Jason Jacobi, CFP® (00:00.602)
Welcome everyone. Merry Christmas. Happy New Year. Jason Jacobi and El Presidente Mark Boyer here with a special edition of The Closing Bell. It is Outlook 2024 at Turning Point. Mark, how are you doing today?
Mark Boyer – El Presidente (00:19.53)
I’m doing fantastic excited. Um, you know, again, this time of year, it’s always amazing. Right. Last night. I didn’t, you know, took some of the grandkids. We went down to Balboa to look at lights. It was amazing and it was great. The lights were phenomenal. The problem was it started pouring on us and, uh, we had actually drenched. Uh, so, uh, it with, uh, we know we’re running and we’re seeing lights. It was amazing. And then, and then man, it started raining.
Jason Jacobi, CFP® (00:40.842)
Hahaha
Mark Boyer – El Presidente (00:48.238)
pulled out the umbrellas. It worked for a while, but it definitely didn’t keep us completely dry. So, fun time, great time of year, love it. Just time with family and friends and everything. It’s amazing. So yeah, it’s good stuff, right?
Jason Jacobi, CFP® (01:04.11)
Exactly. And hopefully that heavy downpour torrential rain was not foreshadowing to what 2024 will be for the markets and the economy. But that’s something that we will get into here in a moment. But first thing we did want to address, right, Mark, is there was an article posted about two days ago on Fox Business and a couple other news outlets talking about one US economist saying that 2024 will be basically a worse recession than we’ve ever had.
worse than the Great Depression, stocks down 80 to 90%, home prices down 50%. So we’ve had obviously a few people reach out to us about it. But we, so we just wanted to briefly touch on that and then kind of get into our outlook. So we thought this was a good time.
Mark Boyer – El Presidente (01:48.37)
Yeah, no, it was something that came up and we hear people come out and say things like this periodically. It’s not unusual. And who knows? I mean, yeah, we’ve had a lot of stimulus in the economy since 2008. We’ve been watching that for a long time. Anything’s possible. That’s what I think that what’s key is to look at the numbers. What we’re going to do today talking about, we do believe that we’ll probably…
You know, maybe it’s a slight recession. Maybe it’s more. I think it’s, it’s key to, to be actively managing and watching things as it goes. We don’t, we don’t know what’s going to happen, you know, this year or anytime. We just, we’re making observations and making decisions based on what we think is going to happen with the ability though, to move if we have to. As the, as the, uh, you know, as things look, look uglier, but, you know, uh, it’s not unusual for people to make really extreme, um,
you know, things that might happen. Hey, this is going to, you know, the whole world’s going to fall apart. It’s not, it’s not unusual. We’ve had that before. You know, and if you see it long enough and, you know, if you go long enough, maybe that’ll be true. But, you know, in this case, we’re just, you know, we’re, we’re taking it day by day, kind of give it a night, you know, looking at the overall picture and giving an idea, you know, what we think is going to happen. I think the key is, is always to stay diversified and actively managed so you can, you can move when you have to, but not thinking that the world’s falling apart.
Just yet, things look like they’re gonna be slowing down, but we’re not looking for a major catastrophe at the moment.
Jason Jacobi, CFP® (03:24.462)
a good point that you brought up, Mark. I think if you’re talking about just, we don’t know what’s going to happen tomorrow. So this outlook, when 2024 hits, we could be completely wrong. And that’s okay. Again, because we’re just going off of the data that we’re seeing, the trends that we’re seeing. And again, that’s the fun part about our job. You get a lot of people saying, I don’t, financial advising, wealth management, financial planning, that all seems so boring.
It’s just numbers and it’s like, no, it’s way more than that. The world’s constantly changing and moving. That’s exciting place to be. And you’re investing in the world’s greatest companies and you’re helping people achieve their financial goals and putting puzzle pieces together in their financial plans. So that all is really exciting. I know you feel the same way I do, but, but let’s get into the 2024 outlook here. We’ll break it down into different sections.
And we’ll talk about some interesting points. We’ll go from economy to stocks to bonds, alternative investments, geopolitical risks and concerns and give our closing remarks. Sound good?
Mark Boyer – El Presidente (04:26.018)
That sounds great. Let’s jump on it. I think it’s key to have, like you said, you know, that’s what I love about this. Like you mentioned, love being a financial advisor because you’re always, the game’s always changing. And you’re always able to, you know, to be like that coach who’s, you know, making adjustments as we go. So that’s, that’s what we’re, that’s what we enjoy about this profession. I love it. Um, just reminds me of, you know, playing that being in the game, so important to be in the game and then to adjust as you go. But, uh, to keep your fundamentals intact, I think is really important. So,
Something I always just want to remind people, even with projections of big, whether it’s up or down or other people are coming out, just remember, keep calm. And we can just keep moving forward and make an adjustments as we need to. So let’s look at it, like you said, let’s look at the future here, what we think is gonna happen. Looking forward to doing this.
Jason Jacobi, CFP® (05:18.23)
Absolutely. So economy, we talked about this quite a bit on our closing bell. You know, we do expect the economy to slow down. It has been slowing down. So recession or not, whether you believe it’s happened, rolling recession, we’ve talked about that, which is kind of our preferred thoughts on it. But whether you believe a recession is likely to emerge in 2024 as consumers under increasing debt burdens, again, we’ve talked about that.
Mark Boyer – El Presidente (05:23.938)
Thank you.
Jason Jacobi, CFP® (05:45.322)
They’ve depleted their excess savings and are no longer able to keep up with their debt payments. We saw increase in basically delinquencies in credit cards and auto loans. And so that’s another trend that we’re watching, but we do expect the spending splurge to end with consumers reverting to trend. So in 2024, the consumer will no longer be willing to spend as they did in 2023.
Mark Boyer – El Presidente (06:02.976)
Yes.
Jason Jacobi, CFP® (06:13.25)
It’s quite interesting. So this chart, again, if you’re listening on Apple podcasts or one of the other podcast providers, we’ll kind of give you eyes to your ears here. So again, on our screen and on YouTube or our website, if you’re watching here, this is just a chart showing consumer price index, again, inflation overall, which is that solid blue line. Then we look at durable goods, which is actually deflationary. If you listened two or three weeks ago to Mark and I talked about what deflation means,
and the lowering of overall prices year over year or disinflation, the slowing of price increases year over year. So we have durable goods that are in deflationary environment, which is not a terrible thing, especially after 2020, you saw durable goods prices go through the roof almost 20%. But on the services side, so you think like hospitality, restaurants, bars, things of that nature.
