Albion Financial Group: Recent Episodes

View Details

Executive SummaryCreating a reliable income stream in retirement takes more than just saving—it requires strategy. In this post, we’ll walk through five smart ways to get the most out of what you’ve built:

• Get the most from Social Security. When you file matters. Understanding your options—including spousal and survivor benefits—can add up to hundreds of thousands of dollars over time.
• Withdraw your money tax-efficiently. Where you pull income from each year can impact how much you keep. Coordinating withdrawals across taxable, tax-deferred, and tax-free accounts can stretch your savings and lower your tax bill.
• Do an annual tax check-up. Your income and the tax rules change every year. Reviewing your situation regularly opens up opportunities—like Roth conversions or tax-smart charitable giving—that can save you money long-term.
• Watch for policy updates. Shifts in tax law, Medicare premiums, or Social Security rules can affect your plan. Stay informed so you can adjust before small changes become costly surprises.
• Keep your plan flexible. Life doesn’t follow a spreadsheet. Revisiting your retirement strategy regularly ensures it still fits your goals, your lifestyle, and whatever life throws your way.

In many ways, approaching retirement is like climbing a new mountain. The view at the top is worth the climb—but the journey has its own steep terrain, loose footing, and changing weather to navigate along the way.

Retirement is no different.

On the one hand, it marks the beginning of a new and exciting chapter, powered by the ability to do what you want, when you want, with the people you want, for as long as you want (which as best selling personal finance author Morgan Housel says: “Is the best dividend that exists in finance.”) But, on the other hand, it also brings unique challenges and unknowns.

And one of those unknowns is the reality that once you retire, you can no longer rely on your job for a paycheck. Instead, you must create that retirement paycheck on your own, often drawing on multiple accounts (each with unique tax considerations) and income sources (some guaranteed, and some not) to fund your life.

If you’re within five years of retiring, it’s also worth reviewing the three critical steps to prepare for retirement to make sure you’re laying the right groundwork—financially, emotionally, and logistically.

In this article, we’ll explore five smart strategies to maximize your retirement income and help you reduce uncertainty as you head into your golden years.

Strategy #1: Squeeze All The Juice Out Of Social SecurityWhen it comes to retirement income, Social Security is one of the most important decisions you’ll make. And like most things in financial planning, there’s no one-size-fits-all answer—the right filing strategy depends on your overall financial picture, your health, and your goals.

Start by understanding your Full Retirement Age (FRA)—the age at which you’re entitled to your full benefit. For most people retiring today, FRA falls between 66 and 67, depending on your birth year. If you file early (as soon as age 62), your benefit will be permanently reduced—up to 30% lower if you start right at 62. If you delay filing past FRA, your benefit increases by about 8% for each year you wait, maxing out at age 70. Over time, the difference between claiming early and waiting can add up to hundreds of thousands of dollars, especially if you live a long life.

Timing is even more critical if you’re married.

Spousal benefits allow a lower-earning spouse to receive up to 50% of the higher earner’s benefit. To claim spousal benefits, the higher-earning spouse must file first, and filing before FRA reduces the spousal benefit as well. In addition, when one spouse passes away, the surviving spouse keeps the higher of the two benefits. That means if the higher earner delays filing, it can increase the surviving spouse’s income for life—a critical consideration for couples where one partner is expected to outlive the other.

It’s also helpful to understand your breakeven age—the point at which the total value of delaying benefits surpasses what you would have received by claiming early. For many retirees, the breakeven point falls between age 77 and 83, depending on your benefit amount and filing strategy. If you’re healthy and expect to live well into your 80s or beyond, delaying could be the better move. But if you have health concerns or need income sooner, filing earlier may be the more practical choice.

Ultimately, Social Security is just one piece of your retirement paycheck—but it’s a foundational one. It offers inflation-adjusted, guaranteed income for life, and in many cases, it can act as a buffer that helps protect you during market downturns. The key is to evaluate the tradeoffs, understand how the rules apply to your situation, and make a decision that fits into the broader context of your financial plan. If you’re not sure which path makes the most sense, working with a financial advisor can help you “squeeze all the juice” out of this critical benefit.

Strategy #2. Implement a Tax-Efficient Withdrawal StrategyOne of the most overlooked ways to maximize your retirement income is by carefully managing where your withdrawals come from each year. Most retirees have a mix of account types—traditional IRAs and 401(k)s (tax-deferred), Roth IRAs (tax-free), and brokerage accounts (taxable). Each of these is taxed differently, and the order in which you draw from them can have a big impact on your lifetime tax bill. For instance, early in retirement, you might lean more on taxable accounts and strategically convert IRA dollars to Roth while your income is relatively low.

Later on, Roth accounts can also provide tax-free income in years when your taxable income is already high, helping you stay below key income threshholds.

For example, imagine a retiree who needs to withdraw an extra $15,000 to cover a large one-time expense. If they take the money from their IRA, it increases their taxable income—not only pushing more of their Social Security into the taxable range but also reducing or eliminating subsidies they’re receiving through the Affordable Care Act (ACA). In some cases, that $15,000 withdrawal could result in thousands of dollars in additional taxes and lost benefits. But if that same amount is withdrawn from a taxable brokerage account or Roth IRA, where only a portion is subject to capital gains tax or completely tax-free, the impact might be far less severe. Coordinating withdrawals with your broader tax and healthcare situation can make a significant difference in how long your portfolio lasts.

It’s a common belief that retirees should draw from taxable accounts first, then tax-deferred, and finally tax-free. But as the example below from Fidelity shows, a more balanced approach—pulling proportionally from each type—can lead to dramatically lower taxes over time.

How Withdrawal Order Affects Your Lifetime Tax Bill

Source: Fidelity InvestmentsIt’s also important to plan around Required Minimum Distributions (RMDs)**, which begin at age 73 for most retirees (and 75 for those born in 1960 or later). If your traditional retirement accounts are large, those RMDs can create an income spike that pushes you into a higher bracket. Planning ahead by “filling up” lower brackets with partial Roth conversions in your 60s—or withdrawing pre-RMD strategically—can help smooth your tax picture over time. A withdrawal plan isn’t static; it needs to evolve with tax laws and your spending needs.

Strategy #3. Review Your Tax Situation Each YearTaxes don’t disappear in retirement—they just change form.

