On the heels of a difficult 2022, equity performance has been strong around the world year to date, with few exceptions.
Source: YCharts as of 5/31/23
Despite inflationary challenges, a strong employment picture appears to be aiding ongoing consumer resiliency.
Inflation has slowed from the June 2022 high of 9.1% to 4.9% in April 2023 which can be partly attributed to the Fed aggressively hiking interest rates over the last 18 months.
While the CPI component of rent remains elevated, leading indicators in real time such as the Zillow Rent Index show a cooling off may lie ahead.
Housing inventory remains low, potentially providing support for elevated prices even in the face of higher mortgage rates.
Decade highs in mortgage rates are making it more costly for homeowners to finance purchases.
The S&P 500 is up 10% in 2023 with the strong performance driven by an exceptionally small number of mega-cap companies. This rally, following a difficult year in 2022, may not be as robust as indicated by the returns of the S&P 500 market cap weighted returns. An equal-weighting of all other S&P 500 companies, not shown in the chart below, is negative for the year.
The employment picture remains strong, while inflation remains elevated, allowing the Fed to remain in restrictive territory in the near term.
The amount of total federal debt is approaching $31.7 trillion, approximately 37% higher than pre-COVID levels.
Concerns about the debt limit are, in part, borne out of persistently large annual deficits. Should current spending go unchecked, federal debt could continue to surge.
Debt as a percentage of GDP is particularly useful as it measures the efficiency of debt and can be used as a comparison of debt levels over time. Looking back to the great depression, the current relative level of debt has been matched one other time, during the 1940s.
As always, there are many factors for market participants to navigate. After nearly two years of generally lower global markets, at least a portion of the “bad” and the “ugly” appear to be well known. Inflation, for example, is talked about actively, even by the mainstream media. Our team remains focused on long-term investing and finding opportunities both in public and private markets. As suggested by the earlier Warren Buffett quote from the recent annual meeting of Berkshire Hathaway: “It doesn’t always work out…. But, overall, it works out very well over time.” Our philosophy remains to focus on the "over time" concept even as short-term conditions remain uncertain.
Please reach out to your BDO advisor with any additional questions.
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