Tuesday Tidbit: The Sure-Fire 2023 Recession Now in Doubt

When 2023 began, stocks were off their all-time highs by nearly 20%, inflation hovered above 6%, and the Fed was in the midst of its most aggressive rate hike cycle in decades in an attempt to bring inflation down towards its 2% target. The Fed signaled that more rate hikes were on the horizon for 2023, which promised more pressure on economic growth in the hopes of slaying the inflation dragon.

Given this gloomy economic backdrop, it would be hard to fault economists for not having a super rosy outlook for the U.S. economy. In fact, more than two-thirds of economists at 23 large financial institutions predicted a U.S. recession in 2023.1 Even the Fed’s growth projections for this year were predicting a recession. Looking at news headlines, a recession this year felt inevitable.

Stocks Ignored the Recession Headlines — If a recession was coming in 2023, stocks missed the memo. Despite the recession worries, stocks have managed to rally by nearly 20% year-to-date in large part due to a combination of a continued decline in inflation along with surprisingly resilient economic growth despite continued Fed rate hikes. A spike in optimism for the future of artificial intelligence has also been a contributing factor.

An Economist Joke — There’s an old line about economists that they’ve predicted 10 of the past 8 recessions. Its humor lies in its shades of truth. The Federal Reserve Bank of Philadelphia conducts a survey of economists and investors. Since the survey began in 1946, not a single recession was identified a year in advance. Further, economists completely missed the recessions of 1990, 2001, and 2008.2 It’s a good reminder that forecasters are paid for predictions, not to be right.

The Fed Changes Its Tune — Last month, the Fed hiked rates again by 1/4%. While this announcement came as no surprise, the bigger news came from Fed Chair Powell when he indicated the Fed no longer expected a recession given the surprising strength of economic growth in the face of higher interest rates.

It’s been said that economists are like generals in that they’re really good at fighting previous wars. That is, their models for predicting future economic outcomes are built upon past economic cycles and events but one thing we know for certain is that the future is surprising. When you consider that the current economic environment is a byproduct of the worst pandemic the world has seen in over a century, it should be even less surprising that economists’ recession predictions seemingly missed the boat. It’s a good reminder the next time news headlines have a sure-fire market prediction.

Weekly Tidbit Quote: “What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.” — Mark Twain

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

1 Source: https://www.wsj.com/articles/big-banks-predict-recession-fed-pivot-in-2023-11672618563

2 Source: https://www.wsj.com/articles/economists-think-they-can-see-recession-comingfor-a-change-11670150634?mod=article_inline

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: U.S. Debt Gets Downgraded Again — What’s Next?

Last week, Fitch ratings agency announced that it was cutting the U.S. debt rating by one notch, from AAA to AA+. Fitch joined S&P rating agency which previously downgraded U.S. debt similarly back in 2011, ironically under similar circumstances surrounding political infighting around raising the country’s debt limit. Let’s dive a little deeper into why the downgrade happened, the response of the market, and what might come next.

Why Now? In explaining the downgrade, Fitch cited “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.”

The Reaction from Stocks — Stocks moved sharply lower the day after the downgrade was announced. Stocks are still up 10% in the past three months alone. News like the U.S. debt downgrade can often give traders an excuse to sell and lock in profits given the run stocks have had since May.

The Reaction from Bonds — Treasury bond yields have risen since the downgrade, which isn’t surprising. Having a lower credit rating should raise one’s cost to borrow funds in the future. But there may be more to it than that. During the debt ceiling standoff, the Treasury Department held off on issuing more debt to avoid exceeding the debt limit. The Treasury is now in the process of issuing a large sum of debt to replenish its reserves, which also stands to put upward pressure on treasury yields in the short-term.

This Isn’t 2011 — In 2011, S&P was the first rating agency to ever downgrade U.S debt below a AAA rating. It was without precedent. S&P’s decision roiled markets for several months given the unchartered territory U.S. debt had just entered as no longer having the highest credit rating by all three rating agencies. In our view, the Fitch downgrade is unlikely to have much of a market impact given it was only a single notch downgrade and Fitch’s rating is now the same as S&P. This downgrade lacks the precedent of 2011 while the U.S. remains the safest borrower in the world.

A Possible Silver Lining — Like a child who doesn’t clean their room until they risk being grounded, politicians often don’t get serious about negotiating until the financial markets threaten to force their hand as we saw in the debt ceiling debacle earlier this summer. As the fall threatens to usher in a budget brawl between the political parties, one can hope that both parties become more conciliatory following Fitch’s downgrade rebuke.