Jason Jacobi, CFP® (07:12.658)
disinflationary environment as of late as well. So overall, numbers are trending in the right direction. And we will see that consumer continue to slow down, especially after the holiday season. Everyone’s got the feel good factors, out dining, spending money, went out to a restaurant last night, it was packed. But they did say they started to see it slow down, which I thought was quite interesting, Mark. So any last thoughts?
Mark Boyer – El Presidente (07:35.246)
Yeah, we’ve been talking about. Yeah, and we’ve been talking about that, Jason, in regards to what, you know, I think most people are trying to get through this year. We, you know, with Covid a couple of years ago and now the last two years kind of, you know, slowly unwinding all those things. People have been taking trips. They’re going to restaurants. Services have been, you know, very popular. And and but, you know, as we’ve mentioned, like you said, in the last couple, you know, podcasts that we’ve done.
You know, it’s probably I’m thinking in 2024 early, early this year, you know, that, that people are going to really start raining in their spending. And that’s kind of what these graphs are talking about. And, and, you know, I think we all feel the crunch, uh, you know, and we’re seeing that we’re hearing, you know, how, uh, you know, regards to consumer sales and just how the Christmas season is going, it just feels like an early 2024, especially with all the interest rates and how they had moved up this last year. A lot of those things are going to.
you know, they’re kind of delayed and they kind of move into future months. So we see that happening early, uh, 2024. And that’s part of, you know, what we think is, you know, it’s going to be, it’s going to be tough for consumers. So, um, yeah, it’s going to be interesting to see how that plays out. Will it be mild or will it be, you know, just a big drop? That’s going to be the big question. It’s something that we need to keep an eye on.
Jason Jacobi, CFP® (08:53.454)
Great points. So why don’t you get into wage growth and what.
Mark Boyer – El Presidente (08:57.846)
Yeah, so yeah, this next graph just kind of shows, you know, kind of what wages have done. We expect to see the Federal Reserve focus less on inflation this next year and more on the other part of the dual mandate, which is for the Fed has been stable growth. As already highlighted, inflation will still hover somewhere around 2% long, which is a long run target and remain a concern. But
the Fed will likely be less laser focused, we think, given that the trajectory is going in the right direction. So inflation has been going in the right direction. We still think, will we get to the 2%? Not really sure. It might be higher for longer. Again, we’ve talked about historically, three to 4% has been the kind of the historic inflation. I think this graph is interesting that for wage growth, actually,
the growth in wages has come more from switching jobs than staying in a current job. It just reminds me it’s like it’s almost like the grass is always greener somewhere else. You know, you got to, you’ve been working a job for all your, you know, your life and you’ve been, you know, doing extra work. And, you know, you just don’t seem to get that, you know, the respect or the wage increases that you’re expecting. But then somebody else in another company sees your whatever they’re willing to pay you. It’s, I don’t know, it just reminds me of jobs that I’ve had.
Jason Jacobi, CFP® (09:59.244)
Yeah.
Mark Boyer – El Presidente (10:18.558)
I hope you’re not looking to switch jobs, Jason, so you can get a higher pay somewhere else. But anyway, that’s, but it’s interesting to see that and how people are actually increasing their wages by switching jobs. So, I think we’ll talk about that here in a second in regards to part-time work. There’s just opportunities outside of the current job market. So that’s a good thing. So it’s actually, it makes competition, it’s important.
Jason Jacobi, CFP® (10:22.77)
Never. You’re stuck with me.
Jason Jacobi, CFP® (10:35.826)
Yep.
Jason Jacobi, CFP® (10:44.734)
Good point. Competition is always a good thing. Um, so obviously companies that are trying to lure you away from your current job has got to pay a little bit extra, a little bit more of a wage bump to, to pull you from that job. But maybe that’s also looking at, you know, let’s say I’m working at John Deere company or whatever, and I make my wage has gone up 4% the last year or two year over year, um,
Mark Boyer – El Presidente (10:52.247)
Yeah.
Jason Jacobi, CFP® (11:07.358)
Maybe that started to slow down because that company, John Deere, whoever it is, maybe they’ve had lower earnings or lower revenues or projected revenues. So they’re, again, going back to what we’ve talked about for the past year and a half since we priced in a recession sometime this year, which didn’t happen potentially, again, depending on how you look at it. But it’s just interesting to see that maybe companies saw that, again, kind of forecast of where the economy was going.
and decided to hold on to a little bit more cash, a little more free cash flow, a little bit more wait and see. So maybe that’s also a reason by the gap being so wide. It’s never been this wide before. So it’ll be interesting to see how that trend continues to move, but great points that you made there.
Mark Boyer – El Presidente (11:51.242)
Yeah. I think I would say also, you know, for workers, I think it’s always important, right? As you’re, as you’re building your career and developing in your profession that you keep, you keep advancing forward. Maybe you take a, you know, an extra class or something to learn more about, you know, the specific profession that you’re in. It’s just, you know, things like that. You can always work to improve your, um, you’re kind of your marketability and other
in your field to kind of grow again, the competition that you’re always growing in your field of expertise. I think it’s really important and for us sometimes we can get kind of lazy and just rest on our laurels, but I think it’s important to keep moving forward and trying to improve.
Jason Jacobi, CFP® (12:35.254)
I agree. So speaking of the job market, we’re talking about workers. So now let’s talk about, like you said, part-timers versus full-timers. The ratio of part-timers to full-timers is starting to rise. And some call that recent shift in favor of the average worker, the democratization of the workforce. Now, considering that workers have rarely had this much bargaining power, as the American worker has had a few years to adjust to the hybrid work model,
Mark Boyer – El Presidente (12:53.431)
Mmm.
Jason Jacobi, CFP® (13:04.69)
we should continue to see a fair amount of turnover. And some have seen the fastest way to hire pay is moving to a new job, which we saw in the last slide. But of course, the hybrid model can only operate in some sectors. So look at the hospitality potentially, maybe some areas of tech. Its impact does vary depending on the industry. So if you look at this chart again, for those that are listening and can’t see it, a percentage of part-time workers to full-time workers tends to increase in times of economic uncertainty or recession.