Each year, retirees make decisions that can either add up to thousands in unnecessary taxes or lead to years of meaningful tax savings. A yearly review can help you evaluate whether it makes sense to realize capital gains in a low-income year, offset gains with tax-loss harvesting, or accelerate deductions through charitable giving. Retirement often opens up new opportunities for tax savings, especially if you’re no longer earning wages. You may now qualify for deductions like high medical expenses or be able to take advantage of tax-efficient giving strategies such as Qualified Charitable Distributions (QCDs) once you reach age 70½.

One powerful strategy to evaluate each year is Roth conversions. These can be especially impactful in the early years of retirement—after you’ve stopped working but before RMDs and Social Security kick in. By intentionally converting portions of a traditional IRA to a Roth while your taxable income is low, you can pay tax at a lower rate now and reduce the size of future RMDs. Doing this over multiple years can create a more balanced tax picture and lower your lifetime tax bill.

The key is that these decisions require foresight—once the year ends, many tax planning opportunities disappear.

Strategy #4. Stay On Top Of New ChangesRetirement planning doesn’t end when you stop working—it evolves constantly.

Tax laws, Social Security rules, RMD ages, and Medicare premiums are all subject to change, and even small tweaks can have a ripple effect on your income. For example, recent legislation (like the SECURE Act and its sequel) has already changed RMD ages and beneficiary rules for inherited IRAs. COLA adjustments to Social Security can bump up income, which in turn might affect your tax bracket or Medicare premiums.

Staying informed helps you make timely decisions and avoid unintended tax consequences.

Medicare premiums, in particular, are often misunderstood. They’re income-based, so if your Modified Adjusted Gross Income (MAGI) crosses certain thresholds—even by a dollar—you could end up paying hundreds more per month in IRMAA surcharges. That’s where smart tax planning and withdrawal coordination comes in. In some years, it will be essential to know where you are drawing income from and how it will affect your tax picture.

Keeping up with these rule changes doesn’t mean you have to become an expert—but it does mean revisiting your plan each year and adapting as needed.

Strategy #5. Review and Adjust Your Plan Along The WayYour financial plan is a living document, not a one-and-done checklist.

Retirement is full of curveballs—markets shift, health events arise, family needs change, and your personal goals may evolve too. That’s why it’s so important to revisit your plan annually to make sure it still fits your life. Even small changes, like a new travel goal or deciding to downsize your home, can impact your income needs, investment allocation, and withdrawal strategy. And on the flip side, major unexpected events—like supporting an adult child or dealing with long-term care—can require deeper recalibration.

Annual financial check-ups are a great time to review your current cash flow, make sure your spending plan still aligns with your values, assess your emergency reserves, and rebalance your portfolio if needed. It’s also a good time to run “what if” scenarios—What if the market dips next year? What if you live to age 100? What if you want to give more during life? These reviews don’t just provide peace of mind—they help you stay proactive instead of reactive. Flexibility is one of the most valuable assets in retirement. The more willing you are to course-correct along the way, the more resilient—and fulfilling—your retirement will be.

Retirement isn’t just about income strategies—it’s about enjoying the life you’ve worked hard to build. For ideas on how to live your golden years with purpose and intention, check out our post on How to Make the Most of Your Golden Years.

In the end, retirement can be an exciting and rewarding phase of life, but it requires careful planning and ongoing adjustments to maximize your income and reduce uncertainty. By implementing these five strategies—maximizing Social Security, drawing income tax-efficiently, reviewing your taxes annually, staying informed about key changes, and staying flexible—you can reduce uncertainty and build a more confident retirement.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Five Smart Strategies to Maximize Your Retirement Income appeared first on Albion Financial Group.

View Details

Executive Summary: Maximizing Enjoyment of Wealth: In his book, Die With Zero, author Bill Perkins argues that the goal should be to maximize the enjoyment from your money while you’re alive, not just amass the most wealth. * Memory Dividends: Perkins introduces the concept of “memory dividends,” where the value of experiences grows over time, just like your investments. These experiences provide lasting memories, fulfillment, and enjoyment long after they happen. * Rethinking Wealth: Rather than focusing solely on maximizing net worth, Perkins advocates for investing in meaningful experiences earlier in life, when you’re healthy and able to enjoy them. * Balancing Enjoyment with Financial Security: While embracing Perkins’ philosophy, it’s critical to balance living for today with ensuring long-term financial security. This includes strategies like understanding safe withdrawal rates and doing ongoing retirement planning. * Give While Alive: Lastly, Perkins suggests passing wealth to heirs earlier in life when they need it most, rather than waiting until after death.*

What if the goal of retirement wasn’t to leave behind the most money, but to maximize the enjoyment you get from your money while you still can?

In Bill Perkin’s book, Die With Zero: Getting All You Can From Your Money and Your Life, he challenges ‘traditional wealth management’ by calling for a more intentional approach to spending wealth throughout your life. Instead of focusing solely on maximizing wealth or leaving a large inheritance, Perkins encourages people to use their money to maximize meaningful experiences while they are still healthy (and alive) and able to enjoy them.

Central to Bill’s philosophy is the idea of investing in experiences (not just assets) that create lasting memories, or “memory dividends,” that provide ongoing value and fulfillment. Funny enough, Bill argues that just like traditional investing, investing in experiences is more valuable the younger you are, as it gives you extra years for those memories to “compound”, maximizing the total lifetime benefit you get from each experience.

To understand memory dividends, Bill writes:

“Think back to one of the best vacations you ever had, and let’s say it lasted a full week. Now think about how much time you spent showing pictures of that trip to your friends back home. Add to that all the times you and the people you traveled with reminisced about that trip, and all the times you’ve thought about it yourself or given advice to other people considering going on a similar trip. All those residual experiences from the original experience are the dividends I’m talking about—they’re your memory dividends, and they add up.”

In other words, memory dividends are the additional benefits we receive from our experiences long after they have ended.

The concept of memory dividends is a powerful one, as it encourages us to not only focus on investing to build wealth but also investing in experiences to build memories and enrich our lives. And these days, Perkins’ philosophy is gaining attention as more people want to balance living for the moment, while still setting themselves up for the future.

In this article, I want to layer my skills, views, and philosophies as a Financial Advisor on top of Bill’s philosophy of squeezing all the enjoyment out of your money while you can. Of course, I’m not advocating literally dying with no money left, as I believe that’s the opposite of what most people should be aiming for. But, I do believe there’s a strong case to be made for maximizing the enjoyment you get from your money while you’re still alive.

Let’s walk through that case together, starting with me and my awesome wife, Paige.

