocurrencies.* - *Winners and when.* I recently had the opportunity to attend a two-day conference in Sarasota, Florida hosted by the Global Interdependence Center. The topic was *Cryptocurrency and the Future of Global Finance*. Given that it included some of the leading research and analysts on cryptocurrencies along with an address from Federal Reserve Board of Governors member Christopher Waller, the event provided a substantive education on a burgeoning segment of capital markets that is otherwise overrun with noise and conjecture. It was a worthwhile and enlightening experience. My own basic views on cryptocurrencies to this point have been the following. The advent of the blockchain and the supported cryptocurrency systems are almost undoubtedly transformative. The fact that cryptocurrencies have experienced two successive major asset price bubbles first in 2017 and again 2021 is evidence of meaningful future potential in the same way that the dot.com bubble of the late 1990s heralded how the Internet would change the way we live our lives in the more than two decades since. But from where we stand today, several key questions linger. How exactly will cryptocurrencies be transformative, and over what future time horizon will any such changes play out? Also, how will the winners and losers be determined along the way? The following were some of the key takeaways from the conference: **Moves like Apple.** While cryptocurrencies are often perceived as potentially viable alternatives to the fiat currencies such as the U.S. Dollar and the Japanese Yen among many others that we have come to know so well over the years, they don’t behave as such at least to date. This is also true of traditional global alternative reserve currencies like gold, as the historical price relationship is generally weak. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/crypto1.jpeg "- Clear Wealth Planning Solutions")Instead, cryptocurrencies like Bitcoin (GBTC) move with a very high correlation to the tech-heavy NASDAQ Composite Index (QQQ). ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/crypto2.jpg "- Clear Wealth Planning Solutions")So instead of owning something that many might perceive will provide them with a differentiated and more diversified returns experience for their broader “asset” portfolio, those that have added cryptocurrencies like Bitcoin are taking on a risk that is effectively doubling down on the exposures they likely already maintain through holdings in technology stocks. This is true even for those investors that might perceive they are getting something different to complement their S&P 500 allocation, as a historically high percentage at more than one-third of the headline benchmark is weighted to Information Technology or tech-adjacent sectors such as Communications (that contains former tech juggernauts Alphabet (nee Google) and Meta Platforms (nee Facebook)) and Consumer Discretionary (that contains heavy dollops of Amazon and Tesla). Put simply, the investors that are crypto curious are often those that tilt toward greater risk and more aggressive equity allocations. And for those that follow through and allocate to crypto, they are effectively ending up with more of the same please from a portfolio allocation perspective. **Disruptive innovation.** In many respects, cryptocurrency remains an instrument for speculators seeking to ride the waves of liquidity that have flooded through capital markets in recent years. After all, it is not widely used as a medium of exchange and it does not represent a reliable store of value in any meaningful way. But as we move forward into the future, it is reasonable to wonder about the path of disruptive innovation for cryptocurrencies to ultimately attain this more widespread viability and acceptance. In other words, what should we really be watching in monitoring the progress of cryptocurrency? First, the path to long-term viability is not likely to happen at the high end of the market. What does this mean? It’s not likely that we wake up one day and Bitcoin is replacing the U.S. Dollar as the way we buy groceries at the market here in America. Why? Because we in the United States are already catered too in many ways. We have the global reserve currency and an overall market system that works pretty smoothly barring the occasional hiccup. Sure, we’ve had some high inflation recently, but it’s not like it’s resulted in a sense of chaos or chronic uncertainty. The same is true for a more middling case like El Salvador. Here’s a frontier market that made the bold move to adopt Bitcoin as legal tender in 2021. But in unfortunate yet classic top ticking the market fashion, the launch of the Chivo electric wallet in October 2021 took place almost to the date when Bitcoin was reaching its peak over $68,000. Since that time, of course, the cryptocurrency dropped in value by more than -75%. In short, too big of a move way too early. So where does cryptocurrency find its path to legitimacy? The same way as nearly all disruptive innovations have, which is gaining more widespread usage and acceptance in lower end segments of the global marketplace that are being largely overlooked where profitability is the least and where the need for new ways of doing things like transactions systems is greatest. It is in these low-end segments where the opportunity is greatest for cryptocurrencies to gain widespread acceptance and essentially work out the kinks in broadening actual implementation. As they stabilize and improve, these cryptocurrencies can then start working their way upmarket to more established and developed economies to expand their presence. This is the most likely path for cryptocurrencies going forward, and it is disruptively innovative transformation that is not going to happen overnight. Instead, it is a gradual evolution that will likely take a good deal of time measured in many years if not a decade or more to play out. **Like Amazon.com and Priceline.com.** We have more than 24,000 cryptocurrencies in existence today. And just like the many dot.com stocks that came and went during the late 1990s and early 2000s, it is likely that the vast majority of these cryptocurrencies will follow the same path into extinction in the coming years. What cryptocurrencies then are the likely survivors into the long-run the same way that we still use the services of major companies like Amazon and Booking Holdings (nee Priceline) today? The consensus view of the experts at the conference is that while others may continue forward into the future, two cryptocurrencies were likely to be the primary survivors into the long-term. The first is Bitcoin due to its size dominance as well as its applicability from a transactions systems standpoint. The second is Ethereum due to its applicability for more specialized applications and contracts. As a result, these two cryptocurrencies are useful leading proxies for monitoring the broader space for those that may wish to incorporate the monitoring of these assets into their broader asset allocation research. **Bottom line.** From an investment perspective, we are likely still several years off from realistically even starting to consider including cryptocurrencies in the context of broader asset allocation modeling. Nonetheless, cryptocurrencies have been evolving for more than a decade now, and this evolution is likely to continue going forward as this pioneering market segment increasingly finds its footing and path toward long-term viability. What that looks like at the end of the day remains to be seen, but it remains worth monitoring as it develops in identifying the associated opportunities once that day arrives. And the insights gained from the recent Global Interdependence Center conference in Sarasota, Florida were ideal in better understanding and focusing this monitoring process going forward. **Disclosures:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Tracking #: 432880 **Categories:** Insights --- ### [Economic & Market Report: When The Levee Breaks](https://clear-wealth.com/gva-economic-market-report-when-the-levee-breaks/) **Published:** May 15, 2023 **Author:** Clear Wealth Planning **Content:** *Summary* - *The U.S. banking system is caught in a major storm and the flood waters continue to rise.* - *How much is the banking system at risk going forward?* - *What are the implications for the broader economic and financial markets?* **If it keeps on rainin’.** It was nearly a century ago when the Great Mississippi Flood resulted in one of the most destructive and costly natural disasters in U.S. history. One wonders whether another flood is threatening to break across the U.S. banking system and the broader economy today. **Mean old levee.** Over the last two months, we’ve seen the failure of three of the 35 largest banks in the U.S. as measured by total assets – First Republic (#15), Silicon Valley Bank (#17) and Signature Bank (#32). Combined, these three institutions represented over $530 billion in total assets, or 2.3% of the entire U.S. banking system. And this doesn’t include the dissolution of Swiss banking giant Credit Suisse along the way as well. So how have we arrived at this critical stage for U.S. banks? The U.S. Federal Reserve for years since the Great Financial Crisis built a figurative levee for the banking system by providing boundless amounts of liquidity and chronically low interest rates. Critics of these policies have long moaned that this approach would ultimately create even more profound downside risks for U.S. banks. Among many other reasons, a flood of deposit liabilities at banking institutions could result in more aggressive credit risk management decisions that would result in even more widespread bank failures during an economic and/or financial market storm. And over the last two years, a spike in inflation coupled with the most aggressive monetary policy tightening cycle in more than four decades from the Fed has caused the rains to fall heavily in this regard, as a crippling decline in asset values have left many banking institutions with a gaping deficit relative to their deposit obligations. The steady flight in deposits from banks in pursuit of higher money market interest rates has only compounded the issue. **Prayin’ won’t do you no good.** The U.S. Federal Reserve may say that the U.S. banking system is “sound and resilient”. But that doesn’t mean that the U.S. banking system is actually sound and resilient. For where I sit, I can find scores of financial institutions that are potentially teetering on the brink. If we operate under the notion that price is at least some meaningful measure of truth from a market efficiency standpoint, we can compile a list of U.S. banking institutions that are seemingly most as risk of following the fate of the three banks that have already succumbed so far in 2023. First, consider the list of bank stocks that are lower by nearly -65% or more from their 52-week highs. These are the institutions that appear most at question regarding their future viability. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/levee1-1024x231.png "- Clear Wealth Planning Solutions")While none of these institutions match the size the three major bank failures that have already come to pass in 2023, they still represent in aggregate nearly $140 billion in total assets, or another 0.6% of the entire U.S. banking system. And it remains likely that we are only making our way down the tip of a potentially major iceberg. To this point, consider some of the banking names that reside in the next tier. These are banks that have fallen by roughly -55% to -60% or more from their recent peaks, which is measurably more than the -51% peak-to-trough decline in the larger than the KBW Nasdaq Bank Index, a breathtaking decline in its own right when considering that the financial institutions that lend to small and mid-size businesses across America effectively represent the heartbeat of our economy. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/levee2-1024x246.png "- Clear Wealth Planning Solutions")Together, this subset of banks that reside in this next tier represent another nearly $500 billion in total assets, or an additional 2.16% of all U.S. bank assets. And this doesn’t include the aggregate assets of all of the other smaller financial institutions that are adrift in these same waters. What is also notable about these larger names listed above is that they are lower by more than two times the -21% peak-to-trough decline of the Financial Select Sector SPDR, which is the ETF sandbox where the bigs in the banking sector can be found. What of those titans of U.S. commercial banking? How are they faring as the financial levees are becoming increasingly breached with each passing month? If we see an accelerating wave of bank failures, how much more do the largest of the major U.S. banks have the capacity to absorb? The following are just a few of the selected names toward the larger side of the banking spectrum. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/levee3-1024x216.png "- Clear Wealth Planning Solutions")The fact that any of the names mentioned above have experienced meaningful declines well in excess of their underlying peer group benchmarks does not at all mean that insolvency is in their future. As we all know with systematic risk, a receding tide lowers all boats, and sentiment can cause some boats to fall more than others. But regardless of how the issues currently confronting the banking system play out from here, these institutions are clearly embroiled in an operational storm right now where protecting deposits and carefully managing risk will be paramount. **When the levee breaks, mama, you’ve got to move.** Of course, if you are a financial institution operating in the current environment, the inclination is to protect capital and manage your business carefully regardless of your size. As a result, a material tightening in lending standards should be expected going forward as institutions maintain a focus on survival. Earlier this week, the Federal Reserve Board released its latest [Senior Loan Officer Opinion Survey](https://www.federalreserve.gov/data/sloos.htm) (SLOOS) on Bank Lending Practices. This report contains a trove of data that details shifts in bank lending standards across a variety of metrics. A key summary indicator from this report is the Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms. In short, it shows the willingness, or lack thereof, of financial institutions to lend to the major corporations for the capital expenditures and fixed investment that help to drive growth in the U.S. economy. And a sustained tightening in this reading has historically been a reliable indicator of an existing or pending economic recession. The following chart shows this reading dating back over thirty years, with a rising line indicating tightening bank lending standards. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/levee4.jpg "- Clear Wealth Planning Solutions")Today, bank lending standards are swiftly tightening, and they tightened even further in the most recent quarterly report. This suggests that an economic recession is likely starting in 2023 if we are not in recession already. **Now look here mama what am I to do?** So what is the U.S. Federal Reserve to do in response to this burgeoning crisis in the U.S. banking system? Unfortunately, they have a complex policy bind with no clear answers. Such are the consequences of overly and arguably unnecessarily aggressive monetary policy for far too long in the more than decade long period leading up to today. As the old adage goes, be careful for what you wish for, in this case inflation, lest it come true. And true it certainly became these last few years. The natural instinct is that the Fed should slash interest rates. This, of course, was the policy response *de la decennie* leading up to today. But here’s the problem. The Fed is still caught in an inflation battle in which it can ill afford to relent. Why? The reason that so many of these banks are battling for their lives right now is because the outbreak of sharp inflation caused long-term bond yields to spike higher (and thus the prices of these securities that so many banks held in size to plunge). The Fed had to raise interest rates as aggressively as they have had to it nearly a half century to thwart this inflationary outbreak, for if they kept interest rates low as inflation was spiraling, we could have quickly found ourselves with a 1970s style hyperinflationary redux, only potentially worse. So can’t the Fed start cutting interest rates now or perhaps soon now that inflation is coming back down? Unfortunately no, for what the 1970s also taught us is that if the Fed either stops hiking interest rates or starts cutting interest rates too early in the wake of an inflationary outbreak, they run the risk of causing inflation to spark back up even worse than it was before. So even as inflation continues to fall back down and the economy potentially descends into recession if it’s not already there, expect that the Federal Reserve will remain stubborn in cutting interest rates, as they may need to keep interest rates high and actually push the economy further into recession in order to ensure that long-term bond yields continue to fall back lower to provide further relief to so many U.S. banking institutions that are struggling to keep their collective heads above water. **Goin’ down, goin’ down now.** So what does all of this imply for financial market asset prices in the months ahead? U.S. stocks have been remarkably resilient in the face of so many pressures thus far in 2023. This has included leadership from high beta and low quality securities, which is not what might be reasonably expected in the current economic climate. But as we continue through the remainder of 2023, the risks to equity prices in general and these higher risk segments of the market in particular are measurably tilted to the downside from current levels. Favorable upside opportunities continue to exist in more defensive and discounted areas of the market, but now is likely a time to be more selective and to place a greater emphasis on higher quality and lower volatility. Beyond stock, the forward-looking environment is decidedly more favorable for prime rated fixed income such as U.S. Treasuries. As a result, a reasonable case could be made for increasing duration as the year progresses given the economic outlook and the Federal Reserve priority to deliberately lower longer term bond yields as inflationary pressures subside. Gold may also merit consideration given its characteristics as a hedge against economic uncertainty and potential instability. As we sit on the banking system levee looking out over the summer ahead, it is a time to remain watchful and alert for any further risks that rise to the surface as the banking system rains continue to fall. Note: credit to Led Zeppelin, Kansas Joe McCoy, and Memphis Minnie for inspiration behind this article. Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. Approved for client use under tracking #436940-1. **Categories:** Insights --- ### [Economic & Market Report: The Path of Least Resistance](https://clear-wealth.com/economic-market-report-the-path-of-least-resistance/) **Published:** May 25, 2023 **Author:** Clear Wealth Planning **Content:** **As good as it gets?** The U.S. stock market has been in rally mode dating back to last October. This includes an impressive bounce since mid-March in the wake of the collapse of a handful of major U.S. banking institutions. The stock market resilience has indeed been impressive. But despite these various positives, the path of least resistance for U.S. stocks as we make our way into the summer is to the downside. **Hanging on the ceiling.** The first indication to suggest that U.S. stocks may take a turn to the downside in the coming weeks is stubborn technical resistance. While the S&P 500 surged in the immediate aftermath of the banking crisis in March, the index was stopped in its tracks once reaching its 400-day moving average resistance (pink line in chart below) in mid-April. Since that time, the S&P 500 has grinded back and forth along this resistance level but has been unable to successfully break out to date. The index does have support at its 50-day moving average (blue line in chart below), but these two moving average levels are quickly converging, thus requiring an outcome either to the upside (breakout) or downside (breakdown). The odds are increasingly supporting a downside break to date. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/Slide1-1024x768.jpeg "- Clear Wealth Planning Solutions")**Size matters.** So why breakdown instead of breakout for the S&P 500? Part of the answer comes from its mid-cap and small cap stock market counterparts. Regarding U.S. mid-caps, they have been fading for some time now. In stark contrast to the S&P 500 that continues to trade effectively at its February peaks, the S&P 400 Mid-Cap Index peaked decisively at the start of February and has been fading ever since. Overall, mid-caps are now nearly -12% below their peaks from earlier this year. In the process, the S&P 400 Mid Cap is well below its 400-day moving average and is being steadily pushed lower at its downward sloping 50-day moving average. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/Slide2-1024x768.jpeg "- Clear Wealth Planning Solutions")As for small caps, the story is even less encouraging. Not only is the S&P 600 Small Cap Index more than -15% below its February highs and below its main moving average resistance levels, but it appears on track to re-enter bear market territory and at minimum retest previous lows from 2022. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/05/Slide3-1024x768.jpeg "- Clear Wealth Planning Solutions")Why does the relatively poor performance of mid-caps and small caps matter? Because these smaller segments of the market have historically led U.S. large caps in either direction. Thus, it would be highly unusual for U.S. large cap stocks to rally from here while U.S. mid-caps and U.S. small caps continue to move in the opposite direction. **Wrong said Fed.** Another implied short-term downside signal for the U.S. stock market is expectations around interest rates from the U.S. Federal Reserve. When the Fed raised interest rates by 25 bps to the 5.00% to 5.25% range coming out of their latest May 2-3 meeting, they gave hints that this might be their last rate hike in the current cycle. And the fact that the Fed funds futures market is currently signaling a more than 75% probability that the Fed will keep rates unchanged at their next meeting on June 14 is a confirmation signal in this regard. But it is what comes after June that is sending a troubling short-term signal for U.S. stocks. In July, the futures market is assigning a nearly 30% chance for a Fed rate cut coming out of their July 25-26 meeting. By September 19-20, the odds for at least a quarter point Fed rate cut jump to nearly 60%. And two meetings later on December 12-13, markets are currently pricing in a more than 98% of at least one quarter point rate cut and a two-in-five chance for as many as three 25 bps rate cuts. This is a lot of anticipated monetary easing in an environment where the core CPI inflation rate is still stubbornly above 5% and falling slowly. In other words, it will likely take a lot for the Fed to suddenly turn and start cutting rates so quickly after still raising rates. This is particularly true given the important lessons the Fed learned from three successive monetary policy missteps in the 1970s when it started cutting interest rates far too soon before the inflation problem was completely eradicated. Much like a patient that quits a course of antibiotics too soon, the inflation problem came back even worse three consecutive times before the Fed finally learned that they need to keep short-term interest rates high long after the inflation rate is falling *below* the Fed funds rate (inflation is currently still above the Fed funds rate today) before it could declare mission accomplished on the inflation front. **What does this imply for today?** The Fed is likely to keep short-term interest rates higher for longer beyond what the Fed funds futures market is currently pricing in *all else equal*. This is likely to be true even if inflation continues to fall back down toward its 2% target. And this is likely to be true even if the economy eventually falls into recession, which it officially has not to date. So what then would justify current Fed funds futures expectations for a 25 bps rate cut as soon as July and as many as three quarter point cuts by December? Just a few of many possibilities: a dramatic slowdown in economic activity and/or unexpected systemic shock event to the financial system and/or a major stock market decline. In other words, in order for the Fed to start cutting interest rates as soon as July or as much by December, we would likely need to see a fairly sizable disinflationary / deflationary downside jolt to the economy and the stock market to justify the move. Remain disciplined and seek upward paths of least resistance. Current conditions may suggest challenges for the headline S&P 500 Index in the coming months, but this does not mean that capital markets are still not filled with upside opportunities. Just because the overall U.S. stock market may come under pressure going forward does not mean that selected segments within the U.S. stock market cannot perform impressively well. We saw this with selected consumer staples and health care segments throughout 2022. And it is also important to remember that the challenge for one asset class can represent potential opportunity for another. For example, the potentially uncertain economic and market environment described above is historically highly favorable for long-term U.S. Treasuries and gold just to name a few. **Disclosure:** Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: No Clear and Present Danger](https://clear-wealth.com/economic-market-report-no-clear-and-present-danger/) **Published:** May 25, 2023 **Author:** Clear Wealth Planning **Content:** Investors have no shortage of things to worry about in the current environment. The threat of a looming economic recession, banking crises, and the ongoing debt ceiling debate are just a few of the current threats. As a result, investors are understandably nervous about getting blindsided by a sudden and sharp downside move in the stock market. Fortunately, the market has a variety of indicators that we can monitor to determine whether a major stock market plunge is potentially lurking around the corner. **VIX**. One indicator worth monitoring is the CBOE Volatility Index, or the VIX. Known as the “fear gauge”, it typically spikes when the stock market plunges. The VIX can also provide us with early warning signals about immediate-term stock market shifts. For example, a major stock market downdraft is typically preceded by the VIX pushing steadily higher. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/1.png "- Clear Wealth Planning Solutions") Where are we today? The VIX has been drifting lower throughout much of 2023 so far and still remains toward the low end of its historical range even after the recent jump in the last couple of trading days. **Spreads**. Another indicator worth monitoring to predict a major stock market shock to the downside is CCC or lower spreads. This is the additional interest rate that investors need to receive to compensate for their risk of buying the lowest quality corporate bonds in the marketplace today. Historically, this spread gets bigger ahead of a stock market correction, which makes sense since investors will avoid the riskiest investments first before they get to the point where they are ready to throw the entire stock market overboard. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/2.png "- Clear Wealth Planning Solutions") Where are we today? While CCC spreads are higher than where they were at the start of 2022, they have been steadily falling for more than eight months after peaking last September. **Cryptocurrency**: While cryptocurrencies remain a controversial topic in isolation, they are useful to monitor as a stock market speculation indicator. What’s the thinking here? Cryptocurrencies like Bitcoin are highly speculative investment instruments. So if the price of Bitcoin is rising, this means that the speculative appetite among investors generally is strong. Conversely, if Bitcoin is falling, it means that investors are likely pulling in the reins on speculation. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/06/3.png "- Clear Wealth Planning Solutions") Where are we today? Bitcoin prices continue to hold most of the gains since bouncing off of the October lows and are far from trending lower at the present time. No clear and present danger. While the news flow surrounding the economy and markets indeed remains generally negative and we may eventually see more sustained stock market weakness in the months ahead, the speculative mood of the markets at least for the moment appears to remain sufficiently strong to suggest that any sudden and sustained downside move in stocks is not likely imminent. Tracking #: 441243-1 Disclosure: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice. **Categories:** Insights --- ### [Economic & Market Report: Who’s Next](https://clear-wealth.com/gva-economic-market-report-whos-next/) **Published:** March 28, 2023 **Author:** Clear Wealth Planning **Content:** **Meet the new bank crisis.** NOT the same as the old bank crisis. This is not the Great Financial Crisis II. It’s not the collapse of Long-Term Capital Management in 1998. It’s not the Great Depression either. A lot of what is taking place today has some rhymes with various past episodes, but we are charting new territory with new lessons to be learned to add to the future policy maker playbook. We are likely in the very early stages of this latest banking crisis that could take months if not years to play out. SVB Financial, Signature Bank, Silvergate Bank, and Credit Suisse are already gone. Who’s next? **The song is over.** Over the last fourteen years since the Great Financial Crisis (GFC), we were reassured that problems with the banks were behind us. In 2017, then Fed Chair Janet Yellen declared that we will not see another financial crisis in our lifetime. The next year, legislation was passed that eased regulations on all but the largest banking institutions. It was music to the ears of capital markets awash in liquidity, low volatility, and high-risk tolerance. But in the midst of a sustained bout of blistering hot inflation that induced the U.S. Federal Reserve to whipsaw from effectively promising to keep interest rates pinned at 0% until at least 2024 this time two years ago to launching into its most aggressive rate hiking campaign since the 1970s this time a year ago, the consequences of such abrupt and dramatic monetary policy swings are now coming into view. The song is over, and what we have seen so far is likely only the beginning of what is ahead now. **Getting in tune.** Much has been written and pontificated about what has taken place in the banking system over the last two week since March 8 when Fed Chair Jay Powell flexed before Congress that the Fed was poised to raise interest rates by a half point at its March 22 FOMC meeting (what a difference a fortnight makes). It’s not that nothing more needs to be said on these topics, but it is also worthwhile to step back and reflect on selected perspectives that may be getting overlooked as the narrative rapidly unfolds. **March madness.** I don’t know about you, but debating whether the global financial system might implode is not the best way to relax over weekend. Yet for the past two weekends, that’s exactly what we’ve had to game out. During the weekend of March 11-12, we held our breath wondering whether the U.S. financial trinity – the Treasury, the Federal Reserve, and the FDIC – would come up with an emergency solution to save the financial system from rampant bank runs before the markets in Asia opened on Sunday night. The next weekend of March 18-19, we waited and wondered whether the Swiss would be able to arrange a shotgun merger between its two banking behemoths and prevent the meltdown of a Systemically Important Financial Institution (SIFI). What new crisis threatening the global financial system will we have to look forward to in the coming weekends? Only time will tell. **Revising my teaching notes.** So as I prepare my Intro to Finance lecture discussing how creditors are paid in the event of a liquidation, the events of the past weekend have provided a whole new twist to the discussion. For when it comes to the order in which people traditionally get paid in liquidation, it’s secured debt holders first, then senior unsecured lenders, followed by junior subordinated debt holders, then preferred stockholders, and both last and least (and typically nothing at all) common stock holders. Needless to say it was eyebrow raising when in the case of Credit Suisse the subordinated debt holders got wiped out yet the common stock holders received $1 billion $2 billion $3 billion in a merger with UBS that was completed without the customary shareholder approval vote. Listen, I get it that there simply was not the time to get shareholders to vote on a deal that absolutely had to be done over a weekend, but not only exempting the rule of law but also having the deal structured in a way that leaves head scratching questions in terms of the way that it was structured is not the best for engendering investor confidence going forward. Something tells me that this may not be the last we hear AT1 debt and banking system instability uttered in the same sentence. **Tightening lending standards.** If you are running a small or mid-sized regional bank, it has been a traumatic past two weeks. It has been particularly traumatic if you are among the small or mid-sized regional banks that exercised poor credit management by doing things like using your depositors money to load up on long-term Treasuries and MBS in 2021 just before they were set to lose as much as 30% of their value. With this potential fight for survival in mind, you may be far less inclined today than you were two weeks ago as a small or mid-sized bank to lend money out to your institutional and retail customers. And if the regional banks that serve so many local communities across the country share this more cautious inclination, this means less home buying, less car buying, less consumer spending, less capital expenditures, and less hiring of new employees. Add all of these “less”es together, and you have an economic recession, just as we have seen several times in the recent past as evidenced in the chart below. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/03/Chart-1-Tightening-Lending-Standards.jpg "- Clear Wealth Planning Solutions")The deeply inverted yield curve has been screaming recession for quite a while now, and recent developments across the banking landscape have not only meaningfully improved the probability of recession, but also that any such recession is likely to be a bit deeper and longer than previously anticipated. The fact that stocks continue to trade at a premium coupled with the fact that corporate earnings are still toward the high end of their historical range with considerable room to come back down suggests that the road ahead for stocks over the next few months could get a bit bumpy before it’s all said and done. **The banking crisis may do the Fed’s work.** If one wants to try to put a silver lining on idiosyncratic bank failures and stressful weekends waiting for emergency policy rescues, a positive that is likely to come from the recent banking crises and the probable tightening of lending standards is that it is likely to bring down inflation both further and faster than we would have seen otherwise. As I often like to say to my Principles of Macro students, if you have too much money chasing too few goods, a great way to solve it is by simply taking money away from people. And since politicians on all sides of the political aisle no longer have the resolve to actually raise taxes on anyone other than the ultra-wealthy, raising interest rates and tightening lending standards are ways to do it. If people don’t have money, they can’t spend it, and inflation comes back down. **A sooner and deeper recession may actually help at risk banks.** What has put so many small and mid-sized banks at risk has been the precipitous decline in long-term Treasury and MBS prices. But if inflation comes down and the economy falls into recession, both of these forces are typically meaningful tailwinds for these same securities as interest rates eventually come back down and investors take flight to safety. It’s an interesting thought pretzel to think that an economic recession could help fix the banking crisis while an ongoing economic expansion could send more banks over the edge. **Who’s next.