Right. And so Mark, why don’t you talk about a little bit about why that could be? What are some hypotheses in regards to the ratio potentially increasing?
Mark Boyer – El Presidente (13:43.382)
Well, I mean, I think in this case, I think it’s been tough with inflation, you know, the last 18 months to 24 months. I mean, it’s been tough and people are working paycheck to paycheck. So we’re seeing and hearing a lot of people that are working full-time jobs and then picking up something else on the side. I mean, you know, so part-time. I mean, you know.
over and over a different industry, especially in restaurants and different. I mean, I hear, we’ve got family close in that, and that business is sharing with people that are working out of it and they’re picking up part-time jobs at local restaurants and stuff. So I think it’s a job, it’s kind of a job focus, a scene like there’s opportunities out there and people are growing, but at the same time, it’s also, I think it shows that the economy has been tough.
And it’s not easy when inflation hits like it has and the prices of things, it’s, you know, eggs have gone up and everything’s more expensive that people are having to try to pick up part-time work. So I’m not surprised that this has happened. And I actually can see it even increasing going into 2024, perhaps, where we continue to see the, our time jobs increase. Right. I mean, I think that’s a, I think that’s a huge factor. And yeah. So.
That’s an, you know, we’ll see. Hopefully that’ll, you know, if inflation continues to come down and people get some relief in the prices, maybe that can drop as well.
Jason Jacobi, CFP® (15:10.646)
So why don’t you kind of go over this page here talking about GDP or GDP growth for not only us but the rest of the world and also kind of a forecast moving forward.
Mark Boyer – El Presidente (15:20.166)
Yeah. So I mean, you know, we’ve been talking about this again. We think that the domestic growth is likely going to be slowing down this next year. Not only here, but really around the world. We see United States, you know, domestically having GDP growth this next year of about 1%. CPI should land somewhere around 3%, 2.8% in this case. You know, it’s kind of what our projections are.
inflation should be moderating as growth slows as well. You also see Eurozone, some of the other parts of the world are really slow. Eurozone continues to have low growth, 0.6%. Emerging markets might be the highest, 3.9%, but that’s still pretty low compared to former years where emerging markets, especially like China, have been growing like crazy.
Jason Jacobi, CFP® (16:18.058)
We’re off.
Mark Boyer – El Presidente (16:18.326)
You know, globally, we’re looking at GDP growth of around 2.6%, you know, with a global CPI, somewhere around 4.4. So again, all lower, but, you know, we’d like to eventually see, you know, that growth, you know, grow globally. That’ll be, that’s helpful for everybody. And especially, you know, the US actually did domestically, I think we’re kind of holding that up and have been for a while. So if we slow down.
I think it definitely affects the global economy as well. So it’ll be interesting to see how this continues to play out.
Jason Jacobi, CFP® (16:54.026)
Good points there, Mark. So let’s talk about stocks. Let’s move on to stocks here. Let’s talk about following the cycles, okay? So as the next 12 months of the bull get underway, market history tells us solid gains may lie ahead. Now of the 12 such periods since 1950, Mark, weren’t you?
Mark Boyer – El Presidente (17:15.159)
Alright, easy pal. Alright, let’s slap you around a little bit.
Jason Jacobi, CFP® (17:16.03)
Just kidding, just kidding. But the S and P 500 has gained an average of 12.6% actually, which is pretty darn good and was positive every time, every step of the way there. Again, of this magnitude seems reasonable. Again, given the tailwinds that we’re experiencing, especially for the potential support that we’ve talked about, the Fed is potentially giving us those tailwinds as we enter 2024 with potentially three or more rate cuts.
So, and as inflation falls. So again, that’s something that I find quite interesting, Mark. So again, year two average is 12.6, obviously with our forecast, which we’ll talk about high single digits might be more reasonable. Again, it’s great, better to under promise and over deliver than over promise and under deliver, under deliver. But 12.6% on average dating back to the 1950s, pretty good.
Mark Boyer – El Presidente (18:11.958)
Yeah, that’s really good. And I’m not surprised. And again, I think this is going to be interesting to see in the first part of 2024. I mean, you know, especially the last, what, six weeks or so, we’ve really had a move in the markets. The NASDAQ, which, you know, the magnificent seven was really carrying everything for most of the year. Nothing else was really participating. The Dow was not participating in this. And, you know, it was just and really when you see the equal weighted
indexes of even the NASDAQ, it was really just the seven stocks that were really moving. In the last six weeks or so, we’ve really gotten a broadening base of equities that have moved forward. What happens is when you start hitting new highs and you start breaking these resistance levels on a chart, you just start to see people get the FOMO, fear of missing out and people that have been on the sidelines.
you know, all of a sudden want to go like, wow, you know, 2023 was amazing. I should have had more money in. And so you’ll see, you know, people start to power, you know, pile in to the markets, you know, and keep us going forward here. And so, you know, I wouldn’t be surprised to see the market continue to move forward, be healthy if it stayed kind of sideways for a little bit here in the new year and then maybe broke out. But, you know, I can see why. I guess my point is, is that historically speaking,
When you have a strong year one, it’s bringing people that have not participated off the sidelines and it feeds that next year. The next year moves forward because people are just getting out of it. Unfortunately, for some, they’ve lost a lot of opportunity not being in the first place. That’s why, again, I think it’s important to have a balanced portfolio from the get-go and stay invested when markets go down. But it’s at the same time.
You can see why it’s moving. So we’ll see how that plays out. But I can see why long-term that’s been, that’s kind of been the case.
Jason Jacobi, CFP® (20:18.486)
All right, so I need to talk about this slide here. Higher interest rates, stocks, and yields tend to move in opposite directions. So dive in, teach us something here, Mark.
Mark Boyer – El Presidente (20:25.742)
Thanks for watching!
Yeah, so with inflation still elevated, you know, high rates remain a threat to the economy and the stock market. Still, stocks and bond yields become increasingly negatively correlated. And in other words, moving in opposite directions. And they did so in 2023. Well, that wasn’t great news for the stock market necessarily. It does mean interest rates could present an opportunity, you know, as we believe that over the 10 year treasury yield could be less volatile in 2024.