My Personal Experience With Memory DividendsWhen my wife and I met, we were in our mid-20s, both working full-time, but with very little responsibility outside of our jobs (her as a receptionist at a medical office and me as an electrician). In other words, no kids, no pets, no mortgage – just a couple of young, working, and relatively unburdened people.

We were avid rock climbers at the time and would do a lot of weekend trips around the state – shout out to Utah and its collection of wonderful rocks! Naturally, we started to wonder how it would be for us to take a bigger trip, exploring crags all around the US. Maybe a couple of weeks, maybe longer?

One thing led to another, and the adventurous Paige decided it might be better for us to think bigger and spend a month and a half traveling around Europe, exploring the crags and sites abroad.

And so we did.

I didn’t realize it at the time, but that trip would create some of our fondest memories, contain some of the most unique experiences of our lives (homesteading on a small farm in Italy), and most importantly, (at least for now) would be once in a lifetime. That’s not to say we couldn’t ever travel to Europe for an extended period again, but, I don’t anticipate we’d be interested in traveling like we did: climbing gear and backpacks in tow, cheap Airbnbs, hostels, and even free accommodations through work exchange programs, all while flying by the seat of our pants with a loose (at best) itinerary.

When it was all said and done, we traveled for six weeks, visited four beautiful countries – Greece, Croatia, Slovenia, and Italy – and climbed rocks in some of the most striking places we’ve ever seen.

Fast forward to today and we’re in our 30’s, with a couple of young kids, and a ton more responsibility. We can’t travel like we did then without significantly disrupting our lives. But what we do have is the memory dividends from that ‘once-in-a-lifetime’ experience we created together.

Of course, from a financial perspective, we didn’t maximize our net worth with our decision to quit our jobs and travel around Europe. Instead, the trip probably cost us thousands of dollars at the time. But, it’s some of the best money we’ve ever spent, and it’s the reason I feel so aligned with Bill’s idea to maximize the enjoyment you get from your money while you can.

Now, let’s explore what that can look like for you.

What “Die With Zero” Really MeansPerkins’ concept of “Die With Zero” is not about spending down every last penny but rather about rethinking the purpose of wealth. He argues that too many people hoard their money with a focus on leaving a large inheritance or simply out of fear of running out. Instead, Perkins advocates for a strategic approach to spending—one that maximizes enjoyment and fulfillment during your lifetime.

His core message is that money can’t bring you joy once you’re gone, so the goal should be to use it while you’re alive to create meaningful experiences.

Again, the idea of “memory dividends” is central to this philosophy. Perkins believes that experiences, particularly those created earlier in life, provide a lifetime of return on investment. Just like Paige and I’s trip to Europe, the memories from these experiences grow more valuable over time, much like financial dividends, enriching our lives with each passing year.

So it’s not about spending your money for the sake of spending it, it’s about using it to enrich your life by doing the things you love, with the people you care about the most. Sounds great, right? But what about the risks?

The Risks of Literally Dying With ZeroWhile Perkins’ philosophy encourages maximizing enjoyment during your lifetime, it’s important to acknowledge the risks.

Running out of money in retirement can be a serious concern, especially if you live longer than anticipated or face unexpected expenses. Healthcare costs, in particular, can be unpredictable and significantly impact your financial situation in later years.

That’s why outliving your money is a key consideration in financial planning.

So, while it’s essential to enjoy your money during your life, it’s also critical to build a plan that ensures your needs will be covered for as long as you live. This might involve strategies such as utilizing safe withdrawal rates or running annual retirement projections to ensure that you are on track for success, and fine-tuning your plan as needed.

So, while Perkins’ philosophy is thought-provoking, it must be balanced with the practical realities of long-term financial security.

How You Can Maximize Enjoyment of Your MoneyTo fully embrace Perkins’ philosophy requires a mindset shift, and here are some examples to consider:

• Don’t delay: Instead of exclusively waiting until retirement to enjoy your wealth, consider spending on meaningful experiences throughout your working years – possibly through a sabbatical or other extended time off.
• Earmark funds: Next, just like you earmark funds for an upcoming purchase or investment, consider earmarking funds each year to spend on experiences.
• Identify Optimal Experience Timing: When it comes to experiences, it’s critical to realize that not every experience is available (or desirable) at every age. For example, most people can’t or don’t want to go heli skiing in their 90s, so it’s critical to do that experience while you still can.

Again, balancing experience-driven spending with security is crucial. While it’s great to spend money doing the things you love with the people you love, it’s also essential to invest for the future, understand safe distribution rates, and have a plan for future needs.

A well-thought-out strategy can help you make the most of your money while ensuring you don’t jeopardize your long-term financial stability.

But What About the Kids?In his book, Bill has an entire chapter dedicated to the question he says always comes up: “Sure, this sounds great, but what about the kids?”

For many wealthy families, leaving an inheritance for the next generation is a key goal, and some will even build in a specific amount they plan to leave after they pass. But, Bill argues that you shouldn’t wait until you’re gone to give money to the next generation. Instead, he believes that by giving money while you’re alive, you not only get to reap the benefits of watching the next generation enjoy the money, butyou’re also more likely to give the money when it’s needed the most (when your heirs are young and starting their families, buying homes, putting kids through school, and more).

In Bill’s book, he explains that he has already given his kids close to 90% of their inheritance, which has empowered him even further to maximize the enjoyment he gets from his money, without worrying about what will be left for the kids.

In addition, he argues that by waiting until you die to give an inheritance, you’re subject to the three R’s: ”Giving random amounts of money at a random time to random people (because who knows which of your heirs will still be alive by the time you die?).”

Of course, there are valuable tax considerations to understand when giving money while you’re alive versus waiting until after you’ve passed, so it’s important to do your research when deciding what’s right for you.

If you want additional insights into the pros and cons of giving while you’re alive vs waiting until you pass, check out our article: Transferring Wealth: The Pros and Cons of Giving While You’re Alive vs After You’re Gone.

Wrapping it All UpIn the end, you don’t need to literally “die with zero” to take valuable lessons from Perkins’ philosophy.

Instead, his approach reminds us to live more fully and enjoy the wealth we have while we’re still here to benefit from it. To not delay experiences until it’s too late, and to consider passing wealth to the next generation when they need it the most, and, when you’re around to watch them enjoy it.

Ultimately, by reflecting on how you spend your money, and prioritizing experiences that bring lasting joy and fulfillment through memory dividends, you can find a healthy balance between living in the moment and securing your financial future.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Should You Aim to Die With No Money Left? Bill Perkins, Hedge Fund Manager and Author, Explains Why appeared first on Albion Financial Group.