Every year, the market must climb a wall of worry and historically three out of every four years, stocks find a way to produce positive returns. To date, the 2023 wall of worry includes elevated inflation, recession worries, the Russia/Ukraine war, ongoing Fed rate hikes, three notable bank failures, a debt ceiling standoff, and now you can add a U.S. debt downgrade to the worry wall. And yet, the S&P 500 is still up 18% on the year. In times like these, it’s critical investors recall the price of admission to successful long-term investing is enduring uncertain times like these and staying the course.

Weekly Tidbit Quote: “My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possibly follow is NOT ‘Don’t stand there, do something,’ but ‘Don’t do something, stand there!’” — Jack Bogle, founder of Vanguard

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: Why You Should Treat Your Financial Plan Like Your Annual Wellness Exam

The purpose of an annual wellness (or physical) exam is for your doctor to evaluate your overall wellness and provide important information about the condition of your health each year. The exam consists of a series of tests and checks to get a general sense of how your body is doing. Often, your doctor will do this using an exam check list that applies to your age, gender, and any risk factors you may have. The real question — is your wealth advisor doing the same thing?

Financial Planning 101 — A financial plan documents an individual’s short- and long-term financial goals and most importantly, includes a strategy to achieve them. The plan should be comprehensive and highly customized, reflecting an individual’s personal and family financial needs, investment risk tolerance, and plan for saving and investing. A solid financial plan provides guidance over time and serves as a way to track progress toward your goals. At Mosaic, we also believe it fundamentally includes a plan of how to turn your financial success into a life of true significance.

A Common Mistake by Advisors — Too often, advisors create a financial plan with clients at the onset of the relationship, set it, and then forget it. You’re a living, breathing entity that evolves and changes. Your financial plan should be as well. Like your annual wellness exam, we believe your financial plan should have an annual check-up with your advisor to identify what’s changed and what risk factors should be discussed based on your age and financial goals.

Sharing Is Caring — Doctors have a hard time diagnosing problems or helping you get healthy without information about how you’re feeling and your life circumstances. Your financial plan is no different. The more you share in your annual planning meeting, the better we can serve you and your financial goals.

It Takes Two to Tango — While some advisors avoid client conversations at all costs, we believe that’s where the magic happens. We love to hear from our clients because we believe that’s where a financial plan comes to life as a representation of what a significant life looks like to you and your family. A successful financial plan requires proactiveness by both the advisor and the client. We believe transparency is paramount when discussing your financial plan and believe it’s our obligation to our clients to be truth tellers.

Picking the right wealth advisor can be hard. Like trying to choose a good doctor, you don’t get much visibility into what characteristics define a proficient advisor versus the alternative. In our view, the above attributes are strong indicators of what a robust financial plan and advisor/client relationship should look like. Is it time to schedule your annual wellness and financial check-up?

Weekly Tidbit Quote: “Planning is bringing the future into the present so that you can do something about it now.” — Alan Lakein

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: How to Grow Your Wealth and Health

As we discussed last week, becoming wealthy isn’t easy. Neither is being healthy. Accumulating wealth, like a disciplined diet, requires us to make hard choices in the moment. We have to prioritize our future selves over our desire for instant gratification. There is a recipe for success that applies as much to a strong diet as it does a solid investment plan. It has two main ingredients: automation and friction.

When to Choose Your Lunch — It’s 12pm, you’re starving, and every online menu looks amazing. Are you really going to choose a salad over a burger and fries? I’m certainly not. But if you packed your lunch the night before, you’re much more likely to make a smaller, healthier lunch. Plus, by meal planning you eliminate the difficult choice in the moment because you automated the decision.

Use Friction to Your Advantage — In the book The Happiness Advantage, author Shawn Achor talks about the power of friction. To reduce his bad habit of watching too much TV, he dialed up the friction by removing the batteries from his remote and putting them in a drawer across the room (I may have done this myself just last week to cure my bad habit of watching TV before bed). Conversely, when Achor wanted to exercise more, he decreased the friction of a good choice by laying out his workout clothes next to his bed the night before.