So, you know, we’ve had a really volatile interest rate. I mean, we’ve showed on this podcast before the 10-year treasury yield and how it hit, you know, 5% again in late October and then now has, you know, dropped significantly. And there’s no…
It was no accident that the stock market has also moved upwards in that same period as rates have come down. But in this period of higher interest rates than we’ve had in a long time, you can’t get stocks at this point in this as stocks and yields tend to move in opposite directions right now. So that’s why we’re getting a nice, as we talk about bonds here a little bit, bonds look really attractive still.
even after this move in higher interest rates, or in lower interest rates, if they come down, excuse me. Bond prices have gone up as the rates have come down. So that could continue here into the new year.
Jason Jacobi, CFP® (22:02.518)
Good points, good points. So our 2024 S&P 500 earnings per share forecast, let’s get into that a little bit. Sorry if this is a little boring, but we’ll just put it out there in your microphones and your audio, your headsets, whatever you’re listening to us on. But our earnings per share forecast for the S&P 500 in 2024 is $235 per share. And that’s up from our prior estimate of $230 a share.
Now that new estimate represents only about 7% earnings growth from the current 2023 consensus, an estimate of $219. So beyond economic growth, how companies manage waning pricing power as inflation falls is really key to the earnings outlook, I think. And I think you would agree, Mark, something we’ve talked about. Reversals of 2023 earnings declines by the healthcare and natural resource sectors.
along with increased earnings growth in the technology sector. We saw Nvidia blow out earnings by $2 billion this last quarter will only help drive a turnaround in overall earnings. So we’ve been at an earnings recession period, right? We had like two quarters of earnings recession. We’re out of that now, we think, correct?
Mark Boyer – El Presidente (23:17.618)
Yeah, this is a positive earnings going forward, we think in 2024. You know, and so that looks to be positive, especially in the technology sector. I mean, it continues, like you said, you already mentioned in health care as well. So overall, we see earnings continuing to increase, you know, year over year. Again, we don’t know how long that’ll you know, especially how it plays off plays out in 2024 month to month, but over the course of the
Here we think we’ll have earnings increases for sure.
Jason Jacobi, CFP® (23:49.49)
8% specifically from 2023. So good points. But why don’t you talk about, we’ve mentioned this before and I want our listeners to really focus on this. So stock and bond risk premium adjustment. Where are we now on that scale, Mark? This is something I really want our listeners to pay attention to.
Mark Boyer – El Presidente (24:09.162)
Yeah, so, okay. So as stocks move up, there’s something called a P E ratio, which is price to earnings. And the P ratios have always been long-term kind of a measurement by which we can determine how expensive stocks are as a whole. So, you know, stock valuations currently are high by most standards. P ratio earnings right now and for the next 12 months are at 18.8.
which is above long-term averages that kind of range in the 15 to 16% long term. Factoring in interest rates allows for a more complete valuation assessment. And so as stocks fundamental value is derived from the present value of future earnings, plus yields from bonds, this is where bonds, and we’ll get into this subject, provide competition for stocks. Comparing the earnings yield for equities to the yields on bonds,
we arrive at what we call an equity risk premium for the S&P 500 near zero. That suggests, and this is interesting, that suggesting that equities are fully valued currently, even though we think they could still move up, which is part of that fear of marking that, fear of missing out, could still drive stocks higher, but they look to be overall. You’ll find different sectors that look, that still have value.
We see that we think there’s still a lot of those, especially in the dividend plane areas, but at the moment, the overall stock market looks to be pretty, you know, fairly valued and fairly high by historical standards. I’ve seen it, trust me, I’ve seen it way higher and late, you know, late nineties, the times when there’s just, you know, everybody’s giddy and it’s like crazy, like you can’t, you can’t pick a bad stock. Um, I’ve seen the higher, but at the same time, historically this.
this currently is pretty high for PE ratios, which is gonna be interesting to watch. And I think for those who can see the current graph here, with this level of the equity risk premium closer to zero like this, it basically is you’re saying you’re not getting any benefits by buying stocks as compared to just buying fixed income where you’re getting interest payments. And…
Mark Boyer – El Presidente (26:31.25)
you know, you’re taking on less risk. So that’s why you’re not currently with these higher PEs. The point is you’re just, you’re not getting paid for the extra risk compared to fixed income.
Jason Jacobi, CFP® (26:42.762)
Great points. Yeah. So basically, yeah, absolutely. So let’s take bond fund America, for example, just trying to put it in layman’s terms for somebody is like, I have no idea what equity risk premium is. Um, so they think of it this way, like essentially there’s no compensation. There’s no amount of money for take extra amount of money for taking on stock risk or equity risk. So think about like bond fund of America, one of our favorite bonds. Again, this is our opinion here. Uh, let’s say it’s, it’s core intermediate term bond fund. Let’s say, you know,
Mark Boyer – El Presidente (26:43.819)
Make sense?
Jason Jacobi, CFP® (27:13.142)
It it’s a projected, you know, to do eight, nine, 10, 11% after the Fed pauses or starts cutting rates, right? Cause obviously it’s got the higher coupon and then you’ve got the total return, the capital appreciation side. Uh, cause obviously yields, uh, move opposite. So the bond prices. So basically if you’re getting eight, nine, 10% in a bond, uh, and we predict stocks, let’s just use the S and P 500 for example, cause that’s what we’re talking about here as a whole.
all 500 companies in an index, even though it’s weighted to have very heavily to seven stocks. Besides that point, taking that index as a whole and it returns, let’s say 8% as a whole this next year, and your core bond funds give you 8, 9, 10%, you’re taking on way a lot less risk for the same or less return if you invested in an equity, right? And the bond funds. So that’s just kind of what it talks about
Mark Boyer – El Presidente (28:06.946)
Yeah.
Jason Jacobi, CFP® (28:10.734)
know, because equities are more risky than bonds, right? That’s, we always talk about diversification. Usually those two move in opposite directions. So if stocks do well, then bonds might not do as well. It provides a hedge if the market has a correction or a downdraft in performance. Well, that where we’re at right now is kind of at ground zero, right? So very, yeah, very interesting to see here.
Mark Boyer – El Presidente (28:32.19)
Yeah. Yeah, exactly.