** Bringing this all back together, it is very likely that we are still in the very early stages of a banking crisis that may take many months to play out. It is important to remember that when the U.S. Federal Reserve raises interest rates, it historically takes upwards of twelve months before the tightening effects of the rate hike have fully worked their way through the economy. And given that the Fed only started hiking rates at this time last year, this means that only the first 25 bps rate hike from last year has fully come out the other side and we have 450 bps of interest rate hikes still making their way through the proverbial snake. This includes four consecutive 75 bps bombs from the middle to latter part of last year as well as the latest 25 bps cherry on top of the rate hiking cycle cake that the Fed delivered coming out of their latest FOMC meeting this Wednesday. Somehow, I have a sneaking suspicion we may someday look back with derision on this last rate hike. It will be interesting to see. With all of this in mind, we should remain mindful that the stream of banks under stress may not be continuous as we continue through 2023. We may go through prolonged stretches where it looks like the problem is behind us (May 2008, anyone?) only to find a new set of problems emerge in a different segment of the financial sector. Thus, keeping a close eye on further rumbles across the financial sector is a prudent strategy as we move forward from here. As for who’s next in the meantime, I am not breaking any news by saying that First Republic Bank (FRC) remains the institution to watch. The situation remains highly tenuous despite the repeated efforts of both public and private institutions to resuscitate the ailing bank. If First Republic ultimately succumbs, pressure on other at risk regional banking institutions is not only likely to persist but amplify. On the other hand, if First Republic perseveres, such a period of relief from immediate banking stress may follow. **Who’s last.** If we go through a worst case scenario thought exercise, it’s reasonable to consider where the road might end in the current banking crisis. A name that is worth monitoring in this regard is Bank of America (BAC), which of course is one of the largest financial institutions in the world and among the top of the SIFI category. Of course, nothing at all is imminently at issue with Bank of America, but it does have a notably larger long-term bond portfolio relative to its major banking institution peers. As a result, it is worth monitoring as a back-end measure of underlying financial sector stress. **We won’t get fooled again.** Oh no, we so will. A defining characteristic of financial markets and the policy makers that oversee them is a memory that seemingly lasts about 18 months to two years at most. Unfortunately, this leads markets and policy makers to unwittingly and repeatedly fall into the same traps, only through different means. Fortunately for investors, such dislocations lead to attractive opportunities for those that are prepared and positioned to capitalize. Thus, maintaining a sharp focus on potential downside risks such as ongoing banking industry volatility is a productive way to navigate short-term turbulence while seeking to capitalize on long-term upside. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Don’t Sweat the Technique](https://clear-wealth.com/gva-economic-market-report-dont-sweat-the-technique/) **Published:** March 10, 2023 **Author:** Clear Wealth Planning **Content:** **Let’s trace the hints and check the file.** You’ve got to hand it to the U.S. stock market. The U.S. Federal Reserve keeps throwing monetary policy haymakers, and the S&P 500 takes the hits in stride. The cooling of inflationary pressures has ground to a halt, and in some respects pricing pressures are reaccelerating, yet U.S. stocks are largely unfazed. And the U.S. economy remains relentlessly strong, further fueling the inflationary inferno that has been ablaze for more than two years now, and stocks cannot help but to see the positives despite already historically high valuations. You may hate on the stock market with countless reasons why it should be trading lower, but we don’t get to trade the market we think we should have. The stock market is going to do what it wants to do at any given point in time for reasons that sometimes may be difficult to see. Respecting this market capriciousness by maintaining and strategically managing a dedicated equity allocation regardless of the broader economic environment is key in the portfolio management process. And assessing the technical characteristics of not only the U.S. stock market but other key asset classes in a broader asset allocation can be useful in determining what to expect from your dedicated strategy going forward. **Let’s see who bit to detect the style.** The consensus view was short-term negative heading into 2023, but the light at the end of the tunnel was getting brighter. The S&P 500 was already solidly in bear market territory, yet the Fed was still expected to raise interest rates a couple more times before finally topping out after its March meeting. Although the rapid pace of rate hikes delivered by the Fed over the past year were expected to push the U.S. economy into recession by the middle of 2023, the fact that inflation pressures were coming back down at an accelerating rate meant that forward looking investors could increasingly look through any mid-year slowdown to the lower interest rates and reaccelerating economic growth that would likely follow by the end of the year. Just over two months into the New Year, and the underlying market script has shifted dramatically. Instead of a quarter point hike in February and March before calling it a monetary policy tightening cycle, the Fed is now expected to reaccelerate its rate hiking ways with a half point hike in March followed by at least another quarter point in both May and June and a 50/50 chance for yet one more rate hike in July. Put simply, instead of getting a half percentage point in rate hikes from the Fed, we’re now looking *at least* another one percentage point of hiking if not more before it’s all said and done. This renewed hawkishness is, of course, in response to stubbornly high inflation and a persistently strong economy. And the likely result of these shifts is an economy that may go into recession a bit later but last longer and go deeper than originally anticipated at the start of the year. In short, the light at the end of the tunnel is suddenly much further away than previously perceived. Stocks should be hating this outcome. Frankly, same with long-term bonds and gold. After all, the strong bear market rallies in stocks we witnessed first from June to August 2022 and then from October 2022 to the present were supposedly built on the notion that the U.S. Federal Reserve is almost done with rate hikes and that a reversal to rate cuts would follow not long after. Yeah, turns out not so much at all. Instead, although stocks as are still well below early 2022 highs and have surrendered some ground over the past month or so, the S&P 500 remains in a steady uptrend dating back to before Halloween. Long-term U.S. Treasuries are also still on the mend over this same time period. And while gold has been more of a sideways trader for the last few years, its surge from its early November lows remains significant. While none of these investment category outcomes is what would be reasonably expected given developments in the broader economy, don’t sweat the technique. **Scientists try to solve the context.** So why exactly are stocks, bonds, and gold all largely holding their ground despite the deluge of negative developments from an economic and monetary policy perspective? First, it is important to remember that a good deal of value had already been washed out of the stock and bond market over the past year. The only problem with leaning too heavily on this point of comfort is that stock valuations remain historically high and bond yields are still well below the stubbornly high inflation rate. Another is that while the pace of economic activity is moderating, it is doing so from levels that are still particularly strong. In other words, the rapid pace of monetary tightening that has taken place over the past year has done little to meaningfully slow economic activity. This has played a part in keeping corporate earnings higher than might have otherwise been anticipated to date. Lastly and perhaps most importantly, the underlying liquidity environment remains relatively abundant. For example, while the Fed’s balance sheet and the real M2 money stock are contracting, they remain at totals that are still miles above pre-COVID levels. **Philosophers are wondering what’s next.** While it remains to be seen whether stocks, bonds, and gold can continue their recent winning ways, the trend remains definitively to the upside for many of these categories. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/03/Chart-1-Stocks-Oct-Uptrend.png "- Clear Wealth Planning Solutions")Let’s begin with stocks. The recent uptrend in stocks dating back nearly five months to last October remains very much intact today. Perhaps even more notably, the S&P 500 continues to steadily trade above its long-term 200-day moving average (red line in chart above) after breaking back above in January. The longer that stocks can hold their ground above this key technical level, the more they are likely to keep the upward momentum going into the future and that the worst of the bear market may be behind us. A further advance above the 400-day moving average (pink line in chart above) would provide a powerful added signal in this regard. Putting this together, a key level to watch for stocks in the days ahead on the S&P 500 is around 3940, which is where the benchmark index has been flattening after sloping consistently downward since April of last year. If the S&P 500 can hold above this level, this is decidedly bullish. Moreover, a breakout above 4200 on any upside rally is even more constructive. And the fact that stocks were able to do so in an environment where so much challenging economic news has been thrown at them in recent weeks would be all the more of a signal of the resilience of positive investor sentiment in the current environment. In predicting the stock market outlook, it is also useful to consider the performance of other asset classes that have meaningfully influence stocks. The Treasury market is leading among these. Although U.S. stocks and long-term Treasuries have a low correlation to negative correlation from a returns perspective over time (except of course during a high inflation driven stock bear market, where the correlations become higher as both move to the downside as we saw in 2022), Treasury yields are instrumental for stocks since the interest rate investors are being paid on their bond investments has a meaningful effect on the equity risk premium and earnings yield that investors require to own stocks. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/03/Chart-2-Treasuries-10yr-holding.png "- Clear Wealth Planning Solutions")After rising dramatically since the start of last year, U.S. Treasury yield have been holding a top first set back in October. While inflation pressures have been reaccelerating as of late, the 10-Year U.S. Treasury yield continues to hold just below 4.00%, which is more than 25 basis points below its 4.25% high from mid-October. Although it has yet to break back below its 200-day moving average (red line in the chart above), if the 10-Year can hold at or below 4.25% in the coming weeks, this is a constructive signal not only for Treasuries but also for stocks, as it would increasingly imply that peak Treasury rates are now in. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/03/Chart-3-Treasuries-30-yr.png "- Clear Wealth Planning Solutions")Just as we might consider the performance of U.S. small and mid-caps or non-U.S. stocks as a signal for what to expect for the S&P 500 Index, so too is it worthwhile to consider other segments of the Treasury yield curve to signal what we might expect from the benchmark 10-Year U.S. Treasury yield. For example, it is worth noting that while the 10-Year is around 25 basis points below its October peak, the 30-Year U.S. Treasury is more comfortably below its peak from around the same time at more than 50 basis points. While a distinct move below its 200-day moving average would also be a positive confirmation signal, this implies added support for the 10-Year Treasury yield holding its ground as well as for stocks. Gold is yet another low to negatively correlated asset class to consider in relation to expected stock performance. While the yellow metal is widely regarded as an inflation hedge, it is even more so a signal of anticipated aggressiveness of global monetary policy makers and their ability to keep inflationary pressures under control. Put more simply, if gold is surging to the upside, investors are likely either concerned about economic/market instability or that the Fed is being too soft in combatting inflation. Conversely, if gold is careening to the downside, either the economic/market environment is simply too good and stable for investors to want to consider alternative allocations, which is not the case right now, or that global central banks are poised to tighten monetary policy aggressively to combat spiraling inflation. The latter was certainly the case for much of 2022, but since October we have seen notably greater optimism in this regard signaled by the gold market rallying strongly from its lows. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/03/Chart-4-Gold-continues-to-hold.png "- Clear Wealth Planning Solutions")While gold has surrendered meaningful ground since the start of February when inflation concerns reignited, the fact that it is holding its ground not only above its 200-day moving average (red line below) but also its 400-day moving average (pink line below) is a constructive sign that the worst in the inflation battle may now be behind us. A key will be gold holding these two moving average support levels at around $1780 and $1810 per ounce, respectively, in the coming days and weeks. **Classical too intelligent to be radical.** The U.S. stock market and the key asset classes that surround it also warrant investor respect for another important reason. Investors have been at this game for a very long time dating back to before the advent of the Fed put in ’86 and the birth of Thelonious Monk more than a century ago. The wealth of historical data at our disposal to support our present-day decision making is vast. Not only can policy makers find direction in how markets have responded to past economic events, but investors can also be guided by how markets have navigated these various past episodes. This is not our first time making our way through a generally well behaved bear market in U.S. stocks, and it likely won’t be our last. While markets movements at any given point in time may appear radical, remain dedicated to your classical long-term investment philosophy, make intelligent adjustments at the portfolio margins as needed, and respect the markets and their movements as events unfold along the way. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Reality Check](https://clear-wealth.com/economic-market-report-reality-check/) **Published:** March 6, 2023 **Author:** Clear Wealth Planning **Content:** #### Summary - *Fundamental check: Stocks are still expensive as corporate earnings continue their descent.* - *Technical check: Stocks are testing key support levels.* - *Fed check: Not fighting the Fed cuts both ways.* - *We’ve traveled a long way through today’s bear market but more work lies ahead before the journey is complete.* After a blazing start to 2023, the U.S. stock market has cooled in recent weeks. Looking ahead to the upcoming spring, the path of least resistance for stocks appears to be to the downside. For while the underlying economy has remained solid in the face of aggressive monetary tightening from the U.S. Federal Reserve, this resilience in large part is also a primary headwind preventing stocks from fully shaking off the bear market blues. **Fundamental check.** One of the initial challenges confronting U.S. stocks at this stage of the market cycle is the fundamentals. Even if underlying economic forces were lining up behind stocks, the fact that corporate earnings remain elevated at a time when underlying valuations are still rich is a one-two fundamental punch that stocks have yet to resolve the way they have historically to strike a bear market bottom. Corporate earnings have started to descend. With fourth quarter earnings season now largely in the books, S&P 500 earnings have declined by -8% on quarter-over-quarter basis and -13% from the peak in earnings over the past year. While this is a start, this remains only a fraction of the -30% to -40% peak-to-trough decline in earnings that we typically see during normal bear market cycles. Looking forward, it appears that the decline in earnings is set to continue, as forecasted earnings through the remainder of 2023 are projected to be flat to negative over the next two quarters and only marginally better for the last two quarters of the year. Given that corporate earnings forecasts are notoriously optimistic the further out the forecast horizon, the fact that these projected numbers are already so weak highlights the corporate earnings challenges that still lie ahead for stocks. Investors might have the ability to look past this deteriorating earnings forecast were it not for the fact that stocks are still expensive. Despite being down nearly -20% from its all-time highs from more than a year ago, the S&P 500 still trades at nearly 22 times trailing GAAP earnings. Not only is this a more than +30% premium above its historical average, but it is also well above the 12x to 14x multiples that we have seen on the S&P 500 at bear market lows in recent years. **Technical check.** Stocks made a good run at a full-fledged upside breakout at the start of 2023. After exploding above its downward sloping trendline resistance in mid-January, the S&P 500 continued its ascent through the remainder of the first month of the year. But no sooner did the Fed speak and the latest monthly jobs report hit the headlines right around the exact same time that the S&P 500 reached its 400-day moving average resistance, and the rally was stopped dead in its tracks. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/03/Chart-1-Stocks-Descending-Back-Towards-Bear.png "- Clear Wealth Planning Solutions")In the month since, U.S. stocks have descended back toward its downward sloping bear market channel that has been in place since late 2021. And while the S&P 500 has found support at its recently upward sloping 50-day moving average and still downward sloping 200-day moving average along with an upward sloping trendline dating back to its October 2022 lows, the fact that its Relative Strength Index (RSI) has descended back into bearish territory suggests any bounce from these support levels may be meager at best. It will be worth watching how the S&P 500 responds in the coming trading days to this important technical convergence. For if stocks continue their descent back into its bear market trading channel, a further decline toward the 3200 to 3400 range by the time the springtime flowers are blooming is increasingly back in play. **Fed check.** So what would be the primary driver pushing stocks to the downside in the coming weeks beyond the fundamental and technical factors already in place? The most likely culprit remains the U.S. Federal Reserve. For just as we should not fight the Fed to the upside, we should not ignore it to the downside. Heading into the year, the broader market as measured by the CME Fed Funds futures had priced in the following outcome: the Fed would raise once or maybe twice more early in the year – a quarter point in February, maybe even a quarter point in March – then they would be done raising interest rates with inflation coming back down. The economy would descend into a mild recession in mid-2023, but by Q4 the Fed would be back to cutting interest rates and the worst would be behind us. Quod erat demonstrandum, am I right? Chalk drop. Um, no. With two months in the book, what the market is now pricing in has meaningfully changed, and with good reason (the notion that the Fed would be cutting rates by the end of 2023 requires a historical perspective that only begins after the mid-1980s – this is NOT the way the inflation battle is won as the late 1960s to early 1980s repeatedly proved). The inflation rate has come down, but the level of inflation remains uncomfortably high and the pace of the decline has slowed dramatically. In the case of the Fed’s preferred Personal Consumption Expenditures (PCE) Price Index actually ticked back higher in January on a Core PCE basis (gulp). These developments are a problem, as they signal that the Fed may not yet have done enough rate hiking to fully extinguish the inflationary flames. Already, the notion of Fed rate hikes at the end of 2023 are off the table. Instead, the Fed is now projected to deliver three successive quarter point rate hikes in March, May, and June before topping out the Fed funds rate at 5.50% and keeping it steady through the rest of 2023 and into 2024. Unfortunately for stocks, I continue to think that this consensus Fed forecast is still not enough. With the jobs market still notably strong and the unemployment rate at a historically low 3.4%, the Fed still likely has a lot of lifting left to do to cool inflationary pressures (a tight labor market is inherently inflationary, particularly in a world that is increasingly showing nationalist tendencies). And the fact that the rate of inflation is falling at a slowing rate (if not marginally rising again in certain key spots) further suggests that the Fed may need to do even more than the market is anticipating and for longer to get the inflation fires fully under control. If we are to not fight the Fed, the fact that the Fed is still tightening and may need to tighten more than the market is currently expecting implies a fight that may continue to be challenging for stocks at least in the near-term. **Bottom line.** We as investors have come a long way through the bear market that has transpired so far dating back to the start of last year. And while the underlying economy remains sound and underlying financial system health continues to be strong, we remain in an inflation firefight that appears not yet over. The Fed likely has more work to do on the interest rate hiking front as we progress through 2023. This implies an economic slowdown that may come a bit later (perhaps in the second half of 2023 and into 2024), may last a bit longer and cut a bit deeper economically than previously anticipated, and may require more patience than originally anticipated from investors that have understandably become accustomed through their experience from 2009 to 2021 to stocks quickly bouncing back from any bouts of short-term downside. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Good As Gold](https://clear-wealth.com/economic-market-report-good-as-gold/) **Published:** February 24, 2023 **Author:** Clear Wealth Planning **Content:** ### Summary - *Gold has a history of adding meaningful diversification in a broad portfolio asset allocation strategy.* - *Gold is historically uncorrelated with other major asset classes such as stocks and bonds.* - *Gold has been in a sustained uptrend dating back to the mid-2010s.* - *The gold-to-S&P 500 ratio continues to trade near its lows over the past two decades.* Capital markets remain turbulent as we make our way through the early months of 2023. Thus, the priority to manage investment risk through broad portfolio diversification remains as important as ever. And gold is an allocation that has distinctive characteristics in this regard. **Doing Its Own Thing.** One of the keys that differentiates gold from a portfolio diversification perspective is that it travels its own independent path at any given point in time. This is reflected in the fact that its returns over time are virtually uncorrelated with both of the major asset classes in stocks and bonds. What exactly is correlation? It measures the mutual relationship between two securities. It is measured across a range from -1.00 to 0.00 to +1.00. A positive correlation means that the price of two securities move in the same direction at any given point in time. The higher the positive correlation toward +1.00, the stronger the positive relationship in the price movement between two securities. Such positive correlation works well when what you own like stocks are moving higher, but it compounds the pain when your highly correlated securities are all going down at the same time. Conversely, a negative correlation means that the price of two securities move in the opposite direction at any given point in time. The higher the negative correlation toward -1.00, the stronger the negative relationship. While a security with a strong negative correlation to stocks may seem like it makes good sense from a portfolio diversification perspective, the key problem is that if what you own is going down when stocks are going up and vice versa, you can end up neutralizing your return. When it comes to broad portfolio diversification, identifying securities that are uncorrelated with each other ends up being ideal. Why? Because when two securities are uncorrelated, it means that regardless of whether one security is going up or down at any given point in time, the other security will be traveling its own independent path. With all of this in mind, consider the following correlation table between U.S. stocks as measured by the S&P 500 Index (SPY), long-term U.S. Treasuries as measured by the iShares +20 Year U.S. Treasury Bond (TLT), and gold as measured by the SPDR Gold Shares (GLD). ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/Chart-1_Gold-Doing-Its-Own-Thing_2.22.23.png "- Clear Wealth Planning Solutions")Gold is not only virtually uncorrelated with U.S. stocks at a very low positive correlation of just +0.08, but it also has a notably low correlation of with U.S. Treasuries at +0.23. Put simply, gold is a security that moves independently from both stocks and bonds at any given point in time, which is ideal from a portfolio diversification standpoint. **Uptrend remains ongoing.** While the fact that gold is uncorrelated with both stocks and bonds is a virtue from an asset allocation perspective, the security in isolation still must demonstrate the propensity in isolation to rise in price over time. For as industrial commodities have taught us over the past decade prior to 2022, a low to negative correlation to both stocks and bonds does little good if the price of the asset itself is falling. The good news for gold is that it has been in a steady uptrend for more than seven years now since bottoming in late 2015. While it is indeed true that gold has been in a sideways pattern since the summer of 2020, this is more a result of the fact that gold had moved so far ahead of trend during the early stages of the COVID crisis. As a result, it has effectively spent the last two years since consolidating these gains as it reverts back to its long-term trendline. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/2.png "- Clear Wealth Planning Solutions")This raises an important point about the fundamental drivers of the gold price. While the yellow metal is widely regarded as a hedge against inflation, it is often less than effective in this regard in practice. This is due to the fact that gold as a highly liquid asset is sensitive to the broader market liquidity environment at any given point in time. Put more simply, if inflation is rising, gold investors recognize that the U.S. Federal Reserve is likely to intervene by tightening monetary policy and draining liquidity from financial markets, thus putting pressure on the gold price. So when does gold typically perform best? During periods of heightened economic, market, and/or geopolitical stress. This includes episodes like the Great Financial Crisis, the COVID pandemic, and yes, the hyperinflationary period of the late 1970s when the Fed was repeatedly too easy in trying to tame the pricing beast through much of the decade. And while gold may get a bad rap relative to owning stocks over long-term periods of time, we can see from the chart below that gold has been no slouch relative to U.S. stocks from a cumulative return perspective over the past two decades. In fact, it has outperformed by fifty percentage points in the last twenty years. And both stocks and gold have performed well overall during this time period despite traveling distinctly different paths to reach this destination. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/3.png "- Clear Wealth Planning Solutions")**At what price?** An important question comes into play when considering acquiring gold as part of broad asset allocation portfolio. How can we determine what is a fair price for gold? After all, the barbarous relic does not generate a cash flow, so how then can we assign an intrinsic value to its worth? While it is indeed true that gold presents challenges to value in isolation, we have a long and extensive price history that we can use to evaluate its price relative to other key assets such as the U.S. stock market. And when considering the gold price relative to the closing price of the S&P 500 Index, we see that despite its steady uptrend over the past seven years, it continues to trade near twenty year lows on the gold-to-S&P 500 price ratio. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/4.png "- Clear Wealth Planning Solutions")**Bottom line.** The economic, market, and geopolitical environment remains turbulent and uncertain as we make our way through 2023. Thus, managing investment portfolio risk remains a priority. And gold is a distinctly differentiated investment category that had historically generated uncorrelated returns relative to other major asset classes that has provided such a diversification benefit in the broader portfolio asset allocation process. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Falling Slowly](https://clear-wealth.com/economic-market-report-falling-slowly/) **Published:** February 20, 2023 **Author:** Clear Wealth Planning **Content:** ### Summary - *The rate of inflation continues to decline, but it is likely falling too slowly to encourage the Fed to shift their monetary policy stance from tightening to easing any time soon.* - *Stocks have been remarkably resilient in the face of this increasing reality.* - *Segments outside of the stock market are signaling mounting near-term pressures against stocks continuing to hold their ground.* The latest reading on inflation was released on Tuesday morning. On the surface, the report for the month of January seemed generally unmoving. The annual rate of inflation did not come down as much as expected, but it still edged lower. And this latest pricing data was not nearly as bad as some market watchers feared heading into the announcement. The stock market reaction during Tuesday’s trading reflected this mixed report, as the large cap S&P 500 and small cap Russell 2000 ended marginally lower for the day, while the NASDAQ and the mid-cap edged higher. Given this general indifference to a middle of the road inflation report, why on the world am I writing about it? Because I have concerns about the accumulating market response I am seeing building under the surface. **Falling slowly.** Yes, the rate of inflation did come down in January, but barely. In December, the headline inflation rate as measured by the Consumer Price Index (CPI) was an annual 6.44%. A month later, it crept lower by 10 basis points to 6.34%. As for the core inflation rate excluding the more volatile food and energy components, it did incrementally better in sliding by 15 basis points from 5.70% in December to 5.55% in January. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/1-Inflation-is-slowing.png "- Clear Wealth Planning Solutions")Disinflationary progress indeed, but here’s the problem. The rate of inflation is falling, but it is falling too slowly and still remains notably elevated at its highest levels in more than 30 years. In other words, inflation may be going away, but it’s not happening fast enough. What are the implications? Whereas investors just a few weeks ago expected the Fed would be done hiking rates by March, the market is now pricing in two additional quarter point rate hikes in May and June. And while investors are still clinging to the hopes that the Fed will be back to cutting interest rates by December, I remain inclined to take the other side of this bet given the evidence that persists associated with inflation that does not appear ready to fully quit anytime soon. **All the more for that.** For a stock market that seemingly pinned its bear market rallying hopes on a U.S. Federal Reserve soon ending its rate hiking cycle and eventually shifting to rate cuts, it has taken the recent barrage of discouraging news on this front notably well. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/2-US-Stocks-Holding-Strong.png "- Clear Wealth Planning Solutions")After failing in its initial breakout attempt above its ultra long-term 400-day moving average resistance, the S&P 500 has been consolidating nicely with only a marginal decline thus far that continues to hold above the downward sloping trading channel that defined the stock bear market for more than a year. This raises the question as to whether stocks are getting their post Great Financial Crisis mojo back where the propensity to climb persisted regardless of whether the news was good, bad, or ugly. The good news for U.S. large cap stocks is that their recent upside move is being supported by its mid-cap and small cap brethren. U.S. mid-cap stocks as measured by the S&P 400 Mid Cap Index led the breakout by the S&P 500 by a couple of weeks in January. And the mid-cap rally burst the index well above its key 400-day moving average resistance by late January. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/3-US-Mid-Caps.png "- Clear Wealth Planning Solutions")Trends on the U.S. small cap front have been notably similar to mid-caps. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/4-US-Small-Caps.png "- Clear Wealth Planning Solutions")Given that mid-caps and small caps have traditionally led large caps to the upside, particularly at the ends of historical bear markets, this bodes well for potential further upside in stocks after this recent period of consolidation. **We’ve still got time.** While I respect the strength and resilience seen across the stock market in recent weeks, I have concerns about the signals that I’m seeing accumulate from other asset classes outside of equities. Let’s begin with the U.S. Treasury market. One of the keys to support a sustained stock market rally is that long-term U.S. Treasury yields need to be falling. Why? If yields are rising, they further narrow an equity risk premium that is already tight given the historically high valuations that persist among U.S. stocks despite a more than year-long bear market in prices. So what’s taking place today? After trending lower dating back to last October, both 10-year and 30-year U.S. Treasury yields broke above their downward sloping support lines in recent days (if yields are falling, prices are rising, and vice versa). ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/5-10-Yr-Treasury-Yields.png "- Clear Wealth Planning Solutions")![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/6-30-Yr-US-Treasury-Yields.png "- Clear Wealth Planning Solutions")While these breakouts may be a temporary blip, if it continues it implies that while the bond market may remain convinced that the Fed will eventually win its inflation fight, it is becoming increasingly concerned with how much inflation might stick around as it gradually fades away. The precious metals market is also signaling potential challenges ahead for U.S. stocks. Both U.S. stocks and gold have been riding the same Federal Reserve roller coaster over the past year, sharing the hopes and expectations that the Fed would soon top out with rate hikes and eventually turn an eye toward cutting rates. But since the start of February, gold has turned definitively to the downside while stocks remain largely elevated. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/7-Gold.png "- Clear Wealth Planning Solutions")The same can be said for silver, which had been holding its ground for much of December and January before finally relenting to the downside since the start of the month. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/8-Silver.png "- Clear Wealth Planning Solutions")**Bottom line.