Making Wealth Easier — The more good decisions we have to make to be successful, the greater the chance something goes awry. To tilt the odds in our favor, we need to reduce the number of good decisions necessary — reduce the friction. Setting up an automatic transfer from your paycheck to your savings accounts, 401ks, etc. is a terrific example. In my experience, the best savers prioritize setting a savings goal first, then live on the rest. You can also establish an automated rebalancing plan so you don’t have to make the difficult decision to sell winners and buy losers in the moment when our emotions can steer us in the wrong direction.

By adding automation and using friction to your advantage, individuals can increase the chances of achieving their goals. At the same time, they can eliminate the need to make decisions in the most emotional, irrational moments regarding both their wealth and health. For investors, the foundation of this strategy should lie in their financial plan. More on the importance of your financial plan next week.

Weekly Tidbit Quote: “Changes that seem small and unimportant at first will compound and turn into remarkable results if you’re willing to stick with them for years.” — James Clear, author of Atomic Habits

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: The Difference Between Being Rich and Wealthy

It was the investment book that started my love affair with saving, investing, and the markets. My dad gave me The Millionaire Next Door when I was a teenager. Back then, being a millionaire had even more cache than today — thanks a lot inflation. Ever since I was young, my dad preached about the value of financial independence and this book seemed like a perfect roadmap. Only it didn’t reveal the Lifestyles of the Rich and Famous like you might expect. Rather, in learning the habits of more than 500 millionaires, the book’s research uncovered something far different. Below are a few of the book’s most important lessons, along with one critical factor that the book missed in giving investors the keys to financial success and fulfillment.

One Word that Separates the Rich and Wealthy — We often tend to interchange “rich” and “wealthy.” It’s a big mistake when you consider that there are many people who are rich but not wealthy and conversely those who are wealthy but not rich. The author Thomas Stanley defines “rich” as those who earn a lot of money, while the “wealthy” are those who have accumulated a lot of money.

Two Keys to Spotting a Millionaire — Two of the key contributors that Stanley found in millionaires were a propensity to live below their means and to be diligent savers. In other words, millionaires were like human chameleons blending in with others who earned less and spent more than they did. These millionaires were hiding in plain sight, one might even say — next door.

Monkey See, Monkey Do — My kids are a great reminder that humans tend to model what they see much more than what they hear. People are good at learning by imitation. Given that context, it’s easy to see why people would be exceptional at being rich (or acting wealthy) but not actually being wealthy. The only way to be wealthy is to not spend the money that you have. How can you learn from actions and behaviors that you literally can’t see?

Wealth Is What You Don’t See — How many basketball players have said they modeled their game after Michael Jordan or Kobe Bryant? How many authors could tell you the great authors that inspired them? To become wealthy, who would be your role model? Where would you see spending less and saving more? Whose tips and tricks would you follow? This is why becoming wealthy is so hard — wealth is invisible.

The book’s insights are as valuable today as they were 25 years ago. Wealth can be an invaluable resource but we believe the book missed a key chapter at the end. To live one’s best life, it’s not in the accumulation of financial wealth. We believe true fulfillment in life occurs when individuals are able to transform their financial success into a life of true significance. In our view, life’s greatest rewards lie in defining what significance is to you and building a plan to achieve it.

Weekly Tidbit Quote: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: Being Bullish Pays Better Than Being Bearish

It’s been 554 days since the S&P 500 hit its last all-time high on January 3 last year. That’s a long time that investors have been “down” waiting for the market to recover. This includes a 25% decline in the middle of last year. It’s easy to feel negative, or bearish, about stocks in these times. But last month, we saw a reason for optimism as the S&P 500 officially entered a new bull market — defined as a 20% rally following a 20%+ decline.

Stocks have rallied considerably from their lows currently sitting about 8% below their all-time high. Yet, inflation remains stubbornly elevated and worries of an economic recession persist. Some investors might be unsure if they should be feeling bullish or bearish. Before they decide, it might be helpful to know which one pays better in the long run.

The Pain of Bear Markets — A bear market is defined as a 20% decline from a previous market high. Since 1926, bear markets have lasted 20 months and stocks have fallen by 41% on average.

The Fruits of Bull Markets — Since 1926, the average bull market has lasted 51 months with a staggering average return of 162%.1 If the new bull market were to last as long as the average bull market, it would run until September 2027. That’s a gigantic difference in both length and magnitude of the average bull and bear market.

Did You Know? The term “bull” market was coined by Wall Street for a surging stock market because bulls charge. Meanwhile, a declining market was given the moniker “bear” market because bears hibernate.