So does that mean then though Jason that you know we’re saying hey jump you know jump out of stocks and put all your money in You know fixed income. You know no again. It depends on your time frame long-term stocks have always outperformed Fixed income over longer periods of time and so you know if you’ve got money in an IRA and you’ve got you know Eight ten plus years for I mean for sure you want a portion of your portfolio to stay in equities
And so it’s case by case, everybody’s got a different type of risk tolerance and so forth. We’re just saying right now though, based on these numbers and currently the valuation of the stock market, that bonds look very attractive in here. Now, two years ago, the last two years have been absolutely horrific. This year better, I’m sorry, 2022 is horrific for fixed income because of the rate at which the Fed was increasing interest rates. It just caused
the price of bonds to just plummet. And so you had a one in 40 kind of off year and we haven’t seen in a long time where bonds just got shellacked as stocks did. And so the question brought into question kind of that 60-40 portfolio doesn’t make sense. We’re just saying that I think more for the first time in quite a while that 60-40 portfolio diversification actually looks pretty attractive in here currently. Yeah, yeah.
Jason Jacobi, CFP® (30:00.262)
total return. Absolutely. So while earnings growth will likely help push stocks higher in 2024, which we’ve obviously talked about here in the last few minutes, the contribution from valuations may be more limited. So stocks appreciate and value primarily in two ways, either earnings grow or valuations become richer. So the good news is that stocks can move higher in the coming year without much help from valuations, which is a different story from the past two years, right, Mark?
So a price to earnings ratio of 19 and a half in line with the five year average represents only a slight improvement in valuations from the 18.8 level in mid November, which we talked about in the last slide. Now based on a PE ratio of 19 and a half times our projected 2025, so we’re jumping out another year ahead for our S&P 500 earnings per share of 250, we estimate a fair value range for the S&P at the end of 2024 to be between
4850 and 4950 again this could change but this suggests potential high single digit gains at the midpoint. So we’ll see again this is all forecast and this could all mean nothing in about six months from now, three months from now, a year from now but we’ll obviously keep you updated as things change. But let’s move on to bonds here. So bonds, all the bond managers we’ve talked to, Giddy. Those guys aren’t giddy.
Mark Boyer – El Presidente (31:23.362)
Kitty!
Jason Jacobi, CFP® (31:25.814)
but this back to normal for bonds, which is exciting.
Mark Boyer – El Presidente (31:26.146)
Never.
Mark Boyer – El Presidente (31:29.822)
Yeah, it’s kind of crazy. It’s funny to watch the listen to the bond people. It’s been 10 plus years of where they’ve had, they’ve had no yields to work with whatsoever. You know, ever since 08. And that’s part of the question about whether we’re going to have a big downturn. It’s a big bubble that’s going to burst. And that’s, you know, there’s some really key points that, you know, we mentioned at the at the onset of this, you know, that, you know, some are projecting a really big drop this year.
you know, potentially or at some point when the bubble burst. Um, and that, you know, uh, very poc, you know, it is possible. We think it’s very unlikely, but it’s, you know, any of those things are possible basically because they’ve, you know, printing money and forcing interest rates to be low for, for a long, long time created a lot of fluff in the economy, um, you know, the fed slowly with rising rates and also, you know, um, decreasing kind of that quantitative.
tightening now, what they’ve been trying to do is take that back out. We’ll see if that plays out. But the reality though is currently with yields where they are, bonds have become increasingly more attractive. And so, looking forward with the economic data so far continuing to reflect a more resilient economy than originally expected.
We’re thinking that treasury yields are likely to stay higher for longer as well. We’ve talked about that. Maybe we’ve had a rolling recession or whatever. We don’t know. Maybe there’s still a recession coming, but we just think that yields are going to stay higher. As such, we think the 10-year treasury yield could stay in this 3.75 to 4.25% range with risks roughly balanced. However,
While we think the economic data softens in 2024, somewhat based on a recession, we should allow the Fed to gradually adjust monetary policy lower. We can’t entirely rule out two other scenarios either, and the traditional recession or the re-accelering economic environment. You’ll see that here, how that looks, and maybe you wanna play that out a little bit or talk about that, Jason, but.
Mark Boyer – El Presidente (33:44.31)
I mean, I think that, you know, those are, although we don’t see those being a high probability, I really feel like the move lower, you know, the feds talking about three, the markets are pricing and maybe five rate cuts this next year, which we could agree with eventually, especially if it gets, if the recession gets, you know, deeper than, than we even think. But there are, you know, how about if it
How about if it doesn’t do that? How about if it even accelerates going forward? So these are kind of where that looks like, right? This graph.
Jason Jacobi, CFP® (34:17.278)
Absolutely good points. And I’ll just touch on the three different types of outcomes that we could see. So traditional recession, like Mark said, so what that means, economic growth contracts, right? Inflation, expectations decline, Fed cuts rates from restrictive levels, and the global government bond yields fall. So that’s one scenario. Then we’ve talked about flattish growth or a mild recession, which is…
Seemingly likely at this point, that’s what we’ve been talking about here. So economic growth slows, but still slightly positive, which is our forecast here this next year. Inflation expectations steady and fall a little bit more. Fed cuts rates as inflation falls, which again, we’ve priced in. If you talk to us, even a few months ago, we priced in two rate cuts. Then the Fed, Jay Powell came out and said three rate cuts. And then now
Mark just said, you know, it’s potentially we can see five rate cuts depending on if we see a deeper recession, a more traditional like recession where things slow down quite a bit more. And then global government bond yields are more steady. They don’t fall as much. The last, which, you know, could potentially see as well, depending on how resilient the consumer is, account for 70% of GDP, the economic growth could pick up, right? Inflation expectations could increase again.
Fed hikes rates into more restrictive territory, which would be detrimental to business and stocks. Even bonds again, would suffer. Fed hikes rates into more restrictive. We just talked about that. And then global yield on bonds, global government bonds, excuse me, would be elevated. So those are the three outcomes right there.
Mark Boyer – El Presidente (35:53.964)
Yeah.