** The U.S. stock market remains remarkably resilient in the face of accumulating evidence that while inflation pressures are subsiding, they are likely falling too slowly to lead to the easier monetary policy outlook required to sustain still historically high valuations. The latest CPI readings from the U.S. Bureau of Labor Statistics provided added confirmation in this regard on Tuesday. And both the U.S. Treasury and precious metals markets appear to be signaling that more challenges may lie ahead for stocks in the near-term. Given these building downside risks for stocks, it remains worthwhile to maintain a defensive bent in portfolio allocations. This includes favoring more discounted industries such as pharmaceuticals and food that can continue to perform well in such an environment while leaning away from still richly valued segments such as information technology and communication services. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Don’t Go Away](https://clear-wealth.com/dont-go-away/) **Published:** February 10, 2023 **Author:** Clear Wealth Planning **Content:** #### Summary - *The Fed is likely to raise rates higher and keep them higher for longer than the market currently expects.* - *Persistent Fed hawkishness is positive for investors in the long-term, as it helps ensure that inflationary pressures are fully extinguished.* - *Why investors are best served to remain fully allocated to equities despite ongoing inflationary pressures and a hawkish Fed.* U.S. stock investors are at it again. Outside of a tax loss harvesting blip at the end of last year, the S&P 500 has been moving steadily higher over the past several months since bottoming last October. Over this time period, the benchmark index posted a more than +20% trough to peak bounce. A primary driver of this recent upside has been the hope, nay expectation, that the hawkish inflation fighting U.S. Federal Reserve would soon be ending their historically aggressive rate hiking cycle and by the end of 2023 will return to their easy policy ways with a fresh round of interest rate *cuts*. Not only is this likely wishful thinking, it’s not a desirable outcome for those investors wanting to return to a stock market environment of sustainable upside. In reality, we don’t want the Fed to go away anytime soon. **How soon we all forget.** It’s amazing how the marketplace seems to never learn. Remember the stock market rebound that started last June (from a bottom that was higher than the October lows) and lasted through most of the summer before peaking in mid-August (at a peak that appear likely to be above the current highs)? This summer lovin’ bounce was driven by dreams that the U.S. Federal Reserve would be back to cutting interest rates by the end of 2022. Turns out, not so much. Nonetheless, investors have gotten caught up in the same hope today. All Fed Chair Jay Powell apparently needs to do is utter words like “disinflation” and investors get so frothed up that they look past accompanying statements like “very early stages” and “quite a bit of time” and “further rate hikes”. Here’s the bottom line reality. The Fed is very likely not done raising interest rates. It was hoped as recently as a week or so ago that they might be able to wrap things up with one more quarter point interest rate hike in March. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/rate-cuts.png "- Clear Wealth Planning Solutions")But last Friday’s jobs report for January that was not nearly as robust as it looked but still quite strong for a Federal Reserve that remains in a credibility saving fight to snuff out inflation measurably raised the probability that further rate hikes will be needed in June and perhaps even July and/or September. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/rate-cuts-end.png "- Clear Wealth Planning Solutions")Even with this upward adjustment in interest rate expectations, the market is still betting that the Fed will be back in cutting mode by the end of 2023. I did not buy into the idea of rate cuts by the end of 2022 last summer, and I do not reside in the rate cuts by the end of 2023 camp today. While I remain a believer in the notion that price is truth and that the current consensus projections in the CME Fed Funds futures market warrant close consideration, it is my expectation that interest rates are likely to higher than the market currently estimates and stay higher for much longer than the market is anticipating well into 2024. It will be interesting to see how it all plays out, but the following are among the reasons why I believe investors will continue to be disappointed in a Fed that remains more hawkish than anticipated. Hard now just to make ends meet. Yes, disinflation is happening. We didn’t need the Federal Reserve to tell us, as we have all been able to see for months that pricing pressures have been falling. The headline inflation rate peaked last July, and the core inflation rate topped out in September. Since that time, inflation has been coming down. Awesome – I’m glad we’re getting something for the more than four percentage points of interest rate hikes that have been jammed down the throat of the U.S. economy over the past year (ladleful of sugar anyone?). ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/inflation-mountain.png "- Clear Wealth Planning Solutions")Looking forward, the market has little doubt that the Fed will ultimately win the current inflation war, as the 5-year breakeven inflation rate is pressing its way back toward 2%. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/victory.png "- Clear Wealth Planning Solutions")But here’s the thing. Inflation is still in a blistering hot range near 6.5% on the headline and over 5.5% on core excluding food and energy. Put simply, we still have a loooooong way to go before inflation is back down to levels that we would associated with the words “price stability”. I get that the market is forward looking, but to quote our Fed Chair, the path ahead is not likely to be “smooth” and instead is bound to be “bumpy”, which is a gentle way of saying that s&#\* could get real before we get back to where we ultimately want to be on inflation. But here’s another thing. After the Fed wins the inflation battle assuming the 5-year breakeven rate is correct, it’s not as though the Fed can simply turn tail and start cutting interest rates. Even if the U.S. economy is mired in recession as the inflation rate fully returns to earth, the Fed will likely need to keep interest rates much higher than they might otherwise want. Why? Because the Fed has a couple of decades of inflationary/stagflationary history from the 1960s to 1980s where they made the same mistake over and over again of cutting interest rates too early in the midst of a recession before inflationary pressures were fully extinguished, thus leading to a renewed spike in inflation that was repeatedly worse than the last episode. The Fed is already smarting from a credibility standpoint by waiting far too long to end quantitative easing and start raising interest rates less than a year ago in March 2022, so I would presume the last thing they want to do is “mission accomplished” the inflation fight by declaring victory too early and ignoring the well learned lessons of inflation fighting past. I need more time just to make things right. So what does needing the Fed to stay hawkish for longer mean for the U.S. stock market today? The U.S. stock market has indeed had a fantastic run in recent months that has culminated with an upside breakout above the downward sloping trading channel that has been in place since the start of the bear market back in January 2022. This recent price movement alone highlights why investors are well served to maintain a dedicated equity allocation and to eschew shorting the stock market. And after all, this macro analyst may be dead wrong in his prognostications and the S&P 500 may continue to scream higher in 2023. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/breakout.png "- Clear Wealth Planning Solutions")With that said, U.S. stocks may have arrived at a juncture where it is set to reverse back to the downside at least in the near-term. The S&P 500 reached a key resistance level in its ultra long-term 400-day moving average coming out of the latest Fed meeting, and it has since been turned back to the downside as the reality increasingly seeps into investor minds that the Fed probably has quite a bit more work to do for quite a bit longer than previously anticipated. It was frequently and rightly said over the period from 2009 to 2021 when stocks seemed to endlessly rise beyond all reason, when good news was good news and bad news was good news for stocks, “don’t fight the Fed”. If we are best not to fight the Fed when they are easing, why should we ignore this same mantra when the Fed is tightening as they are today? Particularly when a rising stock market is inflationary and flies directly in the face of what the Fed is currently trying to achieve. **So don’t go away.** Does the high probability for a renewed move to the downside in the S&P 500 bode ill for U.S. stock investors? Absolutely not. Not only does a disciplined asset allocation program require a dedicated allocation to stocks, but this stock allocation should already be positioned for the current and expected economic and policy reality that we continue to navigate. As we know, such an environment does not favor the past winners on the growth side of the market in the information technology, communication services and consumer discretionary sectors that flew so high for so long in the sluggish economic growth, zero interest rate environment of yore. Instead, it favors more value oriented defensive allocations that can either directly benefit from higher inflation such as energy and/or have wider economic moats and strong pricing power in the consumer staples and health care sectors. Looking forward, it is also eventually bound to uplift more interest rate and economically sensitive sectors such as financials at first and then transports if and when we begin traversing the economic recession that likely still lies ahead in 2023. Even if the recession never comes, these market segments still have a history of performing particularly well as economic activity begins to accelerate. And lest we forget the geopolitical environment, that continues to favor military and defense related allocations for unsettlingly apparent reasons. So while we don’t want the Fed to go away from more hawkish monetary policy until they fully finish the inflation fight, we too as investors do not want to go away from a marketplace that remains filled with attractive stock investment opportunities even if the headline S&P 500 is struggling along the way. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Time to Study Abroad](https://clear-wealth.com/time-to-study-abroad/) **Published:** January 31, 2023 **Author:** Clear Wealth Planning **Content:** #### Summary - *Developed international and emerging market stocks have been surging relative to the U.S. in recent months.* - *Are non-U.S. stocks finally ready to take the sustained lead over their U.S. counterparts?* - *A closer look reveals that non-U.S. stock performance may not be as impressive as it seems at first glance.* Non-U.S. stocks have been on fire as of late. After years of chronic underperformance relative to the United States, both developed international and emerging market stocks have been strongly outperforming over the last few months. This recent development raises a worthwhile question – have we finally arrived at the point where non-U.S. markets are ready to take the sustained lead over their U.S. counterparts? New leaders. The magnitude of the recent performance differential has been notable. Since the mid-October lows across global stock markets, developed international stocks have advanced by more than +28%, while emerging market stocks have added an impressive +24%. This represents double-digit outperformance versus U.S. stocks that have gained less than +14% over this same time period. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/abroad1.png "- Clear Wealth Planning Solutions")Time to study abroad. The notion that this recent outperformance might be the beginning of a geographic rotation out of U.S. stocks and into non-U.S. stocks would not be without merit. Consider, for example, that over the past 15 years since the onset of the Great Financial Crisis back in the summer of 2007, U.S. stocks have generated a cumulative total return of more than +250%, while both developed international and emerging market stocks were close to flat over this same time period as recently as a few months ago. That’s fifteen years where stocks outside of the U.S. have effectively gone nowhere (and are measurably lower on a real return basis) at a time when U.S. stocks have soared into the stratosphere. By this measure, such a rotation out of the U.S. and into non-U.S. would be long overdue. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/abroad2.png "- Clear Wealth Planning Solutions")Stocks outside of the U.S. also offer a meaningful relative value versus U.S. stocks. As a case in point, the 10-year cyclically adjusted price-to-earnings (CAPE) ratios between the United States and Europe have historically tracked very closely to one another. But since the bottom of the Great Financial Crisis in early 2009, the U.S. and Europe began to deviate measurably on a CAPE valuation basis. Today, the valuation disparity remains meaningful, as U.S. stocks are trading at a CAPE north of 27 while Europe stocks are trading at a CAPE of just 19. In short, two markets that once historically shared virtually the same long-term valuations now see U.S. stocks trading at a near 50% premium. By this measure, either Europe stocks eventually have a lot of room to catch up to the upside, or U.S. stocks eventually have a lot of room to fall to the downside. Either way, Europe stocks would be overdue to meaningfully outperform by this comparative measure. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/abroad3.png "- Clear Wealth Planning Solutions")Upon further research. While the recent relative outperformance of non-U.S. stocks appears impressive and notable on the surface, its meaning quickly starts to crumble upon further investigation. First, let’s consider the role that currency effects are playing in this recent non-U.S. total returns leadership. To neutralize any potential currency effects, we will consider the cumulative total returns on a currency hedged basis for developed international and emerging markets. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/abroad4.png "- Clear Wealth Planning Solutions")While developed international and emerging markets are still leading on a currency hedged basis, the relative outperformance is meaningfully less. If anything, returns performance across the globe starts to look more like a rising tide lifting all boats than non-U.S. markets assuming any sort of sustained leadership role. After all, emerging market stocks were trailing on a currency hedged basis through early December, and if one were to eliminate the burst to the upside in non-U.S. stocks in the first trading week in January, U.S. stocks would actually be outperforming since mid-October on a currency hedged basis. In this context, it is worthwhile to examine the path of the U.S. dollar over the last several months. Over the first ten months of 2022, the U.S. dollar surged to levels reached only once before (during the tech bubble in the early 2000s) since the advent of the “Fed put” roughly 35 years ago now in 1987. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/abroad5.png "- Clear Wealth Planning Solutions")This U.S. dollar strengthening was driven in large part by the rapid increase in interest rates by the U.S. Federal Reserve to combat the worst inflation outbreak in this country in more than four decades. But once the market shifted its focus to the notion that the Fed may soon stop raising interest rates and may actually start cutting rates at the end of 2023, the U.S. dollar quickly lost its verve, falling by more than -12% from October highs. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/abroad6.png "- Clear Wealth Planning Solutions")Now that the U.S. dollar has fallen from historical highs to not far above the long-term historical average, how much further can we expect the weakening U.S. dollar to offer a tailwind to non-U.S. stock returns? If nothing else, a good deal of juice is already likely out of the weakening U.S. dollar orange. And if economies across many parts of the world officially fall into recession as anticipated in 2023, it leaves open the possibility for safe haven rallies back into the U.S. dollar in the months ahead. But what about the ability of non-U.S. stocks to assume the leadership mantle based on the fundamentals? From a relative economic growth standpoint, the case is less than compelling. Europe continues to grapple with many of the same economic challenges confronting the U.S. while also coping with a massively challenging energy market environment and the ongoing spillover effects of the war in neighboring Ukraine. The challenges confronting the United Kingdom are particularly acute. While growth prospects in the Asian Pacific are arguably better than Europe, they are not sufficiently or consistently so that it would catalyze the start of a sustained period of relative outperformance versus the U.S. As for emerging markets, while the China economic reopening may provide a short-term tailwind, it is at least partially counterbalanced by the ongoing fiscal challenges confronting a number of indebted sovereign countries across the world that continue to struggle with high interest rates, inflation, and slowing economic growth. Bottom line. While developed international and emerging market stocks have posted rousing outperformance versus the U.S. in recent months, investors should proceed with caution in potentially reading too much into this situation. While the magnitude of the performance differential looks impressive at first glance, most of the outperformance was driven by the precipitous weakening of the U.S. dollar and not necessarily anything fundamental or sustainable for that matter. As a result, investors are likely well served to stay the course with their current allocations and not rush to meaningfully add developed international or emerging markets based on any signals from recent outperformance. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Investing’s Rich Pageant](https://clear-wealth.com/investings-rich-pageant/) **Published:** January 23, 2023 **Author:** Clear Wealth Planning **Content:** #### Summary - The bear market continues, but such challenges are all part of investing’s rich pageant. - The looming debt ceiling battle is a likely non-event for capital markets. - A new secular phase may be underway. - How long will the current cycle last? - Remain true to your long-term investment philosophy. > **Maria:** “You should get out of these clothes immediately. You’ll catch your death of pneumonia, you will.” > **Clouseau:** “Yes, I probably will. But it’s all part of life’s rich pageant, you know*?”* > > *A Shot In The Dark, 1964* After more than a year of a back and forth downward slide, stocks continue to struggle. Frustrating indeed, but such challenges are all part of the experience of investing in the U.S. stock market. Nobody ever said that the art of allocating capital in order to achieve a rate of return well in excess of the risk free rate offered up by an FDIC insured savings account would always be easy. But maintaining patience and discipline to a long-term investment philosophy during such periods of short-term downside volatility have been consistently rewarded dating all the way back to the buttonwood tree more than two centuries ago. It’s why we endure it, and today is no exception. So what then should we make of the most pressing risks confronting stocks today? **Fall on me.** The U.S. stock market has been mired in a bear market downtrend dating back to the start of last year. On four previous occasions, the S&P 500 index failed at what has become downward sloping trendline resistance as shown by the red line in the chart below. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/pageant1.png "- Clear Wealth Planning Solutions")The latest attempt at an upside breakout was denied last week, as stocks retreated from its latest lower high for three straight trading days before a strong Friday rally returned the S&P 500 Index to a separate yet closely related resistance level at its downward sloping 200-day moving average. While stocks are likely to continue to try to grind out a move to the upside, the short-term path of least resistance for U.S. stocks remains to the downside. So what are the latest forces pressuring stocks as we move toward the end of January? The steady and sharp downward revision in projected corporate earnings and operating profit margins on the S&P 500 certainly do not help, particularly in a market that is already trading at a historically rich 22 times earnings and climbing even as stock prices continue to fall. #### **Begin the Begin** Another issue that many investors are watching closely comes from the political sphere in the looming debt ceiling debate in the U.S. Congress. Should investors be worried about the potential fallout effects from this political standoff as events unfold? The answer here is very likely no. Are politicians in Congress likely to take us to the brink if not slightly beyond with their game of political chicken? Almost certainly. But it is important to remember that this will not be the first time that markets have had a front row seat to such volatility inducing theatrics. We’ve seen this game many, many times before, and markets typically maintain the cool confidence that beyond the theatrics and posturing, politicians will do what needs to be done at the end of the day. This is why capital markets have had little to no reaction to the prospects of a protracted debate over the debt ceiling. But another important point is worth remembering here. No member of Congress, regardless of where they may reside on the vast political spectrum, has any incentive to sink the U.S. stock market and plunge the global economy into crisis. Such is the implicit bet the market makes. But if an instance arises where politicians get too cute with their rhetoric and take things too far, the market has no qualms about swiftly casting policymakers knee deep in the fire to essentially say “enough is enough”. Case in point: back on September 29, 2008 as the Great Financial Crisis (GFC) was rapidly unfolding, the U.S. House of Representatives unexpectedly failed in their vote on an emergency financial rescue package. As soon as the vote failed, the U.S. stock market almost immediately started careening to the downside, ending the trading day lower by nearly -9% on the S&P 500. Not coincidentally, the House wasted no time in getting the necessary legislation passed less than two days later, and markets rebounded accordingly. The only difference between then and now is that back in 2008 the global financial system was careening toward crisis, which is a stark contrast to today where the underlying banking system is well capitalized and generally healthy. This helps to explain why the bear market that started more than a year ago has been so orderly to date. The bottom line related to political risk for today’s market is the following: Expect the market to largely look past any such threat. And if politicians try to take things too far, the markets very likely will quickly bring down the hammer with a fleeting but sharp correction to bring the policy debate and/or rhetorical nonsense to a swift end. #### **Begin the Beguine** Instead of getting caught up in the short-term noise that may be shifting the U.S. stock market on any given trading day, investors are better served to reflect on the memories of past markets and how the lessons learned might apply both today and in the future. The key intermediate-term to long-term question confronting investors today is whether we have entered a new secular phase in capital markets. It is important to remember that the robust stock market gains enjoyed during the post-GFC period from 2009 to2021 was driven not by sustainably strong economic growth but instead by valuation expansion stimulated by persistently easy monetary policy from the U.S. Federal Reserve enabled by a chronically low inflationary environment fostered by globalization that effectively brought years’ worth of future stock market returns forward to the present. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/pageant2.png "- Clear Wealth Planning Solutions")What have we had since the bear market in U.S. stocks got underway at the start of last year? The worst outbreak in inflation in more than forty years forced the U.S. Federal Reserve to suddenly and aggressively shift to tight monetary policy despite a gradually weakening economy in a world that is increasingly shifting toward deglobalization and nationalization amid an increasingly uncertain and threatening geopolitical environment marked by the threat of military conflict across multiple global theaters. Put simply, the world in 2023 has completely changed in stark contrast to the preceding environment from 2009 to 2021, and stock valuations have yet to react to this new reality. This sudden and dramatic shift suggests that we may be at the very beginning stages of a more challenging secular phase for capital markets including U.S. stocks that could last through the rest of the 2020s and into the 2030s. It is important to note that this is not necessarily a bad thing. For example, while the period from 1968 to 1982 was challenging, it is widely regarded as an excellent period for active management. In short, attractive total return opportunities across the U.S. stock market and capital markets will remain in abundance, it’s just that investors may have to work harder than they had over the past decade to capture these opportunities. Such is the advantage of active management and aligning with financial professionals that are familiar with how to navigate more uncertain markets. #### **Combien de Temps** In this potentially more uncertain secular environment, how long will investors have to wait before the current bear market in U.S. stocks comes to an end? The answer is multi-layered, but it is worthwhile to consider an important fact first. It’s not as though stock investors have been going hungry in search of returns over the past many years. Stocks were running hot for many years even before the onset of the global pandemic, and COVID related mega stimulus threw rocket fuel on the stock market fire through the end of 2021. As a result, it is reasonable to view the bear market since the start of last year as largely nothing more than a give back of the artificial gains induced by a deluge of monetary stimulus that subsequently had to be withdrawn back out. Looking forward, the corrective process on the broader U.S. stock market appears to remain ongoing at least for the near-term. It is reasonable to think that by late spring to early summer the correction may have fully run its course, particularly if we have descended into recession by this point and the U.S. Federal Reserve has ended its monetary policy tightening cycle. Any capitulation style sell-off in stocks in the coming months would actually be a reassuring sign that the final bottom may be set. But when breaking apart the U.S. stock market, many stock sectors are wondering “what bear market exactly?” This includes energy, military defense, health care, and consumer staples stocks, all of which performed well in 2022 and are poised to continue this leadership in 2023 thanks to a geopolitical, economic, and policy environment that are all supportive of such sectors. Current upside opportunities are not limited to stocks, as U.S. Treasuries that took a hard crack on the knuckles during much of 2022 may have already bottomed a few months ago now and is higher by more than +16% since October. The same could be said for gold, which has been streaking to the upside by nearly +20% since early November. In short, while investors may have to wait for the S&P 500 to find a bottom, capital markets are filled with attractive upside opportunities already today. #### **Bottom Line** The stock market decline over the past year may have been difficult to watch and endure, but it is simply a part of investing’s rich pageant in capital markets on their long-term road to the upside. Stick to your investment philosophy and resist overreacting to the short-term noise and volatility. Make portfolio changes strategically at the margins and avoid letting the fleeting volatility that can come from political rhetoric or global military threats inducing portfolio action when none may be necessary. Instead, reflect on the memories both good and bad from the rich stock market past in order to better understand what may be the likely path for capital markets including stocks for the remainder of the year and decade ahead. And recognize that the effort to capitalize on current upside opportunities may benefit from collaborating with others including investment professionals that may be more specialized in discovering active management prospects on offer today. ***Disclosure:** I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.* ***Additional disclosure**: Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. Great Valley Advisor Group and Stonebridge Wealth Management are separate entities.* *This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. Third party posts found on this profile do not reflect the views of GVA and have not been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: The Other Side Of The Mountain](https://clear-wealth.com/the-other-side-of-the-mountain/) **Published:** January 16, 2023 **Author:** Clear Wealth Planning **Content:** #### Summary - *Inflation is increasingly coming down the other side of the mountain.* - *The benefit to stocks will likely take some time.* - *The sustained rebound in bonds may already be underway.* We have begun the descent down the other side of the mountain. The long dormant inflationary pressures that erupted nearly two years ago are increasingly subsiding. Assuming this trend continues, this has important implications for the capital markets outlook as we move through the coming year. The impact on some asset classes may take time to materialize, while other categories may already be responding to the effects of gradually diminishing pricing pressures. **Descending from the peak.** Pricing pressures appear to be increasingly subsiding. It was nearly two years ago in early 2021 in the monetary stimulus fueled aftermath of the COVID crisis outbreak when inflation began surging higher. The Federal Reserve regarded these pricing pressures as “transitory” at first, which led to a slow-footed policy response that included not only keeping interest rates pinned at zero but the Fed maintaining quantitative easing asset purchases for more than a year later through March 2022. By this time, inflation was raging out of control with the headline Consumer Price Index (CPI) surging by 8.6% on a year-over-year basis and the Core CPI also jumping at a 6.4% annual rate. Both of these readings marked the highest levels seen in the U.S. economy since the notorious stagflationary period of the late 1970s and early 1980s. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/inflation-1024x779.jpg "- Clear Wealth Planning Solutions")Not long after the Fed finally took decisive action, inflation reached the crest of the mountain. In March, the Fed brought its asset purchase program to a close and delivered its first quarter point interest rate hike. By May it delivered another half point hike, and over the next four Fed meetings from June to November the Fed dropped successive 75 basis point rate increase bombs followed by another 50 basis points in December for good measure. In all, the Fed brought 4.25 percentage points of interest rate increases in just 10 months, which is a breathtaking amount of monetary tightening in such a short period of time. But during this period of swift rate hikes, the headline CPI peaked at 9.0% year-over-year in June 2022. Since that time, the headline inflation rate has decreased for six consecutive months in falling by more than 2.5 percentage points to 6.4%. finally peaked a few months later in September 2022 at 6.7%, and has fallen for three consecutive months since by roughly one percentage point to 5.7%. Indeed, the inflation rate is still notably high on an absolute basis. But the path of the inflation rate is heading in the right direction, which is positive for capital markets looking out over time. Exactly when and how different segments within capital markets respond to easing pricing pressures will vary across asset classes. **Stocks will likely take time.** Stocks have gotten off to lively start to the New Year. Over the first eight trading days in January, the S&P 500 has risen by nearly 4%. While this is certainly a promising start to 2023, stocks continue to face a variety of headwinds that are likely to persist at least over the next few months despite fading inflationary pressures. First, the economy still needs to digest the heavy dose of rate hike medicine administered by the Fed. It typically takes about nine months on average for the impact of a Fed interest rate increase to fully work its way through the economy. This means that several percentage points of rate hikes in recent months are only starting their way through the proverbial snake. It is also important to note that the Fed is likely not yet done with its current rate hike cycle, as it is expected that they will deliver two more quarter point rate increases coming out of their upcoming meetings in February and March before calling it a day. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/aggressive-1024x779.jpg "- Clear Wealth Planning Solutions")**Why does this matter?** Because history has shown that when the Fed raises interest rates as swiftly and aggressively as it has in 2022, an economic recession soon follows. Consider the five previous times similar to today when the Fed raised interest rates by four percentage points or more over roughly a one-year period or less. In each of these past five instances, all of which took place between the late 1950s and the early 1980s, the U.S. economy subsequently fell into recession. And put simply, stocks and their underlying corporate earnings typically do not like recessions. Of course, the notion of a recession taking place in 2023 should not come as a surprise, as the inverted yield curve has been predicting an economic recession for many months now. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/resistance-1024x553.jpg "- Clear Wealth Planning Solutions")U.S. stocks have also currently arrived at a challenging juncture from a technical perspective at essentially 4000 on the S&P 500. The upside spurt since the start of 2023 has brought the S&P 500 into two key levels of resistance. The first is the 200-day moving average, which turned U.S. stocks back to the downside in both mid-August and early December. The second is the downward sloping trendline of lower highs since January 2022, as stocks have failed to move above this trendline resistance in its four previous attempts dating back over the past year. It will be worthwhile to monitor U.S. stocks closely over the coming week to see if they can make progress in advancing decisively above these two key resistance levels. Any such breakout would be a constructive development for stocks, with the next major resistance level at the 400-day moving average at around 4230 on the S&P 500. With that said, probability continues to suggest that a pullback from current levels is more likely in the near-term. **Bullish on bonds.** The outlook for bonds is decidedly more constructive as inflationary pressures increasingly subside. This is particularly true for U.S. Treasuries. While it could be argued that a bottom in the bond market has already been in the process of being set in recent months, a number of indicators suggest that Treasuries may actually be somewhat behind the curve in rebounding to the upside. This only adds to the developing bullish outlook for Treasuries in the coming months. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/yield-peak-1024x576.jpg "- Clear Wealth Planning Solutions")Treasury yields may have peaked a few months ago. The 10-Year U.S. Treasury yield reached a cycle high of 4.25% in mid-October. Since that time, this benchmark yield has fallen by more than 75 basis points to 3.49%. Knowing that bond yields move inversely to bond prices, this represents a meaningful rebound in Treasury prices in recent months after staggering price declines in the time prior since the start of 2022. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/long-term-treasuries-1024x545.jpg "- Clear Wealth Planning Solutions")A way to more clearly see the price and total return performance of the long-term U.S. Treasury market is to consider the iShares 20+ Year Treasury Bond ETF (TLT). After bottoming in mid-October, the TLT has rebounded by as much as +20% and is currently higher by +17% above its October lows. It should be noted that the recent rebound in Treasuries has brought the TLT toward its 200-day moving average, which served as resistance during its previous approach in early December. While this raises an important question about whether Treasuries can continue to advance or if a turn back to the downside is more likely from here, a number of indicators suggest a further advance is more likely going forward beyond any immediate-term volatility. The first supporting factor for Treasuries is the basic fundamentals. Inflation is the primary determinant of Treasury returns, so the fact that pricing pressures are making their way down the other side of the mountain is increasingly constructive. What about the resulting threat of a recession? While stocks are typically adversely impacted by an economic slowdown, Treasuries actually benefit due to safe haven demand and their secure yields that often eventually become increasingly attractive as the U.S. Federal Reserve eventually lowers short-term interest rates to try and revive growth. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/gold-1024x565.jpg "- Clear Wealth Planning Solutions")The recent weakening of the U.S. dollar may also be providing a tailwind for Treasuries. It is worth noting that the U.S. dollar and 10-Year U.S. Treasury yields have been moving with notably high correlation over the past couple of years. This relationship could be reasonably explained by several factors including investors migrating to the greenback in recognition of the aggressive monetary tightening undertaken by the U.S. Federal Reserve to major foreign holders of Treasury securities, particularly those emerging market countries that have significant dollar denominated debt and current account deficits, needing to liquidate securities and raise U.S. dollar holdings in order to service their liabilities. Thus, the fact that the U.S. dollar has weakened markedly in recent months may signal relief on this front for the U.S. Treasury market. To this point, major foreign holders of Treasury securities sold more than a half trillion of U.S. Treasuries since the end of 2021 through October 2022 when yields peaked, so it will be worth watching whether these same foreign holdings level out or start to marginally increase once the latest readings for November are released this upcoming week. The gold price is also signaling that further upside may be ahead for U.S. Treasuries. What is the relationship between gold and Treasuries? The correlation of returns has actually been high for the last many years as shown in the chart above. What explains this strong positive relationship? While gold is widely regarded as an inflation hedge, it is actually more sensitive to expectations about monetary policy. In short, if it is anticipated that the Federal Reserve will move aggressively to tighten monetary policy in response to higher inflation, the threat of higher interest rates will often more than neutralize the inflation hedge upside associated with gold. This helps to explain why gold has been a lackluster performer at best during the inflation spike over the past two years. Conversely, gold historically has performed well during periods of easier monetary policy and the threat of economic, financial market, and/or geopolitical instability. These, of course, are the same factors that support Treasury prices. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/dollar-downside-1024x565.jpg "- Clear Wealth Planning Solutions")This relationship in mind makes the divergence between gold and Treasuries notable over the past year. For while Treasuries plunged sharply to the downside, the gold price largely held its ground. This signals that inflationary pressures have been anticipated to be largely held in check, thus not necessitating the Federal Reserve to need to tighten too aggressively or for too long. If this is indeed the case and we see a reconvergence in the relationship between gold and Treasuries, this suggests meaningful upside for Treasuries as they catch up to the price currently implied by gold. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/Screenshot-2023-02-07-at-8.51.42-PM.png "- Clear Wealth Planning Solutions")Adding further support to the notion that Treasuries have room to catch up to the upside is the fact that current yields remain well in excess of the breakeven inflation rate. To this point, the last time the 10-Year Treasury yield was trading at a comparable premium relative to the 10-Year Breakeven Inflation Rate was back in late 2018 when Treasury yields peaked at 3.25%. It is worth noting that the yield premium on offer today is still meaningfully higher than these late 2018 peaks even after the initial rebound in Treasury prices. **Bottom line.** Inflationary pressures are increasingly coming down the other side of the mountain in the United States. While it may take some time for this positive development to be felt in the U.S. stock market, the favorable response may already be underway in the bond market in general and the Treasury market in particular. And the upside for the Treasury market may very well still be in its early stages. ***Disclosure:** I/we have a beneficial long position in the* *shares of TLT either through stock ownership, options,* *or other derivatives.* *I wrote this article myself, and it expresses my own* *opinions. I am not receiving compensation for it. I have* *no business relationship with any company whose* *stock is mentioned in this article.* ***Additional disclosure:** Investment advice offered* *through Great Valley Advisor Group (GVA), a* *Registered Investment Advisor. Great Valley Advisor* *Group and Stonebridge Wealth Management are* *separate entities.* *This is not intended to be used as tax or legal advice.* *Please consult a tax or legal professional for specific* *information and advice. Third party posts found on this* *profile do not reflect the views of GVA and have not* *been reviewed by GVA as to accuracy or completeness.* **Categories:** Insights --- ### [Economic & Market Report: Turning the Bend](https://clear-wealth.com/turning-the-bend/) **Published:** January 13, 2023 **Author:** Clear Wealth Planning **Content:** This week, we had our first full week of market action in 2023. And so far, we’ve been seeing a friendly market with mostly up days here as we begin the year. Could it be a sign of things to come? Maybe but I wouldn’t set my sights on that too soon because there is still a lot of “froth” to sift through in the markets. Case in point [yesterday’s CPI report](https://www.bls.gov/news.release/pdf/cpi.pdf) is just another data point to add to the mix. However, the good news is it did not cause any abrupt surprises as the results were pretty much [in line with what was expected](https://www.cnbc.com/2023/01/12/consumer-prices-fell-0point1percent-in-december-in-line-with-economists-expectations.html). But still, inflation is running at 6.5% y/y (down from 7.1% last month) so it is still very high. And if you think about [where inflation was a year ago this time (7%)](https://www.usinflationcalculator.com/inflation/current-inflation-rates/) and now we are only at 6.5%, that’s really not much of a change relatively speaking. So, there is still work to do and we should fully expect the Fed to keep their foot on the gas when they meet again on February 1. Speaking of keeping your foot on the gas, when you drive down a road and approach a bend you really don’t know what to expect around the corner there right? However, sometimes you can gather information from what cars are doing on the other side of the road. As far as if traffic is moving in the direction you’re heading. For example, if there is a traffic light around the corner and there are cars moving on the other side, you have a pretty good idea that you’ll have a green light in your lane coming out of the bend. In a way, this is similar to how we as investors think about the markets as far as looking ahead and wondering “what’s around the bend”? To help answer that, we use droves of economic data like the inflation report released yesterday, various manufacturing signals, and even employment data such as the jobs report that came out last Friday. That showed 223,000 jobs were added in December and still points to a hot labor market where demand (companies looking for workers) outweighs supply right now (available workers). Which is still pointing us to inflationary signals in wage growth which [the Fed is very much stuck on](https://www.politico.com/news/2022/11/30/feds-powell-inflation-workers-wages-00071403). For example, as of [December, wage growth showed a 6.1% read](https://www.atlantafed.org/chcs/wage-growth-tracker?panel=1), but the good news there is it is trending down. But it’s still very high. The other key thing to consider with inflation is the shelter component with is technically rent rates and again that continues to show a steady rate of rise with a +0.8% read last month. This is about a 1/3 contributor to CPI so if shelter is going to remain high then inflation will too. That, coupled with wage growth will definitely keep the Fed hiking, although maybe at a slower pace which [the market is expecting](https://www.atlantafed.org/cenfis/market-probability-tracker). But the point is we are not out of the woods yet. Then let’s take another look ahead signal from earnings. Which we are about to embark on in the coming weeks as companies report 4th quarter 2022. Obviously, the key to earnings is whether or not companies will guide up or down which will then cause analysts to do the same on their earnings projections. But the market will be paying a lot more attention to this dynamic this time around because we continue to stay in a high inflationary environment with plenty of uncertainty still lingering out there. Which leads us right back to margins, the lifeblood of any company’s P&L. The key though is what companies will guide out looking ahead as we continue to navigate a choppy and “sticky” environment, especially on the inflationary front. But if you look at where we stand today, the general consensus on 12-month forward earnings on the S&P 500 is 229. You can see that in [Ed Yardeni’s projections](https://www.yardeni.com/pub/yriearningsforecast.pdf) (see page 1). Assuming a fair value forward P/E of 16.5, which you can also see in the [FactSet Earnings Insight report](https://www.factset.com/earningsinsight), that projects to a year-end target on the S&P of 3,779. Which would be down 1.6% from the 2022-year end close of 3,840. Not all that exciting and of course a lot can happen between now and then, but the point here is that 229 is actually implying a +4.5% *earnings growth* over [2022’s finish at 219](https://www.yardeni.com/pub/peacockfeval.pdf). You can see also that in [Ed Yardeni’s projections](https://www.yardeni.com/pub/yriearningsforecast.pdf) (see page 1, 4.3%) AND on the most recent [Factset Earnings Insight](https://www.factset.com/earningsinsight) (page 14, +4.8%). So, at this point – before any earnings have come out – general consensus is for *earnings growth* this year. Yet at the same time the numbers are also projecting a slightly down market. BUT there has been A LOT of talk lately about earnings coming down and companies looking ahead to a slowing economy so that’s definitely not out of the realm to think about a scenario where companies could start projecting lower earnings. Case in point [Macy’s recent guide lower](https://www.cnbc.com/2023/01/06/macys-cuts-holiday-quarter-forecast-citing-squeeze-on-shoppers-wallets.html). So that would in turn make analysists adjust their projections down going forward. Which could bring markets down even more. Not to paint a gloomy picture here but it’s certainly not out of the question as we sit here in January 2023. Now the flipside to that is what if we get negative earnings on the year but with the market being a *forward-looking entity* it actually sees beyond that and goes UP? That is another very real scenario that could play out here because if you think about rates steadying this year and the economy getting back to its normal self-sustaining level where imbalances in supply chain resolve themselves, that’s a very real scenario as well. AND there is history to support that thesis too. For example, [if you look at this Stern NYU data](https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm) going all the way back to 1960 and do the math, you’ll see there have been 13 times earnings went down (negative growth y/y). Of those 13 years, 9 turned positive that same year in the market. That’s a pretty good stat right there. But if you look at the other 4 years, the market pretty much went down because of *non-market event driven dynamics* (the Gulf War in 1990, the tech bubble in 2001, housing crisis in 2008, European debt crisis in 2015). So technically, those remaining 4 years *could have also turned positive* had it not been for the event factor. That would have made it 13/13 on negative earnings but a positive growth market. The point? Well even though we may have a negative earnings year doesn’t necessarily mean we will have a down year in the markets too. But the key as investors is to *tactically plan* around all of this both in the short and the long term. And to invest in sectors and asset classes that make sense in the environments we face. This is exactly what we do in the GVA Asset Management program and why as of this moment the asset allocation in the GVA models remains defensively positioned and focused on quality. Until we can see a little more clarity as far as which way the economy is heading. Just like approaching a bend on the road and slowing down to see what’s ahead, we are doing the same thing in the models. But we are also keeping an eye on what opposing traffic is doing to give us potential signs for what’s ahead in our lane. So that’s where we stand at the moment and we will continue to navigate this investment landscape best we can on that premise. Have a great weekend and let’s see what turns the markets bring us next week. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/jan6table-1024x165.png "- Clear Wealth Planning Solutions")\*All data sourced from [Yahoo Finance](https://finance.yahoo.com/) as of the close on the date indicated. [SPDR Sector Tracker](https://www.sectorspdr.com/sectorspdr/tools/sector-tracker) Disclosures - The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. - There is no assurance that any products or strategies discussed are suitable for all investors or will yield positive outcomes. Any economic forecasts set forth in this note may not develop as predicted. - All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. - Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial. Compliance Tracking#: 1-05357371 **Categories:** Insights --- ### [Economic & Market Report: We Are Where We Are BUT….](https://clear-wealth.com/we-are-where-we-are-but/) **Published:** January 6, 2023 **Author:** Clear Wealth Planning **Content:** As we begin the new year, it’s only fitting to take a step back and reflect on what was and what is to be. Well, we all know how 2022 played out and it was quite frankly an unprecedented year in both the equity and bond markets as both trended down pretty hard all year. [Equity losses were the highest since 2008](https://www.cnbc.com/2022/12/29/stock-market-futures-open-to-close-news.html), with the S&P 500 finishing down 19%. Meanwhile, the [Barclays Agg posted the worst year on record](https://www.marketwatch.com/story/u-s-bonds-wrap-up-worst-year-on-record-heres-what-may-be-in-store-for-2023-11671034242) since it began over 45 years ago in 1976, down 13%. Quite simply, there was [no place to hide](https://www.pimco.com/handlers/displaydocument.ashx?wd=Application%20Form&fn=Monthly%20Benchmark%20Report.pdf&id=Vr3%2BHcuVnbasFeQaqc4aiYaux9hqLVLF0VezPvNHmSsbWOEyx2OeI1twL7%2BxBpQgPOEWWRkieNP0ErwtzTFu996iIO2JehxA%2Fac7P%2Fe1HvtmMNnoLzq6J0%2FWxBALWfLm30CVxKPywqorTbN9s7vxbvyOjXZl11Q5W4h%2FQPa8eKryAmeSWoBcwC0ie5YrU4zWcWP3hQ12JOsjZWim5AdqqSzzBTLEsSeZf1%2FLyLJVgW3HnL6e2M5iDod%2FkIuJdDLzI3XU4dwnjKf0eHEBQFE8kLX84HLZ2PvhoyEWK2Ff3FnRZe08Cidhg%2FASzxubGNEQ). And all of this happened during [the fastest pace of rate tightening in recent history](https://www.visualcapitalist.com/comparing-the-speed-of-u-s-interest-rate-hikes/). So I would say it’s pretty fair to say “we are where we are” at the moment. So what should we expect at this point? We should expect a transitional period right now with some bumpy periods to stat the year out here. Mostly driven by a slowing economy and a natural progression to an earnings decline. At least in the first quarter and perhaps into mid-year. Obviously driven by the high-rate environment we are experiencing right now. And of course, driven a lot by what the Fed does with rates. The good news, though, is we are closer to rates steadying at least during the year than continuing to go up. But if we take a step back here and simply look at the end-all metric of market valuation in the P/E ratio and think of fair value as typically 16-17 P/E and also consider the forward 12 months earnings is currently being estimated between 225 and 230, then that implies a pretty flat to down market in 2023 ranging from -5% to +5%. A lot can change between now and then, but this is what the numbers are telling us at this point. This is simply pointing to another challenging period as we start the year here. Especially with a potential recession looming. Which many popular indicators are pointing to as well ([leading economic indicators](https://www.conference-board.org/topics/us-leading-indicators), [3 month/ 10 yr treasury spread](https://ycharts.com/indicators/10_year_3_month_treasury_spread#:~:text=10%20Year%2D3%20Month%20Treasury%20Yield%20Spread%20is%20at%20%2D0.86,long%20term%20average%20of%201.19%25.), [PMI](https://www.prnewswire.com/news-releases/manufacturing-pmi-at-48-4-december-2022-manufacturing-ism-report-on-business-301712602.html), even the [index of consumer sentiment](http://www.sca.isr.umich.edu/files/chicsh.pdf) at its lowest level since the late 70s, etc). However, the PMI report had several statements on improvements in the supply-chain issues that have plagued the manufacturing sector over the past few years so perhaps there is some silver lining there. And then what do we do about it? Well, we should expect defensive sectors to continue to hold up relatively better than the broader market. Which is how we’ve been positioned for a while as we’ve stayed defensive and focused on quality all year. I think it’s also important to point out a famous Benjamin Graham quote that says: *“The essence of investment management is the management of risks, not the management of returns.”