Fall 2023 | 4th Quarter
This past month, interest rates rallied with renewed energy, which took its toll on stocks, bonds, and real estate. Over the last 12 months, Federal Reserve Chairman Jerome Powell has been clear that he intends to keep rates “higher for longer,” but only in September did the markets wake up to “maybe he’s serious!” Real estate (public REITs in particular) and bonds look like they’ll post a third consecutive year of negative returns, which hasn’t happened in a very long time.
Since the highs in July, stocks have declined roughly 7%, which was not unexpected, largely because shares were overbought. The two biggest issues for equities going forward are earnings and interest rates. Higher yields and weak earnings are legitimate risks. Many of the corporate clients that we speak with are concerned about the outlook for their businesses as we move into next year. The current forecast for 2024 S&P earnings growth is +12%. That may be too optimistic, in which case stocks could struggle to resume gains in the near-term.
However, there is a silver lining to interest rate hikes: attractive yields on safe money. Guaranteed returns above 5% offer compelling risk/return characteristics versus public equities, and have also improved prospective returns for balanced portfolios. Pairing T-bills, for example, with alternative investments such as private credit, real estate private equity, and litigation finance, has been an excellent way to reduce risk and increase returns in portfolios.
As we’ve emphasized in the past, market dislocations provide opportunities, and, as always, we will adjust allocations in your portfolio to take advantage of shifting market dynamics to align your long-term goals.
The past several months have been quite busy at EMBREE FINANCIAL Group. Four new hires, and Jennifer Clifford’s return from maternity, are welcomed developments as we endeavor to expand our client service offerings and maintain the firm’s growth trajectory.
Thank you, as always, for your continued trust in us. Courtney Poffenberger will be reaching out to schedule our regular reviews, but feel free to call us anytime if you have any questions.
President & CEO