Mark Boyer – El Presidente (36:04.106)
Yeah. Yeah, I mean, so all three, I mean, you know, the re-accelering environment, in our opinion, is very unlikely. Just don’t see that happening, especially as we talked about the consumers been the one that’s been especially domestically been really keeping this economy alive. And we don’t see them, you know, even though they’re getting
you know, opportunities in other jobs or some increases, you know, the unions are striking deals and different things. We just don’t think that’s going to re-accelerate this economy anytime soon. So that’s very unlikely that happens. It’s more likely that we see, you know, rates staying fairly higher, longer term like they have been, but maybe even decreasing somewhat, which I think leads to our next graph here is.
is looking long-term. I think it’s always important for us is to look at long-term investing. We’re long-term investors. And so it’s something that’s very important to keep your eye on the longer term. Again, that’s how you build portfolios. It’s all those things determine looking at a longer timeframe. So the question is how much higher could rates go? And we were talking about that accelerating place, looking at interest rates over a longer time horizon. This goes back to…
1880 when I was in kindergarten and, um, and you know, that’s, it’s a while back. 1880 provides perhaps, uh, not quite. It was, I guess, yeah. I might not have been kindergarten might be, I don’t know. Anyway, but provides perhaps a bit more clarity on what, uh, you know, could be considered normal for interest rates data since the 1880s shows, and that’s going back a long ways. The interest rates are
Jason Jacobi, CFP® (37:32.325)
HAHAHAHAHAHA
Mark Boyer – El Presidente (37:52.95)
We’re in a fairly tight range before the spike in interest rates that took the 10-year treasury yield to those very lofty levels in 1980. I mean, see, the first part of the century, everything, you know, 1880 to 1950, 1960, and all of a sudden in the 80s, man, it just started to explode. And that’s if any of the any people, you know, I remember, man, gas lines. And it was just crazy. I think I told you before in 1985.
first house, my wife and I, and you know, our interest rate on our loan was 12.5%. And we thought we were getting a killer deal. 12.5%, dude. I mean, it was incredible. But that was just where, you know, you look at this chart and go, wow, that was a huge spike. In fact, long-term rates mostly traded within the 3% to 5% for nearly a century before moving that aggressive.
Jason Jacobi, CFP® (38:36.299)
Ha ha ha.
Mark Boyer – El Presidente (38:49.786)
in that period, periods outside of three to 5% range have resulted from the economy’s growth and inflation dynamics, which ultimately shapes the Fed’s interest rate policy. So the sharp increase in the 10-year yield over the past few years puts the yield firmly back into what we would consider normal or a hysterical range. And I think it’s really good to see that in this context that we, you know, the last 10 since, you know, since 2000.
Basically, and especially after, you know, oh, wait into 2010. You know, we were just at historic low interest rates. And by the time we got to 2020, it was just so low was off the charts. So anyway, we’re just getting back to we think longer historical rates, which is which is positive and probably and it’s not even though it feels really ugly right now. I told you this before. I told the other younger investors like it feels really ugly to have interest rates and mortgage rates where they are currently.
but it’s not unusual and you can still make a living and still do, you can still move forward even with rates in that range. We can’t have them super high, but this range is more workable and more doable.
Jason Jacobi, CFP® (39:56.116)
Yeah.
Jason Jacobi, CFP® (40:02.874)
Yeah. And for everyone watching and listening, if you didn’t catch what Mark said, it basically took him a hundred years to buy his first house with his wife because he was five in 1880, 1985, a hundred years later, ladies and gentlemen, inflation, inflation. Yeah. It took him that long.
Mark Boyer – El Presidente (40:10.786)
Yeah.
Mark Boyer – El Presidente (40:15.763)
100 years. So be patient. And so for young people, don’t get discouraged. It took us 100 years. I’m glad you heard that part, Jason. Way to bring it out. Thank you.
Jason Jacobi, CFP® (40:25.77)
Oh, no. Oh, let this be a cautionary tale, ladies and gentlemen. No, I’m just kidding. No, it’s good. But, but you know, what’s really interesting with this, you know, the corporate credit markets, they’ve been resilient so far in this cycle with credit spreads or the additional compensation for owning risky debt. In other words, it remains below historical averages. So however, the
Mark Boyer – El Presidente (40:33.328)
Yeah.
Jason Jacobi, CFP® (40:52.734)
The increase in treasury yields over the past few years, which we’ve talked long periods of time about corporate interest rates are set to increase as well. And while the health of the corporate landscape is generally positive, still positive on that rating agencies are starting to adjust their outlooks based upon among other things, the expected increase in debt payments, right? Higher interest rates, higher debt payments, which could mean more defaults.
So the ratings environment remains relatively calm for companies across the investment grade spectrum, so the higher quality spectrum there. However, you look at lower rated companies, they’ve taken a brunt of the downgrades and will likely continue in the coming quarters as we see the economy continue to slow down. Again, delinquencies should start to shoot up and forfeitures. So year to date, S&P, which is one of the credit rating agencies, has downgraded its outlook.
outright rating of 814 companies, both this is overall. So this is including investment grade and high yield, which are your more risky lower grade companies, or debt for those companies, versus only 512 upgrades, which makes 2023 already the worst year for downgrade since the pandemic, since 2020. It’s the second highest for downgrades in the past decade. So obviously 2020 at 1,331.
Mark Boyer – El Presidente (41:52.61)
Mmm, wow.
Jason Jacobi, CFP® (42:17.834)
this chart here or listening. The closest one we had was back in 2016 was 800 downgrades. So we’re at 840 for 2023 already. Crazy.
Mark Boyer – El Presidente (42:26.754)
That’s crazy because you think about, I mean, everything looks good. We’re talking about bonds and, you know, corporate, you know, companies issue bonds to borrow money, to build factories and so forth. And yet, you know, I think it speaks to the points that, you know, it’s yet to see what the, you know, what the Fed has done the last, you know, year plus with raising rates and, you know, you know, as, as
Companies are refinancing this debt. That’s what you’re talking about is that it’s gonna be more expensive. And so that’s why the downgrades. We’ll see how far that goes. Again, that’s gonna be something really important to watch. That’s what I think for us, when we’re talking about investing in bonds, I think it’s two things. One, important to have investments in bonds that are being actively managed. I like having an active managed worth.
portfolio that where I’ve got people that are actually going in and looking, you know, in the companies and versus just throwing, you know, bonds into, you know, index ETFs or whatever. And I really want the active management in there. And then and then two, I think it speaks to the fact that I think you can still get really good yields and in high quality bonds. I think that’s really important to remember, too. It’s it’s you don’t have to take on the extra risk to get
you know, good yields in the bond markets and good returns. Yeah.
Jason Jacobi, CFP® (43:54.302)
Great point. I was going to say that, but you took the words right out of my mouth. That is very, very true. I hope people listening heed to that. The spread for high yield, the corporate investment grade debt, like you said, there’s really no need at this point to take on the extra risk for 100 basis points or 200, whatever it may be at this point. So good points. Let’s dive into geopolitics, obviously.
