by Franklin J. Parker, CFA
- Hold on to your lunch, this is a big week for markets. First, on the data front: we get unemployment data on Friday (3.6% expected), job openings on Wednesday, and factory orders. We also see earnings results for some big names, such as Caterpillar, McDonalds, Meta, and Apple. The big event, however, is the Fed’s meeting this week, and Wednesday’s announcement of their target rate. Markets expect a 0.25% rate hike this week, but commentary and any change to their balance sheet management will easily push prices around.
- Last week gave us some important data, too. Global PMIs indicate a contraction in general economic activity. US GDP was a bright spot, posting a bit higher than expected at +2.9%. That said, with about 30% of the S&P 500 companies having reported, corporate earnings have not been good. As it stands, it is expected the largest US companies will report a 5% contraction in earnings, compared to a year ago. This is the first time since 2020 that companies have reported less profit than a year ago.
- Overall, I have grown very cautious. The market may well be mispricing the Fed’s aggressiveness, and corporate earnings combined with deteriorating economic data seem to indicate that a recession is brewing. In short, caution is warranted right now, and building some defensiveness into portfolios is a reasonable strategy. If you have not talked through how to prepare your portfolio for a recession, let’s open that conversation together.
Let’s talk “can” versus “to” in retirement.
As an advisor, I see my role as one of counseling and execution, but not judgement. Here is what I mean: if my client wants to retire to a treehouse in the mountains of Idaho, my job is to help her retire to a treehouse in the mountains of Idaho, not to judge whether or not that is a worthy goal.
I am, however, going to break with my usual ecumenicism and offer some of my experience as a thoughtful observer.
There are, in my experience, two views of retirement. The first is the classic image: I cease working one day, have a party, get a watch, and retire.
There is a problem with this view: it sees retirement as a destination, not as a path. Most couples will spend about 30 years in retirement — that is a long time to spend at a destination! Which brings us to the second view.
Retirement is a journey, with a lifecycle all its own, and it requires vision, creativity, planning, and acceptance.
I have found that people do much, much better when they retire to something. Something meaningful, something that gets you up on Monday morning, something exciting. That something is different for everybody, of course, but without that retirement can be a long slog, believe it or not!
This is, of course, only a casual observation. Even so, if you find yourself nearing retirement, I would encourage you to think about what it is you would like to retire to, rather than thinking about retirement as only a can.
Chart of the Week
This week’s chart looks at the progression of earnings by sector through time. Once the market leader, Technology has dropped considerably — suffering from both a contraction in earnings, and a contraction in the multiple investors are willing to pay for those earnings (a contraction in the price-to-earnings ratio).
Only a select few sectors have pulled ahead, including Energy, Industrials, Utilities, and Consumer Staples. I will note that these are all defensive sectors, and their leadership in the market is a recessionary signal.
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