View Details

During last week’s conference call, our panelists – Jason Ware (CIO & Chief Economist), John Bird (CEO & Co-Founder), Anders Skagerberg (Senior Wealth Advisor), and Liz Bernhard (President & Senior Wealth Advisor) – addressed the heightened uncertainty in today’s economic and market environment. They discussed recent volatility in both stock and bond markets, the weakening US dollar, and declining consumer sentiment. The conversation covered the broader economic landscape, including the impact of shifting trade policies, new tariffs, and changes in federal policy leadership, all of which have contributed to a general slowing in economic activity as businesses and consumers await greater clarity.

The team also shared insights from our client conversations. Many are understandably feeling nervous given the current uncertainty, and we emphasized that Albion’s planning process is designed to account for both good times and challenging periods. Our scenario modeling is designed so financial plans remain robust, even in less favorable environments. At the same time, we recognize that everyone’s situation and perspective is unique—some are concerned, while others, with more experience weathering market cycles, are less fazed by current events.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Spring 2025 Client Conference Call appeared first on Albion Financial Group.

View Details

As the snow melts and spring blossoms emerge, we close the books on a dynamic first quarter and look forward to the opportunities that lie ahead in this season of renewal and growth. From the desk of Albion’s President Liz Bernhard, this letter begins with a retrospective of headlines from past recessions compared to the tone of today’s newspapers. Then our CIO Jason Ware details the strengths and weaknesses of the US economy and markets. Finally, Senior Wealth Advisor Anders Skagerberg promotes the long-term mindset that is required to persist through challenging times. Read through to our Community segment for team updates and upcoming events.

From the Desk Of Liz Bernhard“This Time Is Different”—But Is It, Really?

Every market cycle brings its own headlines, anxieties, and reasons to believe that “this time is different.” And in some ways, it is—unique political developments, global tensions, new technologies, and shifting economic data can make the present feel unprecedented.

Lately, investors have voiced concerns about market volatility, geopolitical strife, and domestic political uncertainty. It’s easy to feel unsettled. These moments invite the temptation to react, retreat, or alter long-term plans based on short-term fears.

But while the circumstances change, human behavior rarely does. History shows that uncertainty is not the exception—it’s the norm. Markets have weathered wars, recessions, elections, and crises. And each time, the refrain is familiar: “But this time feels different.”

And yet—this too shall pass.

Let’s take a walk down memory lane. Remember the Great Financial Crisis of 2008? Of course you do. A few headlines from that time:

• “Job Losses Accelerate, Signaling Deepening Recession” — The New York Times, Dec. 6, 2008
• “Foreclosures Soar as Homeowners Fall Behind” — Bloomberg, late 2008
• “World Recession Looms as Markets Tumble” — BBC News, Oct. 6, 2008

How about COVID?

• “Wall Street’s Coronavirus Collapse Marks Fastest Bear Market Ever” — Bloomberg, Mar. 12, 2020
• “Oil Prices Plunge to 18-Year Low as Demand Evaporates” — CNBC, Mar. 30, 2020
• “March 2020 Becomes Most Volatile Month in Stock Market History” — MarketWatch, Mar. 31, 2020

The beginning of the war in Ukraine:

• “Market Volatility Spikes as Russia Launches Full-Scale Attack on Ukraine” — CNBC, Feb. 24, 2022
• “Stocks Swing and Oil Prices Soar After Russia Attacks Ukraine” — CBS News, Feb. 24, 2022
• “Global Inflation Surges Amid Ukraine Conflict” — Reuters, May 10, 2022

And now:

• “Consumer Confidence Hits Two-Year Low as Inflation and Job Fears Rise” — Associated Press, Mar. 28, 2025
• “Wall Street Tumbles, and S&P 500 Drops 2% on Worries About Slower Economy, Higher Inflation” — Associated Press, Mar. 28, 2025

Each moment felt unique: the worst economy since the Great Depression, a global pandemic, a war in Europe. And each time, the market—and headlines—reacted. Yet the market recovered.

• The S&P 500 took about 4.5 years to recover from the March 2009 low during the GFC.
• The COVID crash recovery took under five months.
• After Russia’s invasion of Ukraine in February 2022, it took only a month for markets to bounce back.

The point is: markets recover. Stocks go higher. While each situation truly was different, those who stayed the course were rewarded.

The core principles of sound investing haven’t changed: stay disciplined, remain diversified, and stay focused on long-term goals. Emotional reactions to uncertainty are among the greatest threats to building lasting wealth.

Our approach remains rooted in evidence, not emotion. We build durable portfolios designed to weather a wide range of possibilities—always with an eye on the big picture and the most probable long-term outcomes: humanity will progress, economies will grow, markets will rise. And within that reality, asset allocation, diversification, behavior, and planning are what matter most.

The Wall Street Journal from March of 2020. The coronavirus outbreak fanned new fears of a worldwide recession, as well as an all-out oil price war, sending stock markets spiraling down to new record lows not seen since the financial crisis of 2008.Economy and Markets by Jason WareThe first quarter of 2025 is in the books, and it was a bumpy one. While it never feels like it at the time, corrections are normal – even healthy – in a bull market. Since 1928, the S&P 500 has experienced 103 such corrections, occurring about once every 13 months, with an average drawdown of -13.5%. The latest decline of about -10% follows an extended stretch of relative calm as the previous correction (September-October 2023) was roughly 16 months ago. Put differently, in a way, markets were sort of due. We certainly recognize that pointing to historical patterns offers little comfort when portfolios are under pressure. But history is clear on how most corrections end: by avoiding recession. The majority don’t turn into full-blown bear markets. When they do, it’s almost always tied to economic contractions or sudden, unexpected shocks.

Consequently, the critical question now is: where do we stand on recession risk? Let’s unpack.

Underneath the volatility – both in the markets and the headlines – the US economy remains on pretty good footing, though with some shifting undercurrents. Growth is moderating from last year’s pace, but not stalling. The labor market, while cooling at the margins, is still adding jobs, layoffs are low, and wage growth continues to outpace inflation supporting real household incomes. Meanwhile, business investment runs apace, with AI, automation, software, and infrastructure spending leading the way.