What to Expect when a New Bull Market Begins — Historically, the S&P 500 rises 75% of the time over any 12-month period. But following the start of a new bull market, historically stocks have been positive 92% of the time in the next 12 months.2 That’s certainly a reason for optimism looking forward.

The lesson of bull markets versus bear markets feels strikingly similar to the parenting advice I read for my two young kids regarding feeling angry versus acting angry or lashing out. It’s okay for investors to feel bearish (in fact, you can always find a reason to feel that way). Yet, acting bearish or “hitting” the go-to cash option isn’t the best solution for investors looking to achieve their financial goals over the long run.

Enduring bear markets are part of the price of admission for investing. The pain of those bear markets sting. You know what stings more? The risk of missing out on long, lucrative bull markets by acting bearish.

Weekly Tidbit Quote: “The desire to perform all the time is usually a barrier to performing over time.” — Robert Olstein

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

Sources:
1 JP Morgan Guide to the Markets
2 Bank of America

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: Market Myth: Most Stocks Go Up over Time

We already cracked the myth here that stocks rarely, in fact, return anything close to 10% per year, except over the long run. The long-term average return for stocks has a tendency to lead us to believe that most stocks go up over time. Sadly, in fact, they do not.

Our friends at J.P. Morgan conducted fascinating research on stocks in the Russell 3000 index from 1980-2020. The Russell 3000 index is intended to be a benchmark for the entire U.S. stock market. When looking at the index over 40 years, here’s what they found.

Down and Out — 44% of all stocks that were ever in the Russell 3000 index from 1980-2020 experienced a “catastrophic” loss, defined as a 70% decline in price from peak levels which was not recovered. More than 40% of companies over 40 years lost more than 2/3 of their value that was never recovered.1

Maybe Cash Is King — 42% of all stocks in the Russell 3000 experienced NEGATIVE total returns over the 40-year timeframe from 1980-2020. That is, investors would have been better off holding cash for 4 decades rather than 40% of the entire index. Let this sink in — two out of every five stocks in the index over 40 years lost money on average every year.

Lots of Dead Trees but a Blossoming Forest — The Russell 3000 index had an average annualized return of 11.85% from 1980-2020, so the exorbitant number of losing stocks cannot be attributed to a bad decade . . . or four. 40+% of all stocks lost money during a period that saw above-average long-term market returns.

What’s a Better Idea — Stock-picking or Blackjack? — 1 out of every 3 stocks in the Russell 3000 index outperformed the index itself over 40 years. Meanwhile, blackjack players have a 42% chance of beating the house on a given hand.

Hitting It Big — Only 1 out of every 10 stocks was a “megawinner” defined as having a return of 500+% compared to the Russell 3000.

If this data surprised you when you first read it, join the club. It’s eye-opening. Here are three takeaways:

  1. Diversification is the name of the game. A very small number of stocks do the majority of heavy lifting for the stock market. Knowing those stocks in advance is like trying to pick a needle in a haystack. We believe the better alternative is selectively buying the entire haystack.
  2. Owning a large position in a single stock is stacking the odds of success against you, no matter how much you love owning the stock (or working for the company). See takeaway #1.
  3. Individual stock picking is more risky than it seems. If you’re going to pick individual stocks, make sure it’s a small portion of your portfolio…or part of your “cheat day” portfolio. More on this topic next week.

Weekly Tidbit Quote: “The desire to perform all the time is usually a barrier to performing over time.” — Robert Olstein

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

1 Source: https://assets.jpmprivatebank.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/agony-ecstasy-2021.pdf

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit: Cooking a Perfect Steak Is Harder than It Looks — Just Ask the Fed

When cooking a steak, everyone has a preferred temperature and most people tend to be pretty picky. If it’s undercooked, it feels like bloody, raw meat. If it’s overcooked, you might as well use it as a dog biscuit. We like it just right.

The Federal Reserve has the challenging task of being the U.S. economy’s grill master. When the economy is at risk of being overcooked (inflation running too high), the Fed raises the fed funds rate to reduce the economy’s temperature. Higher rates reduce consumer and business spending thereby cooling economic growth and inflation. When the economy is at risk of being undercooked (growing too slowly), the Fed cuts the fed funds rate to raise the economy’s temperature. Lower rates stimulate spending, growth, and inflation.

Fed Meeting Last Week — After 10 consecutive rate increases, the Fed voted to keep rates the same last week. But they also indicated they expect to raise rates two more times this year, suggesting they’re not done raising rates to cool an over-heating economy.