* This simply captures the essence of the moment right now, i.e. “We Are Where We Are”. So, with that, we really tried to focus on the risk profile of the models this year and made sure correlations were as low as possible across all asset classes. And in our latest year-end rebalance we improved on that by doing four sets of trades to help improve the risk aspect on the models: 1) we trimmed energy exposure for healthcare, 2) sold out of high yield for intermediate term treasuries, 3) swapped out of hedged equity exposure for dividends and quality fixed income, and 4) sold out of metals and mining in exchange for quality core bond. For example, in the GVA Balanced model, the beta against the S&P 500 went from 0.69 to 0.54. That’s the idea and these trades fully encompass what we have been doing all year. And certainly indicate we are staying in that “risk off” mode right now. Looking further out to 2024 and possibly as early as the second half of 2023, we might begin to see cyclical sectors rebound as the market starts looking forward to an economic recovery. With that in mind, we would begin to favor asset classes and sectors that favor a lower inflationary environment (we hope and pray!) like consumer discretionary and industrials. We should also expect interest rates to peak at some point in 2023 and that will certainly lead to relief in the markets. Speaking of relief, this market is pretty much setting up for a classic bear market recovery but it’s important to stay on the right side of the risk on/risk off trade right now. Which we are pretty much risk off right now. But there will be a time to shift back. The new year brings us full circle to a new beginning. But it also reminds us to reflect on where we were. In a way, if you look back to Covid, we were technically in a liquidity fed bull market that is now reversing itself in a true classic pattern to a bear market as all that liquidity fed inflation drains itself out. But it’s a symmetry that might reverse itself in 2023. Or at least begin the makings of it. From our perspective at GVA Asset Management, we will continue to remain steadfast in the objectives we have set out for ourselves to navigate that possible scenario. By engaging each another in a spirited, collaborative way to make meaningful decisions in the models. “We are where we are” BUT – more importantly – “we were where we were”. And that’s the beauty of looking ahead to better days. Here’s to recovery and reversal! Thanks for reading and have a great weekend. ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/02/table.png "- Clear Wealth Planning Solutions")[\*all data sourced from Yahoo Finance as of the close on the date indicated.](https://urldefense.com/v3/__https:/finance.yahoo.com/__;!!Cz2fjcuE!mLn5PE2cE2PY74Plg__zk1yk960AMAFgEhPrkHi6_IJ2f3PAB4T00Vf3lVwpN-YTJ2cf6Wbztuh0vPaSjtCy$) [SPDR Sector Tracker](https://urldefense.com/v3/__https:/www.sectorspdr.com/sectorspdr/tools/sector-tracker__;!!Cz2fjcuE!mLn5PE2cE2PY74Plg__zk1yk960AMAFgEhPrkHi6_IJ2f3PAB4T00Vf3lVwpN-YTJ2cf6Wbztuh0vMjkTCH9$) *Disclosures* - The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. - There is no assurance that any products or strategies discussed are suitable for all investors or will yield positive outcomes. Any economic forecasts set forth in this note may not develop as predicted. - All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. - Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial. Compliance Tracking #: 1-05355076 **Categories:** Insights --- ### [Economic & Market Report: Out with the Old, In with the New](https://clear-wealth.com/rebalance-update-out-with-the-old-in-with-the-new/) **Published:** December 30, 2022 **Author:** Clear Wealth Planning **Content:** Happy New Year! This week, we’ve had a bit of an up and down week in the markets as it has been trying to eke out a Santa Claus rally. One developing story that may shake things up is the news out of [China about another Covid outbreak](https://www.cnbc.com/2022/12/27/chinese-provinces-hit-hard-by-covid-are-seeing-a-strain-on-critical-care-health-officials-say.html). This is certainly not what anyone wants to hear but it is looming out there and now the [US is requiring airline passengers from China to test negative](https://www.cnbc.com/2022/12/28/us-will-require-airline-passengers-traveling-from-china-to-test-negative-for-covid-.html) for Covid before entering the US. As the world turns… Anyway, this is a short week, and we have the new year upon us so in keeping with that, let’s keep this note short and focused on the work we were doing this week in the models for the 2022 year-end rebalance to a “new year” allocation. In preparation for the trades, the GVA Investment Committee met on Thursday last week and then last Friday we also met with a select group of GVA advisors where the goal in both sessions was to talk about the asset allocation in the models and brainstorm ideas. Between the two groups, four shifts in exposure were discussed: 1. Trim energy for healthcare. 2. Sell out of high yield for intermediate term treasuries. 3. Sell out of commodities for core bond. 4. Sell out of hedged equity for dividends in the aggressive models and higher quality bonds in the conservative models. Each of these shifts reflects the same sentiment we have been advocating all year which is to stay defensive and focus on quality. Speaking of sentiment, the recent [AAII sentiment survey released December 22](https://www.aaii.com/latest/article/29461-aaii-sentiment-survey-bearish-sentiment-jumps-to-nine-week-high) shows bearish sentiment at a 9-week high. No surprise there given the way the market has been trading all year. And what could potentially be on the horizon for us in 2023. To name a few, a continued hawkish Fed, lingering inflation, supply chain challenges and the war. And now a potential Covid outbreak in China. Another unsettling stat from last week was [put volume on single stocks and ETFs hit 2.1 million, the most on record](https://www.morningstar.com/news/marketwatch/20221223273/what-another-record-in-options-trading-volume-says-about-the-stock-market). This type of options trading has driven the put/call ratio to notable record highs this year and is just another sign of what we are faced with as investors at this time. But navigating around this environment has always led us back to the same defensive and quality theme which has been our mantra all year. Hopefully 2023 will bring more balance and stability to the markets. But in the meantime, let’s ring in the new year and here’s to our health and happiness! Happy 2023! ![](https://greatvalleyadvisors.com/wp-content/uploads/2023/01/Market-Table-as-of-12.28.22_Rebalancing.png "- Clear Wealth Planning Solutions") \*All data sourced from [Yahoo Finance](https://finance.yahoo.com/) as of the close on the date indicated. [SPDR Sector Tracker](https://www.sectorspdr.com/sectorspdr/tools/sector-tracker) Disclosures - The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. - There is no assurance that any products or strategies discussed are suitable for all investors or will yield positive outcomes. Any economic forecasts set forth in this note may not develop as predicted. - All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. - Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial. Tracking 1-05353569 **Categories:** Insights --- ## Pages ### [Home](https://clear-wealth.com/) **Published:** March 24, 2023 **Author:** Clear Wealth Planning **Content:** ## “An investment in knowledge pays the best interest” – Benjamin Franklin ## Welcome to Clear Wealth Planning Solutions When you work with us, you’re part of the family. Our team of professionals have years of experience in financial services, and can help you address your needs today and for years to come. ![Image](https://clear-wealth.com/wp-content/uploads/Team-scaled.jpg) Our goal is to help you live your best life. We want to learn more about your situation, identify your goals and dreams, and understand your risk tolerance. Long-term relationships that encourage open and honest communication have been the cornerstone of our foundation of success. Our entire team works together, hand in hand, always acting in your best interest, with all your goals and dreams firmly in mind. Your goals are our goals. ## Our Team ## Aaron Dean Smaagaard, CFP, CLU, ChFC Founder and Wealth Management Advisor Bio [](https://www.linkedin.com/in/aaron-smaagaard-cfp%C2%AE-clu%C2%AE-chfc%C2%AE-2b725b6/) ## Katie L Ristvedt, ChFC Director of Operations and Investments Bio [](https://www.linkedin.com/in/katiecunnien/) ## Jared Deutsch Wealth Management Advisor Bio ## Denise M Barry, ChFC Director of Wealth Management Services Bio ## Ivette Tejeda Client Relationship Manager Bio ## Eric Parnell, CFA Chief Market Strategist Bio [](https://www.linkedin.com/in/eric-parnell-cfa-49ba40/) ## Nick Dalessandro Senior Associate, Asset Management Bio [](https://www.linkedin.com/in/nick-dalessandro-5543918a/) ## Evan Coffey Associate, Asset Management Bio []() ## Our Services Our advice is tailored to your needs and designed to align your financial resources with your personal goals. We will gain a deep understanding of what is important to you by reviewing all aspects of your financial household, not just your investment accounts. This means you’ll receive personalized and actionable advice through each phase of our relationship. ![Image](https://clear-wealth.com/wp-content/uploads/wealth-2.png) ## Investment Management Our investment strategy goes beyond security selection by considering tax efficiency, illiquid investments, asset preservation, debt analysis, and cash flow. ![Image](https://clear-wealth.com/wp-content/uploads/financial-plan-1.png) ## Financial Planning We see the big financial picture and take a comprehensive look at all your assets, utilizing data and cutting-edge technology to ensure you get a personalized financial strategy that helps you pursue all of your financial goals. ![Image](https://clear-wealth.com/wp-content/uploads/strategy-2.png) ## Retirement Planning Retirement is a major financial transition that involves high stakes and irrevocable decisions. A clear roadmap with defined milestones means you’ll be informed and ready when the next phase of life arrives. ![Image](https://clear-wealth.com/wp-content/uploads/tax-1.png) ## Risk Management Protecting you against all the ‘what ifs’ in life means considering what happens if the worst, or best, comes your way. A well-crafted plan highlights the possible but is flexible enough to mitigate the improbable. ![Image](https://clear-wealth.com/wp-content/uploads/plan-2.png) ## Insurance As a strategic partner, we take into account the full breadth of your financial circumstances, and this often includes disability income insurance, life insurance, and long-term care insurance. [](#prev)[](#next) ## Our Process ### Introductory Meeting This is the first part of establishing a fruitful partnership, so be prepared! Our goal is to mutually establish what each of our expectations are and establish whether an ongoing relationship is a good fit. In this phase we will identify your goals, priorities, preferences, as well as potential obstacles. ### Exploration Phase Based on our first meeting, we now take a deeper dive into your individual financial situation. During this session we begin to sketch a preliminary plan as we engage in a more comprehensive discussion about your personal and financial goals. This phase is essential to developing a customized, comprehensive plan. ### Detailed Planning In this phase we deliver an easy to follow roadmap that will lead you towards your financial goals. We will specifically address the areas that are of greatest importance to you, ensuring that your customized plan is tailored to address those needs. We also spend time explaining and educating you on the plan so you feel confident. ### Ongoing Aid & Advice As your life circumstances facilitate a different approach to financial planning, wealth management, and savings options, we will be a constant presence to ensure that your plan transitions along with you. Your priorities and goals will inevitably shift through time which is why we are here to proactively update and evolve your financial plan. All investing involves risk including loss of principal. No strategy assures success or protects against loss. ## Insights [July 16, 2026 ![Featured image for “Back to Earth”](https://clear-wealth.com/wp-content/uploads/backtoearth.jpg)## Back to Earth](https://clear-wealth.com/back-to-earth/)## Latest [](https://clear-wealth.com/back-to-earth/) See All [](https://clear-wealth.com/the-memory-squeeze/) July 8, 2026### The Memory Squeeze [](https://clear-wealth.com/market-momentum/) June 26, 2026### Market Momentum [](https://clear-wealth.com/the-bounce/) June 12, 2026### The Bounce [](https://clear-wealth.com/avoiding-the-fate-of-the-dinosaurs/) June 4, 2026### Avoiding the Fate of the Dinosaurs [](https://clear-wealth.com/the-power/) May 28, 2026### The Power [](https://clear-wealth.com/private-market-noise/) May 22, 2026### Private Market Noise --- ### [Design the Roadmap](https://clear-wealth.com/design-the-roadmap/) **Published:** May 5, 2026 **Author:** Clear Wealth Planning **Content:** Aligning Wealth · Health · Purpose # Design the Roadmap to Make Work *Optional.* Align your wealth, income strategy, and health coverage with what matters most — **in one coordinated plan.** [Book Your Strategy Session](https://calendly.com/YOUR-LINK) Complimentary · No obligation · Minnesota-based Scroll to explore The Real Problem ## Why Work Doesn’t Feel *Optional* Yet. For most people at this stage, the numbers are closer than they think. But close isn’t confidence. And confidence requires coordination. Income Without a Paycheck+ Replacing a reliable paycheck with portfolio income is psychologically and structurally different. How do you draw consistently without depleting assets — and do it in a sequence that minimizes taxes? Health Coverage Before 65+ The gap between leaving your employer plan and Medicare eligibility can cost tens of thousands annually — and the wrong coverage choice can create tax complications you didn’t anticipate. The Tax Timing Problem+ Which account do you draw from first? Roth? Traditional? Brokerage? The wrong sequence doesn’t just cost you now — it compresses flexibility for the next decade. Social Security & Medicare Timing+ File at 62, 67, or 70? Every year earlier or later is a permanent number. These decisions compound — getting them right requires a coordinated strategy, not a calculator. No One Has Coordinated the Full Picture+ Your financial advisor doesn’t know your health situation. Your insurance agent doesn’t know your portfolio. Nobody is connecting wealth, income, taxes, and health coverage into one coherent plan. The Wealth & Health Roadmap™ ## Five steps to *genuine freedom.* Your plan should start with your life. Here’s how we build the roadmap together. 01 ### Discover What Matters Most Before we look at a single number, we start with you. What are your most important values? What does work being optional actually mean for how you want to live? This isn’t a soft exercise. It’s the foundation the entire plan is built on. 02 ### Gather the Full Picture We collect everything — savings, income sources, benefits, health needs, tax situation, timeline, and coverage. Both sides of the equation. Most advisors only see the financial half. We need to see it all. 03 ### Model the Roadmap This is where clarity comes from. We run your numbers across real scenarios — different timelines, withdrawal sequences, Social Security strategies, health coverage costs at different income levels. We answer the question you’ve been asking: what does it actually take for work to become optional? 04 ### Implement the Coordinated Plan Strategy without execution is just conversation. We put the plan into motion — investment strategy, account structure, withdrawal sequencing, health coverage decisions — all implemented together so nothing works against something else. 05 ### Ongoing Partnership as Life Evolves Markets shift. Tax laws change. Health needs change. Your goals evolve. As each stage arrives — Medicare eligibility, Social Security filing, changing tax landscapes — we adjust together. The roadmap is a living document, not a one-time deliverable. Built for You If… ## You’ve done the *hard work.* - ◆ You’re in your 50s or 60s with meaningful savings — but haven’t answered “when is enough?” with real confidence. - ◆ Work could be optional sooner than you think — but health coverage, taxes, or income uncertainty hold you back. - ◆ You’ve worked with advisors before. But no one has connected the full picture — wealth, income, and health — into one coherent plan. - ◆ You want a plan built around your life. Not just your account balance. J Jared · Woodbury, MN About Jared ## Most advisors give you a number. I build you a *roadmap.* Series 7 & 66 Independent via LPL Financial Life, Health & Medicare Broker AHIP Certified 15+ Years Experience Woodbury, Minnesota Over 15 years in this industry, I kept seeing the same gap. Portfolios on one side. Insurance on the other. And no one connecting the two into a plan that answers the real question: **Am I actually free yet?** So I built a practice around integration. I hold Series 7 and 66 registrations through LPL Financial, alongside life, health, and Medicare broker licenses. As a fully independent advisor, I design investment and income strategies around your situation — not a product shelf. But credentials aren’t the differentiator. **The differentiator is that I see both sides of your financial life simultaneously** — wealth and health — and I build a plan that honors both. I work one-on-one with clients in Minnesota who are ready to stop wondering — and start knowing. [Schedule a Complimentary Session](https://calendly.com/YOUR-LINK) Take the First Step ## Let’s see what *optional* looks like for you. A complimentary strategy session. A clear-eyed look at where you are, where you want to be, and what it actually takes to bridge that gap. 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