That said, some pockets of weakness are emerging. Higher borrowing costs continue to weigh on certain industries, particularly interest-rate-sensitive sectors like commercial real estate, housing, and manufacturing. Consumer spending, while resilient, is showing more divergence between higher-income households (who are still spending freely) and lower-income consumers, who are feeling the pinch of tighter credit conditions, a lower savings cushion, and elevated uncertainty. However, with pro-growth fiscal deficits still in place (despite ‘DOGE’), productivity improving, and a generally healthy jobs market underwriting robust services activity (by far the largest piece of GDP), we continue to believe the post-Covid economic expansion endures.

Meanwhile, the inflation story has largely played out as we’ve expected. The supply shocks and demand surges of 2021-23 have faded, and price pressures have eased. While we’re unlikely to see inflation sustainably at 2% any time soon, the mid-to-high-2s look like a reasonable resting place. That’s a world away from the 9.1% peak of 2022, and as long as inflation stays contained the Fed has room to maneuver. Moreover, as we’ve past highlighted, inflation at 3% or less is constructive for both the economy and stock market.

After holding rates steady for much of 2024, the Fed finally pivoted to rate cuts late last year. The goal? A “soft landing” where inflation stays in check without tipping the economy into recession. The Fed’s definition of “neutral” policy – where rates neither stimulate nor restrict growth – coupled with the economy’s structural underpinnings as we see them suggest a terminal fed funds rate somewhere around 3.5%. With inflation easing, the Fed had begun moving in that direction, but the path forward remains uncertain. Markets are pricing in multiple rate cuts ahead, but the Fed is keeping its options open, and we see “sticky” inflation restraining them for now – unless unemployment begins to rise meaningfully.

Bond yields have settled into a more predictable range. If neutral rates are around 3.5% and term premiums are historically normal, then long-term Treasury yields should hover in the 4.0-5.0% range. Of course, fiscal deficits, geopolitical events, US economic growth and inflation, as well as investor sentiment will keep things volatile at times. But in general, this is a favorable environment for long-term investors with a balance asset allocation looking to lock in attractive yields.

Turning to stocks, notwithstanding the acute volatility since late-January, US equities remain well-supported by fundamentals. Corporate earnings are growing at a healthy pace. S&P 500 earnings-per-share (EPS) finished 2024 at $243, with estimates for 2025 approaching $270 (that’s double-digit growth!) and 2026 potentially reaching $300. For context, EPS was about $138 at the Covid low and $162 in 2019, reinforcing the ever-present resiliency and dynamism that defines American business … a vigor we never wish to bet against.

While earnings growth remains strong, valuation is a key consideration. As of this writing, the S&P 500 trades at ~20.5x this year’s earnings – not “cheap” per se, but certainly not extreme. Much of the premium remains concentrated in a handful of technology (AI) stocks, while other areas of the market, such as healthcare, industrials, REITs, financials, and small / mid-caps, offer more attractive valuations. Many of the mega cap stocks, or “Mag 7”, also look more attractive amid the market pullback. Portfolio positioning remains key, as leadership may continue to broaden beyond the handful of dominant winners. In everything we do, the mantra own great companies and diversify reigns supreme.

In sum, as noted in our last missive, we’re calling 2025 “A Year of Three-Twos.” That is, a US economy growing at roughly +2%, core inflation settling into the mid-2s, and a Fed that may cut rates two times. It’s a backdrop supportive of continued, if more moderate, market gains. Indeed, we don’t need multiple expansion. Rather, merely sustaining nourishment from a salubrious business cycle and profits should do the trick. Of course, risks remain. Geopolitics, tariffs, government austerity, the level of inflation and bond yields could each or in concert introduce volatility. But overall, the foundation, at present, remains solid from our perch.

As always, we remain resolutely focused on navigating the ever-evolving landscape while keeping our true north, the long-term, firmly as our guide. Thank you for your continued trust!

Mind The (Behavior) GapAnders Skagerberg, CFP®, EA

As the first quarter of 2025 comes to a close, a few things stand out to me.

First and foremost, as an advisor, I’m reminded that one of the best parts of my job is the privilege of walking alongside my clients—through market ups and downs, life’s milestones, and all the thoughtful decisions in between. This is meaningful, important work.

Second, periods like these highlight just how powerful human behavior is. Recently, markets have been bumpy and headlines unsettling, affecting how we feel as investors—and ultimately, how we behave.

Like it or not, we’re wired to feel losses more intensely than gains and to focus more on negative information than positive. These behavioral biases—known as loss aversion and negativity bias—are built-in features of the human brain.

Now, don’t get me wrong—these biases aren’t inherently bad. Think of them like a well-meaning friend who always ‘speaks their mind.’ They’re survival mechanisms, hardwired to protect us from danger. If we rewind a few hundred thousand years, early humans lived in a world filled with physical threats, where losing essential resources like food, shelter, or safety could literally mean life or death. That harsh reality shaped our brains to prioritize avoiding losses and taking fewer risks—because back then, one wrong move could have serious consequences.

Fast forward to today, and those same instincts often lead to unintended, sometimes costly, outcomes. What once protected us can now get in the way, pushing us toward decisions that undermine our long-term financial well-being.

In our industry, we call this impact The Behavior Gap.

At Albion, this concept is so central to how we think about investing that we’ve made “Behave Yourself” one of our Four Pillars of Investing. It’s something our Chief Investment Officer, Jason, reminds us of regularly: “Investor behavior will determine success or failure more than anything else.”

Popularized by financial writer Carl Richards and quantified in Dalbar’s annual Investor Behavior Report, the behavior gap refers to the difference between what an investment should return and what an investor actually earns. Simply put, it’s the gap between potential returns and actual results.

And it turns out, there’s quite a gap.

Dalbar’s most recent study, published in April 2024, shows the average investor underperformed the market by 5.5% in 2023—the third-largest gap in the past decade. Looking at the long-term data, since 1988 the market has averaged a 10% annual return, while investors earned just 4.1%. That’s nearly a 6% shortfall per year!

This is why, as investors, managing our own behavior is one of the most crucial ingredients for growing wealth.

Of course, that’s easier said than done. If it were easy, everyone would do it—and the gap would disappear. But it’s worth the effort. And ultimately, this is where we strive to add the most value as your advisors. We understand it’s scary. We understand how it feels (we’re investors too). And we understand what’s at stake.

If nothing else, I hope this gives you a glimpse behind the curtain at how we think about our work. To us, the most meaningful thing we can do is be there—through the good times and the bad—to help you make the best decisions for yourself and your family, even when they don’t feel like the easiest.