Mark Boyer – El Presidente (44:14.242)
Correct.
Jason Jacobi, CFP® (44:21.698)
It is an increasingly complicated landscape. So let’s look at the commodity index, the cycle comparison here from the 2001 to 2008 cycle to the current cycle, which is basically March 2020 pandemic year to date. So commodity prices have been easing lower as the global economic landscape, particularly as China’s slowing economy is recovering and it continues to soften. So prices are continuing to soften.
which is, which is obviously a good thing here. Um, but really nothing to write home about no need to kind of beat the. The horse over his head, Mark you something to say there.
Mark Boyer – El Presidente (45:02.07)
Well, I was going to say that, you know, geopolitical, there’s a lot of issues with the, you know, the war in Israel and Gaza and everything that’s happening. You know, Ukraine, we’ve got a lot of, you know, just got a lot of things in the news, you know, a lot of news. It seems like America is being attacked by these one-off, you know, people that are, you know, anyway, so there’s just all these things that we won’t get into the details of that. But I think that
Jason Jacobi, CFP® (45:22.902)
Proxies, yeah.
Mark Boyer – El Presidente (45:30.938)
There’s always been and always will be geopolitical issues that are that are affect over markets and so forth. So right now we’re oil has been dropping, just based on some of that. I think there was an anticipation that oil would really jump up in the war. And these war issues that have come up, but it hasn’t been the case. But yet, it looks like there’s going to be less.
production continues. So we’ll see how that plays out. But right now, commodities have been, I think a lot of that, just again, a lot of it has to do with China and what’s, you know, their slowing economy really has been a big deal. So we’ll see how this really, yeah.
Jason Jacobi, CFP® (46:11.614)
Huge deal, huge, huge deal. China’s slowing economy, recessionary now we’re on the brink of obviously with their, their real estate, their credit, which is their basically their debt. Obviously they’re way over leveraged and they’re kind of seeing the ripple effects of that. And honestly, the costly mistakes of massive lockdowns for what seemed like a decade, obviously not funny, but just it’s comical of basically just how.
how long they were shut down and how they kept people pent up in their houses. It’s just inhumane. But anyway, not, not getting into the politics, but, but you’re seeing a result of that and poor investment decisions, uh, over spending and over leverage of debt, um, in the real estate sector, which is showing massive cracks, massive, massive cracks. So why don’t you talk a little bit about currency? Cause we talk a lot about international investing. We talk about currency conversion, how it can be a headwind or a tailwind.
So give us a little backdrop here of the dollar and what it’s expected to do.
Mark Boyer – El Presidente (47:14.134)
Yeah, so the US dollar has been really strong. That’s kind of been the thing that’s really hurt longer international investing, where when it translates back to dollars, it hasn’t been a great investment. And so capital has been flowing back to the US accordingly. And these other currencies like the yen and the yen’s…
been weak and because Bank of Japan basically hasn’t acted on much. So the yen continues to be low. The dollar clearly is very expensive on a historical and relative basis. And there’s going to be value in, we think, in holding foreign denominated assets in the longer term. We’ve been talking about that for a while, especially in the last six weeks. Again, going back and know it’s really interesting if you look at a graph, Jason, from, you know, in early November to current.
Jason Jacobi, CFP® (48:00.438)
Yeah.
Mark Boyer – El Presidente (48:11.662)
was 10 year treasury yields dropped. We also have seen the value of the dollar drop. And that’s been a real catalyst to, again, as the value of the dollar drops, that really helps your investments in anything international. So, we think that continues and it will make sense soon to own, we think it’ll make sense soon to own these foreign assets, especially on an unhedged basis.
Until we see a permanent shift towards synchronized global growth and central bank tightening, that’s not necessarily US led. Foreign currencies as a whole will likely struggle to meaningfully outpace the dollar. So we still think dollar is king, king dollar. But it definitely has dropped and it looks like we’ll see some support issues right now. If you look at the charts on the dollar.
Jason Jacobi, CFP® (48:55.218)
Yep.
Mark Boyer – El Presidente (49:06.434)
We’ll see how that plays out. But we, again, we think longer term, it’ll continue to leak weekend eventually.
Jason Jacobi, CFP® (49:13.014)
So let’s talk about alternative investments. Obviously for sophisticated investors or for an alternative strategy. A lot of people think alternative investments are a way to generate excess returns. You gotta think of it as a way just to basically think of it as an alternative way to invest. It might generate excess returns, it might be subpar points, but it’s just an alternate diversification play, again, part of that all weather portfolio that we believe here at Boyer Financial that you should have. So…
Me personally, I’m a big fan of alternative investments, specifically in the private credit space. Could be private real estate as well, hedge funds, things of that nature. There’s some good ways to get into those things that I’d be happy to talk to you about on a call or email or whatever it may be. But let’s just really quickly talk about this here, Mark. So we do expect greater dispersion and volatility. So…
That’s going to be brought by the continued decoupling of the global economy. Obviously you’ve got different massive economies, small economies on different wavelengths of the economic cycle. And so we just want to see, or we’re expected to see a continued decoupling of the global economy and policy action. So while anticipated slowdown in economic activities are supposed to happen.
And a rise in geopolitical risks are as well supposed to happen. Even though again, we don’t know, but that’s kind of murky waters as we move ahead, even with the presidential election, you know, these, these kind of alternative investments, these recommended strategies can generate alpha, which is basically excess returns from a benchmark or a given index from both top-down macro, as well as bottom-up fundamental dispersion. So having limited beta.
and providing a benefit from the rise in volatility. So again, way to maybe smooth out your returns. So it’s not like a seismograph for an earthquake. If you don’t know what seismograph is, basically measures an earthquake. It moves up and down really fast. Kind of like this chart, the top of this chart here. It could smooth out return strategy. So we have access to a lot of great alternative strategies that we can talk about, but we’ve grown more positive.
Jason Jacobi, CFP® (51:32.75)
on bottom up fundamental driven strategies that do carry a low beta. So a lower risk in the overall market, especially low net and market neutral stock pickers who can benefit from greater dispersion. We are seeing between high quality and lower quality companies. We’ve talked about this and then cash tight companies. We love the free cash flow, love free cash flow. So after everything’s paid off, taxes, everything, free cash flow is wonderful. So that’s all this thing chart, you know, kind of gets into.
