Welcome to another episode of “Ethel’s Diamond Post.” Thank you for the beautiful cards, telephone calls, and text messages regarding my recent knee replacement surgery. Most importantly, I appreciate your patience and understanding as I continue my journey to complete recovery by participating in a rigorous therapy schedule to ensure my new knee is ready to hit the road. As many of you know, I encourage clients to enjoy the summer months by taking vacations, spending time with family, or participating in self-care regimes. During the pandemic, I learned that “running and gunning” affects our mental, physical, and emotional well-being, so please get plenty of rest, sleep, and less stress.
Do you believe the stock market is contingent on the underlying health of the economy? The answer is no. Though they often move similarly, the stock market and the economy aren’t the same. The stock market is a forward-looking indicator that reflects investor expectations for the next year rather than the current economic environment. This means stocks can rise even if the economy is sluggish. The market can be complicated, or is it? Once bound to the Fed’s effort to ease economic growth and inflation, markets are now focusing on the health of corporate balance sheets and the potential for a surge in capital outlays as companies retool for the Artificial Intelligence (A.I.) boom.
The Federal Reserve held interest rates steady at its June meeting after raising rates aggressively throughout 2022 and into 2023 to tame inflation that reached record levels. The goal of the Fed is to slow the economy to cool inflation but to avoid, at all costs – a recession. The Fed left its benchmark at 5.1 percent, its highest level in 16 years. Inflation has been slowly cooling, but the Fed has signaled it may raise rates twice this year as it continues to push inflation down to its stated goal of 2 percent. Many economists have warned that the United States could collapse into a recession before 2023 ends, but resilient consumer spending and a strong job market have bolstered the economy.
High-interest rates have slowed other parts of the economy, particularly the manufacturing and housing sectors, and helped cause three high-profile failures in the U.S. banking system. The banking industry remains under pressure, even after the federal government acted quickly to provide support. At VZD Capital Management, LLC, we are forward-thinking in analyzing the current economic possibilities related to our customized portfolios. Like roofing professionals, the time to fix a roof is when the sun shines. The current market conditions allow the sun to shine equally on equities and fixed-income instruments. Plus, bonds are strong contenders against dividend-paying stocks due to their strong yields. Safehaven government bonds and investment-grade corporate debt provides a low-risk way to earn interest. Such risk-free rates at 4 percent are a welcomed change from three years ago when the 10-year yield was moving around 0.4 percent.
We are optimistic that both consumers and companies remain financially resilient. Some sectors have cracked under the pressure of rising borrowing costs. Others are still robust. VZD is closely watching and participating in the rapid advancement of artificial intelligence technology. The artificial intelligence revolution is here. On November 30th, 2022, OpenAL launched a conversation. ChatGPT can create art, music, sales letter, and legal documents. It can code better and faster than most humans. ChatGPT was built using various highly complex machine-learning models trained on millions of text-based data points to emulate human conversation. It can do just about anything you want. The transformative power of A.I. is evident in various sectors, such as software engineering and economics. The A.I. advancements will create new jobs and drive corporate profits, which, in turn, will elevate stock prices. Many experts predict that the A.I. economy will be worth an estimated $15 trillion to $150 trillion by 2030. Many companies are worth buying due to the opportunities available by A.I., which should help investors stop worrying about a potential recession.
At VZD, we customize each portfolio based on the client’s objectives, age, risk tolerance, and standard of living. Like DNA, no two clients are alike so. Therefore each portfolio is carefully crafted and rebalanced to meet the changing needs of the client and the market conditions. We continue to treat the market like a haunted house. We must tread lightly, understanding that an unknown and unexpected scare could be approaching. At any moment, something could potentially jump out and cause unnecessary anxiety. Preparing for the highs and lows is just part of the course; that is why you have a wealth manager. We welcome your telephone calls or emails if we can answer any questions or concerns.
Ethel continues to balance her rigorous strength training for another two weeks. She will begin scheduling in-person and telephone portfolio reviews after July 1st to review your financial health and Estate Planning considerations. For compliance purposes, we ask all clients to provide a copy of their Power of Attorney(s) and the front and back page of their Trust documentation. One of our priorities is to ensure our client’s assets are protected from probate and that every estate component is registered accordingly to your wishes. If you need assistance getting your Estate in order or need insight regarding succession planning, we can help you implement and execute your customized roadmap to protect your valuable assets.
Please help us to welcome Paisley Berry as the Executive Assistant for the firm. Paisley is responsible for administrative duties, assisting with the day-to-day operations, answering the overflow of telephone calls, and passing on any messages to Ethel and Nikisha. We hope everyone enjoys the summer and lives their best without worrying about their investments. As always, we thank you for the trust and confidence that you have placed in us. Every client is an extended family member, and we appreciate and value your relationship with our firm.
With Gratitude,
Ethel, Nikisha, and Paisley