Earlier this month, I attended The Barron’s Advisor Independent Summit in Dallas with Keen Wealth's Chief Investment Officer and President, Matt Wilson. It's a real privilege to be invited to this annual conference where we can talk to and learn from some of the top minds in finance.
While the program had been scheduled well in advance, the recent bank collapses in California and New York became one of the dominant topics. Matt and I recorded today's show live at the Summit so that we could share some of the key insights we heard from colleagues and other financial pros about the state of our banking system and the broader economic outlook for the year ahead. We also scale these issues down so that you can have a better understanding of how the big picture could affect your personal financial plan.
Grading the Federal Reserve.
One speaker I was especially looking forward to was Jeremy Siegel, Professor Emeritus of Finance at The Wharton School, The University of Pennsylvania. I've been following Prof. Siegel's work for over 30 years now, and his book Stocks for the Long Run is still one that I recommend to folks who want to learn more about the long-term history and trends of the financial markets.
The headline from Prof. Siegel's talk was his grade for the Federal Reserve's recent performance: D-. Like many observers, Prof. Siegel argues that after the 2008-09 financial crisis, the Fed kept interest rates too low for too long. Then, as COVID-19 recovery packages and global supply chain issues began to heat up the economy, the Fed raised interest rates too quickly to try to tame rising inflation.
One especially important point that Prof. Siegel made was that, while cable news and social media like to hype up the higher year-over-year inflation data, for the last five months the rate of inflation has actually been negative. Couple that with consistently strong job numbers (excluding those headline-grabbing layoffs at big tech firms) and a cooling housing market and there's an argument to be made that the Fed should -- and will -- end this cycle of rate hikes sooner rather than later.
Prof. Siegel said that in the wake of the recent bank collapses, the risk of a mild recession has probably gone up. But his data also suggests that the markets are probably undervalued right now. He projects strong earnings on the S&P 500 for 2023. And he does not believe we're headed for a severe recession like in 2008-09.
Most of the pros we heard from at Barron's shared that assessment. The Great Recession looms so large in our memories that some folks now assume that any time the markets are down, they're going to crater. Bank failures and volatility certainly don’t calm those worries. But the Great Recession was the result of systemic issues throughout our whole banking system. This month's bank closures were, by and large, the result of poor asset management by those individual banks. The FDIC and the Federal Reserve have acted to protect customers and isolate the fallout from those closures.
Protecting your plan.
It's important to keep that perspective if we do slip into a recession. As we've covered many times in our blogs and podcasts, downturns are a normal part of the market cycle that can actually present opportunities to investors who work with an advisor and stick to their financial plan.
And not all recessions are created equal. The COVID-19 recession lasted only two months. The Great Recession lasted about a year and a half, but after markets bottomed out in March of 2009, a 10-year bull market followed. No matter how long or short a recession is, folks who panic and try to jump out of the markets usually miss out on wealth they could be earning when the markets eventually recover. And in the meantime, there are strategies you and your advisor can collaborate on to help you weather volatility, even if you’re retired.
I hope this report from the Barron’s Summit and my blog last week on our banking system provide a little peace of mind about the economy and your financial plan. Please don’t hesitate to get in touch with Keen Wealth if you have more questions.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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