But before I go, in true advisor fashion, I want to leave you with some practical steps. Here’s how to mind the (behavior) gap:

Step 1: Be aware of the gap.If you’ve read this far, you’re already ahead—you’re now aware of the gap that exists between investment returns and investor returns. Awareness is the first, crucial step.

Step 2: Understand the role of volatility.You’ve likely heard the term, but volatility simply measures how much and how quickly an asset’s price moves over time. Here’s the key: volatility isn’t something to avoid—it’s something to expect. It’s the price we pay for long-term growth. As financial writer Morgan Housel puts it, “Volatility is the price of admission. The prize inside is superior long-term returns. You have to pay the price to get the returns.”

But here’s the part you can control: how much volatility you feel.

Consider two investors who both started 30 years ago, invested the same way, and never sold. One checks their account once after 30 years. The other checks daily.

Both end up with the same financial result—but their experiences are vastly different.

The first investor might think, “Wow, investing is simple. Look how much my account grew.” The second, having lived through every dip—the dot-com crash, the 2008 financial crisis, the COVID crash—might feel like they barely made it through.

This is an extreme example, but the point stands: volatility is unavoidable, but how intensely you experience it is within your control. The more you check, the more you’ll feel the bumps. The volatility exists either way—but you decide how much of it affects you.

Step 3: Focus on what really matters.At the end of the day, investing isn’t just about numbers or market performance—it’s about your life, your family, your dreams, and your legacy. When headlines feel overwhelming and markets feel uncertain, it helps to come back to what truly matters.

Think about the goals we’ve planned for together—whether it’s retirement, supporting your kids or grandkids, or contributing to causes close to your heart. Keeping these front and center brings clarity and perspective when doubt creeps in.

As your advisors, we’re here to keep you grounded in those objectives. It’s not always easy, but the most important decisions rarely are. We’re grateful for your trust and partnership as we navigate these moments—always keeping your bigger picture in mind.

Read the full quarterly letter with the Community segment here.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Quarterly Letter – First Quarter 2025 appeared first on Albion Financial Group.

View Details

We are thrilled to announce that our esteemed colleague, Sarah Bird, CFP®, has been named to the National Association of Personal Financial Advisors (NAPFA) Women to Know list for 2025. This recognition is a testament to Sarah’s outstanding professional accomplishments and her unwavering commitment to promoting women within the financial planning profession.

As a Senior Wealth Advisor at Albion Financial Group, Sarah has consistently demonstrated her dedication to empowering women through financial education and personalized guidance. Her leadership in the “Women of Albion” program has been instrumental in helping women take control of their financial futures.

NAPFA’s Women’s Initiative plays a crucial role in attracting, supporting, and developing female advisors and leaders across the industry. This aligns perfectly with Sarah’s career-long focus on education and empowerment, particularly for women and recent widows. As a Trauma of Money certified advisor, Sarah’s work often addresses the emotional and psychological aspects of financial decision-making, which can be crucial for individuals dealing with financial challenges that may stem from trauma.

Albion Financial Group is proud of our long-standing relationship with NAPFA, an organization that has been at the forefront of promoting the highest professional standards in financial advising since 1983. Sarah’s recognition further strengthens our commitment to NAPFA’s mission and values.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Celebrating Excellence: Sarah Bird, CFP® Recognized in NAPFA’s Women to Know 2025 appeared first on Albion Financial Group.

View Details

Executive Summary:

• As you approach retirement, it’s important to take steps to help ensure a smooth transition. This article highlights three critical steps you can take to get you ready for your work-free years.
• First, figure out what you’re retiring to: Beyond financial readiness, it’s essential to plan for how you’ll spend your time in retirement, ensuring you maintain a sense of purpose, fulfillment, and connection.
• Second, review your investments and adjust as needed: Assess your current asset allocation and make necessary adjustments to align with your risk tolerance and income needs as you near retirement.
• Third, plan your retirement paycheck: Develop a detailed strategy for how you’ll draw income from your retirement accounts, considering the frequency of payments and the tax implications of withdrawals.

Retirement is one of the biggest financial transitions there is, marking a major shift from your working years to your work-free years. As such, it’s critical to prepare, often decades in advance, for this big moment.

But, while many start preparing for retirement in advance by funding retirement accounts and paying off debt, there are a few critical (and timely) steps that can easily get overlooked. In this article, we will cover three critical steps to prepare for retirement in the next five years.

Let’s dive in.

Step #1: Figure Out What You’re Retiring ToIt’s natural to view retirement readiness as a math equation: you figure out how much money you need to stop working (adjusted for inflation), hit that number, and then sail off into the sunset. But, the reality is that financial readiness is just one piece of the puzzle, and for many, it’s the simple part.

The more challenging piece of the puzzle is figuring out a) what you’ll do every day and b) how you’ll maintain a sense of purpose. For many soon-to-be-retirees, this may sound silly, as people often imagine filling their free time will be a piece of cake, especially when they’ve had such little free time outside of their careers.

But, the truth is that retirement is a major lifestyle change so it’s important to have a plan in place for how you’ll spend your time.

So, as you approach retirement, take some time to think about what you want your retirement day-to-day to look like. Do you want to travel? Volunteer? If so, where will you travel, and where will you volunteer? Will you pursue a hobby or passion project? Again, get specific: what hobby or hobbies will you focus on?

Zooming in even further, what will an average day look like for you? What time will you wake up? How will you start your day? Answering each of these questions can help prepare you to make the transition as smooth as possible.

Additionally, consider how much physical activity and social interaction you will need.

Unfortunately, many retirees struggle with depression, stress, and anxiety, so finding activities that keep you active and engaged with others can greatly enhance your overall retirement experience. Also consider that, for many, work not only filled the majority of their time but also provided a sense of friendship and community through their coworkers. In addition, many received a sense of purpose through work as they were continually working toward and achieving goals and improving their craft. So, it’s essential to be mindful of the different areas of your life that work impacts and have a plan for how you will recreate that in retirement.

Ultimately, remember that planning for retirement goes beyond just financial readiness—it’s about designing a life that brings purpose and fulfillment. By considering how you’ll spend your time and maintaining connections, you can create a truly rewarding retirement.

For more insights on navigating the complexities of retirement, check out our previous post: Struggling in Retirement? How to Make the Most of Your Golden Years by Understanding and Navigating the 4 Phases of Retirement from Dr. Riley Moynes.

Step #2: Review Your Investments & Adjust As NeededNext, as you approach retirement, it’s critical to review your investments and adjust as needed, specifically review and adjust how your investments are allocated.

