February 27, 2024

Congratulations Once Again, Sean!

As is tradition, Sean Dowling has been named a Five Star Wealth Manager and will be on the prestigious list appearing in tomorrow’s Wall Street Journal. To receive the Five Star Wealth Manager award, a wealth manager must satisfy ten objective eligibility and evaluation criteria that are associated with wealth managers who provide quality services to their clients.

It’s Tax Time

Tax season is underway and, as is also tradition, April 15th will be here before you know it. If you haven’t already done so, please reach out to your advisor or call us at (203) 967-2231 to schedule your tax appointment. If you have friends or family on the lookout for top-tier independent tax prep or financial services, we’d be honored if you refer them to us.

The Markets

Enthusiasm for everything related to artificial intelligence (AI) drove a global stock market rally last week. Equity markets in the United States, Europe, and Japan hit all-time highs after a leading chipmaker reported better-than-expected earnings and an extraordinary surge in demand for its artificial intelligence-targeted processors, wrote Rita Nazareth of Bloomberg.

Investors took the news “as evidence that the generative AI boom is both real and spreading. [The company’s] spectacular earnings report and forward guidance are spurring investors to buy shares of almost any company with a stake in the AI race—everything from computer and networking hardware providers to cloud computing plays to enterprise application software,” reported Eric J. Savitz of Barron’s.

Investors weren’t the only ones feeling optimistic last week. Economists who participated in a February Bloomberg survey expect the U.S. economy to grow this year and next year, although a significant minority say that a recession is possible in 2025, reported Augusta Saraiva and Kyungjin Yoo of Bloomberg. They cited a source who stated:

“The U.S. economy remains the envy of the world… Both real economic growth and employment growth remain strong while inflation rates and interest rates are falling.”

Chief executive officers (CEOs) are feeling optimistic, too. The Conference Board Measure of CEO Confidence™ survey found that CEOs are feeling much better than they did at the end of last year.

• 32% said economic conditions were better than they were six months ago (up from 18% in the fourth quarter).
• 31% said conditions in their industries were better than they were six months ago (up from 27% in the fourth quarter).
• 36% expect economic conditions to improve over the next six months (up from 19% in the fourth quarter).

Last week, major U.S. stock indices moved higher, yields on longer maturities of U.S. Treasuries moved lower.

Data as of 2/23/24	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 Index	1.7%	6.7%	26.8%	9.5%	12.7%	10.7%
Dow Jones Global ex-U.S. Index	1.2	1.5	9.1	-2.4	2.9	1.7
10-year Treasury Note (yield only)	4.3	N/A	3.9	1.4	2.7	2.8
Gold (per ounce)	1.5	-2.5	11.0	4.1	8.8	4.3
Bloomberg Commodity Index	-0.9	-3.3	-10.0	3.3	3.3	-3.3

What Influences Stock Markets?

People use all kinds of information to make investment decisions. Benjamin Graham, who was Warren Buffett’s mentor, thought the proper approach was to evaluate company fundamentals. Graham wrote, “The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.”

British economist John Maynard Keynes cautioned that how “others” think about stocks can have a significant effect on performance. Keynes is famous for saying, “Markets can remain irrational longer than you can remain solvent.”

Meme stocks, which are shares of companies that become popular through social media, demonstrated Keynes’ point. These companies often have poor fundamentals, but their stock prices soar because they are well-liked online. Social sentiment indicators use aggregated social media data to evaluate how people feel about companies. These data can be valuable to asset managers because digital influence can affect stock prices.

While tracking digital sentiment is relatively new, some surveys have measured how people feel about the economy and financial markets for decades. These include:

• The University of Michigan Index of Consumer Sentiment. The index ticked higher in February. Over the last three months, it has seen the sharpest gains in 30 years; however, consumer sentiment remains below the index’s long-term average, reported Christopher Rugaber of the Associated Press.
• The AAII Investor Sentiment Survey. Investors remained more bullish than usual last week with 44.3 percent saying they expected markets to move higher over the next six months. The historic average is 37.5 percent bullish.

Many factors affect the value of stocks and stock markets. “…Investor confidence is only one of many forces on the market. Stock prices are of course determined by supply and demand, and there are numerous factors that affect these, fundamental factors, legal, tax-related, demographic, technological, international, as well as other psychological factors related to attention, regret, anchoring, and availability,” explained the International Center for Finance at Yale University.

Stock market performance also can be affected by geopolitical factors, like conflict in Ukraine and the Middle East. 

Weekly Focus – Think About It

“A long habit of not thinking a thing wrong gives it a superficial appearance of being right.”

—Thomas Paine, founding father

Wishing you and your families well,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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