Being a Critic Is Easy — Criticizing the Fed’s pace of raising or lowering rates is financial media’s favorite pastime. In December 2021, the Fed said they expected to raise rates by ¾% during 2022. Instead, they raised rates by 4.25% as inflation unexpectedly hit 40-year highs. It’s in vogue for pundits to criticize the Fed for raising rates too slowly. But go back and look at Wall Street’s 2022 predictions for any Fed predictions that came close to reality. I’ve looked and the next one I find will be the first. The firms I respect the most had predictions that looked a lot like the Fed’s expectations. But everyone’s always right in hindsight.

Harder Than It Looks — The primary job of the Fed is to help the economy achieve maximum employment and stable prices, aka moderate inflation. The problem is it takes about 6 months for the economy to feel the full impact of Fed rate changes. How hard is that? Imagine having to choose a set temperature to cook a steak for 6 hours and then hope it’s just right at the end. To increase the level of difficulty, there’re surprise economic hot spots (war) and cool spots (bank failures) on the grill that the Fed can’t foresee when setting its rate.

Like men standing around their neighbor’s grill, financial media will continue to opine on whether the Fed’s actions are cooking the economy’s steak just right, or not. However, for long-term investors, it’s crucial to focus on what you can control. By making sure your portfolio is well-diversified and assuming a level of risk that aligns with your tolerance for risk and time horizon, you can set your financial plan at the optimal temperature.

Weekly Tidbit Quote: “Investors without a plan typically buy what they wish they bought years ago.” — Howard Marks

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

© Mosaic Family Wealth 2023. All rights reserved.

Tuesday Tidbit — What’s the Next Crisis after the Debt Ceiling Resolution?

Google “US debt ceiling 2023” and you’ll find more than 100 million results. It took months of finger pointing, political power plays, and economic brinksmanship to finally reach a deal to extend the debt ceiling for another two years. Millions of articles and news segments were devoted to a topic that ultimately was much ado about nothing. The fact that the deal came two days before a potential U.S. debt default should come as no surprise because deadlines create deals. Here are our four takeaways from the debt ceiling resolution:

  1. Beware the Power of Recency Bias — Our brains trick us into believing that more recent events are more painful, more partisan, and/or more important than past events. The truth is that the debt ceiling has been raised 20 times since 2001 alone. We’ve seen these political theatrics before and unfortunately we’ll likely see them again in two years. Being mindful of the recency bias in all of us can help investors remain calm at the height of the next storm.
  2. Resiliency is Key for Stocks — Since the beginning of the year, the stock market has faced a wall of worry that’s included a banking crisis, war, sticky inflation, Fed rate hikes, recession worries, and the debt ceiling debacle. And yet, the S&P 500 index is up 12% year-to-date.
  3. Resiliency is Key for Investors, Too — In 2019, the wall of worry for stocks included tariff and trade issues with China and other trading partners. In 2020, the pandemic and the U.S. Presidential Election canvassed the wall of worry. In 2021, it was COVID variants and inflation fears. Yet between 2019 – 2021, stocks pole vaulted over the wall of worry every year generating an average annual return of 18%. Last year, stocks couldn’t climb the wall of decades-high inflation and record Fed rate hikes. Then again, stocks are positive about 3 out of every 4 years historically. There will always be a wall of worry for investors. The principle of staying invested over the long-term to achieve your financial goals is simple but not easy.
  4. What’s Next on the Wall of Worry? — Is it recession worries, inflation, geopolitical issues, or something else off the current radar? It’s impossible to know but we can be sure the wall of worry will always be there for two reasons. First, our brains are built to look for what’s wrong. It’s a survival mechanism that kept mankind alive for centuries. Secondly, the media understands this negativity bias well and capitalizes on it with the content they create. It’s how financial media pulls the strings of investors. The more you worry, the more you watch or read, and the more money media companies make.

The debt ceiling debacle dominated headlines for months, then disappeared in days. It created waves of worry for investors and ultimately, we survived and so did the financial system. When one market concern falls off the wall of investor worry, another will inevitably replace it. If we don’t learn from history, we are destined to repeat it. As the Tidbit quote below reminds us, adversity is a part of life and a part of investing. How we deal with it is up to us.

Weekly Tidbit Quote: “Adversity is here, it just left, or its on its way. I just don’t think we should ever give people the false notion that adversity is not a part of life.” — Tim Tebow

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.

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