But First, What is ‘Asset Allocation?’Put simply, asset allocation is the process of dividing your investments among different types of assets, like stocks, bonds, and cash, to balance risk and reward based on your financial goals and risk tolerance.

In other words, your asset allocation is the mixture of stocks and bonds within your investments.

For many, when they are young and have a long time until retirement, their assets will be allocated more aggressively, often ranging anywhere from 100% stocks to 80% stocks and 20% bonds. Alternatively, those approaching or in retirement often dial down their stocks, adding more bonds to help limit the swings within their portfolio. This often ranges anywhere from 70% stocks and 30% bonds to a more balanced portfolio, with 50% stocks and 50% bonds.

All that said, the interesting thing about asset allocation is there’s really no one-size-fits-all.

For example, there are young people with a long time horizon who simply aren’t interested in the volatility that can come with a more aggressive investment portfolio, so they dial back their stock allocation early on. Alternatively, some retirees are comfortable taking more risk or simply have such significant assets that they can weather any volatility that could come their way without the impacting their financial plan. So, they may opt for a more aggressive asset allocation, realizing that they will have a more volatile portfolio over time, but they can often expect greater returns over time, though nothing is guaranteed.

The point is, while there’s no standard portfolio for every retiree, it is critical to review your investments and adjust as needed.

Here are some things to consider as you review and adjust:

• Your Risk Tolerance: As you approach retirement, it’s important to assess how comfortable you are with the possibility of losing money in the short term. If the idea of seeing your investments drop in value keeps you up at night, you might want to consider shifting to a more conservative asset allocation. On the other hand, if you’re confident in your ability to ride out market ups and downs, you may decide to maintain a higher percentage of stocks.
• Your Income Needs: Consider how much income you’ll need to generate from your investments once you retire. If you’ll be relying heavily on your portfolio for income, a more conservative allocation with a higher percentage of bonds or dividend-paying stocks could provide more stability and predictable income. However, if you have other sources of income, such as a pension or Social Security, you might be able to take on more risk in your investments.
• Rebalancing: Over time, as different parts of your portfolio grow at different rates, your asset allocation can drift from your original plan. Regularly reviewing and rebalancing your portfolio ensures that it stays aligned with your goals and risk tolerance. This might mean trimming some of your winners and buying assets that haven’t performed as well to bring your portfolio back into balance.
• Tax Implications: Keep in mind that selling investments to adjust your asset allocation can have tax consequences in certain accounts like trust accounts or taxable brokerage accounts. Be sure to factor in any potential capital gains taxes when making changes to your portfolio.
• Consulting a Financial Advisor: Lastly, if you’re unsure about the best asset allocation for your situation, or if you’re finding it challenging to make these decisions on your own, consulting with a financial advisor can be invaluable. They can provide personalized advice based on your unique financial situation and help you create a plan that aligns with your retirement goals.

Ultimately, taking the time to carefully review and adjust your investments as you near retirement can help ensure that your portfolio is positioned to support your lifestyle and goals in the many years to come.

Step #3: Plan Your Retirement PaycheckLastly, as you approach retirement, it’s time to plan your retirement paycheck.

One of the biggest shifts you’ll experience from working to not working is that you’ll no longer receive a paycheck from your employer. And while this may seem obvious, it’s important to spend some time planning how you will create your new retirement paycheck.

In other words, what accounts will you distribute funds from each week, month, quarter, or year to cover your living expenses? How much do you need? What account will the money go into? How will you handle one-off expenses?

As you create a plan, get as detailed as possible by answering these three questions below:

1. How much do you need? One of the big questions to answer in retirement is how much money you will need to cover your lifestyle. For many it can be fairly simple: take what you were earning before retirement, add any new retirement expenses (think: bigger travel budget), subtract out any retirement savings or contributions you were making during your working years, and subtract out any expenses that fall off during retirement (think: paid off mortgage). That’s the amount you will need to generate with your retirement paycheck.

It’s also important to consider any one-off expenses that may come up during retirement, such as buying a new car or home renovations. When creating a retirement plan, be sure to factor in these potential expenses so you can have a cushion for these expenses that fall outside your normal ‘retirement paycheck.’

2. How often will you get paid? Next, when planning for retirement, it’s important to consider the frequency of your income. For many people, sticking with a payment schedule they are used to is the best option. This could mean receiving payments every two weeks, as they did during their working years. However, it’s also important to note that certain types of retirement income, such as pensions and social security, are typically paid monthly. In addition, depending on how your investments are set up and allocated, you may not like the extra work that comes with creating your own retirement paycheck each month or every couple of weeks (selling investments, raising cash, etc) so you may decide that quarterly or even annually feels like a better fit. Whatever the case, the important thing is to get specific about how often you’ll be getting paid so you have a plan.

3. Where will the money come from? Lastly, spend some time planning the breakdown of your retirement paycheck. In other words, if you need $10,000 per month, where will that money come from? If you’ve got pensions and Social Security that total around $5,000 per month then you’re already halfway there.

As you create a plan, consider all the different types of investments you have and the tax implications of each. For example, many retirees have a mixture of tax-deferred (often called pre-tax or “Traditional” assets), tax-free (often called after-tax or “Roth” assets), and taxable accounts. As you create your retirement paycheck, remember that taking money from each of these different investment accounts will have different tax implications.

1. Traditional assets will be taxed as ordinary income at your highest marginal tax rate.
2. Roth assets will be completely income tax-free.
3. Taxable assets will have a mix of ordinary income rates (at your highest marginal tax rate) and more favorable long-term capital gains rates, ranging from 0 to 20%.

So, as you create your plan, be mindful of where you are each year from a tax perspective.

If you have the opportunity to fill lower tax brackets with ordinary income, that can be a great plan. Alternatively, if your income for the year is pushing you into a higher tax bracket than you want, consider utilizing your Roth accounts to create tax-free income. In the end, while this step will likely take some time and planning, it can be well worth it to create a tax-efficient retirement paycheck.

Conclusion: Wrapping Up Your Retirement ReadinessUltimately, preparing for retirement in the next five years requires careful planning and thoughtful adjustments to ensure a smooth transition into this new chapter of life.

By taking the time to understand what your retirement will look like, reviewing and adjusting your investments, and planning your retirement paycheck, you can position yourself for a financially secure and fulfilling retirement. Remember, the key is to start now and stay proactive, so you can enjoy your golden years with confidence and peace of mind.