Mark Boyer – El Presidente (51:53.825)
Yeah, cash flip, cash flip.
Jason Jacobi, CFP® (52:00.914)
Don’t want to get much more into it than we have to don’t want to get into the weeds. But alternatives great way to kind of maybe be hedge volatility, especially in an election year or a decoupled global economy. So Mark, why don’t you talk about private market assets.
Mark Boyer – El Presidente (52:16.886)
Yeah. So again, I think, uh, let me make this point real quick. So this is, um, again, not, this isn’t for everyone. You know, we’re just, you know, we have certain clients that, you know, this is a place where we can actually do some divert more diversification. So, uh, one area that we, uh, that we’re interested in is, uh, and it was really looks interesting as this, um, you know, private credit, but among private market strategies, we, we expect private credit.
and infrastructure to continue to show their resilience as both strategies have secular tailwinds currently at play. We’re positive on secondary markets as well. For example, private credit, which there’s a bigger market share and it’s a really attractive yield. Recommend, one of our recommendations was staying in high quality assets as we cautiously monitor the pickup in this distressed or default rates as that happens. And the other thing about private credit is that,
you know, going back to this past year, you know, we saw with the bank situation, you know, tougher for companies to get funding now, um, you know, especially smaller companies, midsize hard, harder to get funding for their activities in the, in the bank situation. So they’re having to go to private credit, um, which is, you know, again, an area that looks really positive and kind of, and it kind of helps us build, uh, what, you know, what we’re talking about as an opportunity for investors. So
Also infrastructure, one of the key areas that will continue to benefit from the secular trend of the global digitalization and decarbonization efforts we see across the countries. This is an area and the build back, even with the US passing the Build Back Better Act in the US. So infrastructure is another way as an alternative. And in secondary markets, lend compelling opportunities for managers more.
general partners, limited partners, turning to the secondary market, like we talked to meet their liquidity needs and take on assets that attract evaluation. So, similar to what we’re talking about in the private credit area, just so that there’s opportunities there. So again, not a big part, but it’s a place where you can get some diversification in a portfolio that might be not correlated so much to the stock and bond market. So, just something to think about.
Jason Jacobi, CFP® (54:34.55)
Absolutely. Well, that concludes our 2024 outlook. Obviously, we really appreciate you guys sticking with us. Hopefully you found this a little bit entertaining. Lots of good information there that obviously I think that’s important, moving forward as we move into kind of a new era, right? AI is obviously taking over. Obviously need to be careful with that, but obviously with great power comes great responsibility. And I think that if we can…
kind of use it for good and have it kind of supplement us humans and make the world a better place. And again, use it correctly. It could be a great thing, but it’s going to provide a lot of tailwind and opportunity for big tech and cloud services, data computing, robotics. We talked, we had Adam Johnson on our Move the Chains podcast last month, right, Mark? And talked about a lot about robotics and how Amazon’s using that in warehouses now.
Companies like Symbotic are really going to benefit just from kind of this digital generation that we’ve kind of entered into. So Mark, any closing remarks from El Presidente?
Mark Boyer – El Presidente (55:45.959)
No, just, you know, I think it was hopefully that was clear. You know, we don’t we don’t see huge moves in the stock market like we’ve had this last year, but we do see, you know, gradual, you know, appreciation, potentially, if everything goes right, you know, we’d hire single digits like the bond market a lot, I think coming out of this really feel like that’s a place, especially for older investors and people needing income. It’s a great place.
the bond math just makes sense because if interest rates continue to drop and drop in yields, again, remember we’ve talked about this is that inverse relationship between yields and bond prices. So, it might be time for people to have been in T-bills as T-bills come due and or CDs come due. We really feel like there’s this opportunity or window right now to move into higher duration types of.
fixed income to not only get the yield you want, but also the capital appreciation. These opportunities don’t come around all the time and they haven’t been here for a little while. So I think that’s an area that, we’re talking to clients about. And if you have clients, if you’re out there and wondering what we’re talking about, give us a call. We love to chat more about that. Cause there’s just an opportunity there to get not only good yields, but also that appreciation. So, and then the other things in regards to,
alternatives and so forth. Again, all of it, all of it designed in our, what we do here at Boiler Financial is just, is build quality portfolios with really good management and the ability to adjust quickly. There’s a lot of emotion in the world right now in lots of ways. Trust me, I, and most of it I understand because I can get there too. It’s a crazy world. There’s a lot of uncertainty. There’s a lot of crazy things happening.
in our country. But I think it’s important to, and the investing piece is again, to come back to the fact that we don’t know what the future holds. We think diversification and being able to make adjustments is really, really important. So we’re going to continue to do that on a case by case basis with each of our clients. So if you have, you know, if you’re, if you’re
Mark Boyer – El Presidente (58:00.138)
You know, you’re there, you have those questions, you have those fears. All that’s good. That’s what we’re here is to help you walk through that and to help coach you through, you know, coach you through those situations because that’s, um, it’s, it’s just the reality of the world we live in right now. So more than ever, I think, you know, having a personal touch and, and having, you know, um, relationship and, and people that really care about, uh, where you are is, uh, that’s what we take. Um, that’s what we really try to provide. And, you know,
And I know that we enjoy that part of it, right, Jace? I mean, it’s great to be able to help clients get to where they wanna go. So yeah, so that’s really important. And then on behalf, I’ll just say this, Merry Christmas to all of you. We’ve got a lot to be thankful for. I’m thankful for this time of year where we get to celebrate as a country and I guess other parts of the world as well. But this idea of Christmas and what that means and.
It’s fun to talk about Santa Claus and all these things, but I just reminded that Christmas is about the greatest gift of all. For me, when I realized that the baby Jesus, God being come flesh and being born so humbly, just speaks volumes as to what life’s all about and that there’s a God who loves me enough to come and be born. And it’s just a great story, I love it. So it’s fun to talk about it. It’s just a great time of year to remember what’s really important.
in our lives.
Jason Jacobi, CFP® (59:26.51)
Amen to that. Thanks so much, Mark. And again, if reach out, call email. We’re always here for you. A client or not. Uh, we’re here to be a sounding board, help guide you on your financial journey. So for Mark, I’m Jason, Merry Christmas, happy new year. We will see you next time.
