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Perspectives

Seven Things I Didn't Know At the Start of the Year

by Fortem Financial February 27, 2023

"There are two types of economists," said famed economist John Kenneth Galbraith, "those who don't know, and those who don't know they don't know." This, along with movie producer William Goldman's assertion that "nobody knows anything" are two quotes that remind us to be humble when making forecasts about the future path of the economy and the financial markets. To the extent to which economics will always be a social science and never a hard science like, let's say, chemistry, it is incumbent upon the would-be forecaster to constantly adjust his assumptions for new information, or, at least, information that is new to him. * To wit, we have counted seven meaningful developments since the start of the year that are keeping us cautious despite the rally in risk assets:

1. Commercial real estate delinquencies and defaults, while low, are rising

2. State tax revenues are softer than the consensus expects and are likely to come in under forecast following April tax collections

3. Recently updated CBO projections forecast a surge in the servicing cost of the U.S. government for the first time in 30 years

4. The relationship between China and Russia appears to be getting closer; any hope of returning to the status quo ante in America's relationship with China appears dim

5. The effective corporate tax rate is likely to increase 200-300 basis points this year due to the 15% minimum tax, R&D tax credit and other expiring tax provisions

6. Profits shrank in the 4th quarter versus last year

7. The Fed is no longer expected to cut rates in 2023; rate hike expectations have increased by 50bps

One or two of these items might smack of confirmation bias, but all seven, taken together, lead us to believe that investors in both bonds and stocks should expect greater volatility and risk in 2023. We believe that while the rate of inflation may have peaked, the sheer amount of issuance and the absence of QE may keep long rates higher for longer than anticipated. If such an unhappy occurrence should come to pass, we see continued risk in long-duration equities. This, along with geopolitical developments that are worrisome but difficult to handicap, do not seem consistent with an S&P 500 trading at 18x 2023 earnings projections that, in and of themselves, are probably too high.

Source: Strategas

Market and Index Changes for the Week Ending 2/24/2023

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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