Pinnacle - On Point - May 2023

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Musings From the World of Wealth Management

May 1, 2023

It was an interesting April, which ended with U.S. regulators seizing First Republic Bank and selling the bulk of the bank’s assets to JPMorgan. It was the second largest bank failure in U.S. history and the third bank failure in just six weeks.


Tough economic conditions provide an opportunity for strong companies to separate themselves from weaker ones. In the first four months of the year, we have witnessed this in the banking sector, after the failures of Silicon Valley Bank, Signature Bank, and First Republic prompted customers to move monies to larger, more stable money center banks. However, a more extreme example may be happening in the tech sector. Through the middle of last week, over 100% of the S&P 500’s year-to-date gain was attributed to only eight stocks (Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, Netflix, and Tesla). The other 492 stocks, in aggregate, had negative year-to-date returns.


Whether you are in the hard-or soft-landing camp, there is no doubt things are slowing down. The advanced gross domestic product (GDP) for the first quarter showed a slowdown in the pace of economic growth to 1.1%, below forecasts of 1.9% and Q4 2022’s GDP of 2.6%. The Conference Board’s Leading Economic Index—which measures U.S. business cycles—dropped sharply to its lowest level since November 2020. It was its 12th consecutive monthly decline, the longest such run since the period from 2007-2009. Additionally:

  • Earnings are decelerating. According to FactSet, Q1 earnings are down 6.5% versus a year ago.
  • Sales of existing homes in March fell from the prior month and from the same time last year, while house prices are down for the second month in a row.
  • According to the March Manufacturing PMI, economic activity in the manufacturing sector contracted in March for the fifth consecutive month.
  • Job cut announcements, especially in the tech and financial sectors, continue to mount. Last week, ride-sharing company Lyft announced it was laying off 26% of its workforce.
  • The consumer is slowing down. Reports from UPS, Amazon, and Capital One Financial all confirmed this, with the latter reporting rising delinquencies in mortgages, auto loans, and credit cards.

And let’s not forget we still have a debt ceiling battle ahead of us…


Another year, another grim forecast for Social Security. In April, the Social Security and Medicare Trustees released their annual report, which found that the retirement trust fund is projected to run out of money in just 10 years. Technically, it’s the program’s reserves that would run dry if Congress doesn't act. Payroll taxes would continue to flow in and out, funding a projected 77% of promised benefits.

 

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Securities offered through Private Client Services, Member FINRA/SIPC.  Advisory products and services offered through Pinnacle Wealth Management Group, Inc., a Registered Investment Advisor.  Private Client Services and Pinnacle Wealth Management Group, Inc., are unaffiliated entities.

*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

* The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.