This blog post was also published as an article on LinkedIn

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Are You Retiring In The Next 5 Years? Here Are 3 Critical Steps To Help You Prepare appeared first on Albion Financial Group.

View Details

2025 Tax Planning Guide [PDF]Download

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post 2025 Tax Planning Guide appeared first on Albion Financial Group.

View Details

Weekly Market Recap – January 24, 2025 [PDF]DownloadWeekly Recap:Stocks finished higher and bond yields fell slightly during a holiday-shortened week that was light on macro data, but long on executive orders and policy pronouncements from the new Trump administration. Notably absent was the immediate enactment of tariffs on Mexico, Canada, and China, which had been repeatedly promised by Donald Trump on the campaign trail. Markets breathed a sigh of relief that perhaps tariffs would be used more thoughtfully by the Trump administration than many had feared.

The rise in stocks was broad-based, with 10 out of 11 sectors in the S&P 500 finishing higher on the week. Energy was the lone exception thanks to a $3/barrel pullback in oil prices. International benchmarks finished higher and largely outperformed the US, in large part due to relief that a punitive tariff regime was not immediately enacted by President Trump.

In fixed income, interest rate volatility subsided for the time being despite public pronouncements from Donald Trump that rates “need to be lowered immediately.” Credit rallied and spreads finished tighter by 2 basis points, in sync with the gains in equities.

In macro news:

• S&P’s US Manufacturing PMI just barely rose into expansion territory at 50.1

• S&P’s US Services PMI unexpectedly fell 4 points to 52.8

• The U of Mich. Consumer Sentiment index fell 2 pts to 71.1 in the final January print

• Existing home sales rose 2.2% in December to a SAAR of 4.24 million

Chart of the Week: University of Michigan Consumer SentimentAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth for full-year 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 22.2x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesAfter the “hawkish cut” at the December 2024 FOMC meeting, a near term pause on further rate cuts is likely, and the curve has mostly resumed its normal upward slope. Belly and long end rates in the 4% to 5% range likely represent the “new normal” given solid economic growth, lingering inflation pressures, and large US fiscal deficits.

InflationAfter the disinflationary trend resumed in the summer of 2024, more recent inflation data has shown some renewed signs of stickiness. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Publisher’s Note: This is the final Weekly Market Recap from Michael Kessler after five years of writing this article every week. Michael is leaving Albion Financial Group this week. We thank him for his contributions over the years and wish him the best in his future endeavors!

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – January 24, 2025 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – January 10, 2025 [PDF]DownloadWeekly Recap:Bond yields rose and equities fell after stronger-than-expected labor market data and rising inflation expectations dampened rate cut hopes.

On the labor front, the monthly JOLTS report showed 8.1 million open jobs in the US for November, more than 350k above consensus estimates which had called for a small sequential decline. The prior month was revised higher as well.

Then on Friday, the monthly jobs report from the BLS also exceeded consensus, with 256k nonfarm payrolls added. Unemployment (U3) fell 10bp sequentially to 4.1%, and underemployment (U6) fell 20bp to 7.5%.

At the same time as the labor market was showing continued strength, inflation concerns were stoked by the ISM Services Index, as the Prices Paid component unexpectedly rose more than 6 points sequentially to 64.4.

And finally, preliminary January data from the University of Michigan’s Consumer Sentiment survey showed rising inflation expectations over short (1y = 3.3%; +50bp m/m) and longer term (5-10y = 3.3%; +30bp m/m) time horizons.

The outcome for financial markets was predictable:

• Fed funds futures now imply just one 25bp rate cut will occur in 2025

• Treasury yields rose across the curve, with the 20y briefly breaking above 5%

• Equity prices fell, led by rate-sensitive sectors like tech, financials and real estate

Chart of the Week: Net Nonfarm Payrolls AddedAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 21.5x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesAfter the “hawkish cut” at the December 2024 FOMC meeting, a near term pause on further rate cuts is likely, and the curve has mostly resumed its normal upward slope. Belly and long end rates in the 4% to 5% range likely represent the “new normal” given solid economic growth, lingering inflation pressures, and large US fiscal deficits.

InflationAfter the disinflationary trend resumed in the summer of 2024, more recent inflation data has shown some renewed signs of stickiness. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – January 10, 2025 appeared first on Albion Financial Group.

View Details

4th Quarter 2024 – Quarterly Letter [PDF]DownloadINTRODUCTIONAs we bid farewell to the first quarter of the 21stcentury, we stand at the crossroads of innovation and uncertainty, where the echoes of past challenges mingle with the whispers of future possibilities. In this letter, our CEO John Bird explores how perspectives of political events have shifted over time, challenging our understanding of economic decision-making. Our CIO Jason Ware remarks on the economics of 2024, setting the stage for an intriguing financial landscape in 2025.Then, Senior Wealth Advisor Anders Skagerberg, standing at the threshold of this new year with its opportunities and challenges, looks to turn your aspirations into achievable goals and navigate the evolving landscape of personal finance with confidence and clarity.

FROM JOHN BIRD’S DESKWhile inauguration day is still several weeks away it’s clear President elect Trump is already having an impact on how we view policy and economics domestically and globally. Markets responded favorably to his propensity toward deregulation and lower taxes. Individual reactions to Trump’s statements vary wildly depending on preconceived notions of his policy and personal views of his character. This is normal. Yet for the better part of a century the field of economics treated human emotions as secondary. When and why did economics become a field viewing itself as distinct from politics specifically and the vagaries of the human condition writ large?

The study of political economy evolved in the sixteenth century as philosophers of the time worked to understand the interplay of government policy and household management. These early writers wanted to know how we as individuals made decisions and how
government policy choices impacted those decisions. Adam Smith is perhaps the best known visionary in this school of thought though there were several others influential at the time. An overriding thesis was the notion that allowing for individual incentives fostered greater creativity, effort, and wealth creation than dictates from on high.

Centuries later, toward the end of the eighteen hundreds physical sciences were expanding understanding of our natural world through the scientific method and increased use of mathematics. It was in this period that the term “economics” began to supplant “political economy” as the field worked to shift more toward mathematical modeling of economic decision making with less reliance on factoring in the human emotional element driving the course of our economic path.

In the twentieth century the study of economics was dominated by factors that could be quantified. Numbers ruled the roost. And this period gave us volumes of insights into the working of our economic system which continue to help guide policy and investment decisions today. Yet an awareness of the importance of human behavior in economics can scarcely be overstated. Many of us work to be logical in our decision-making. But when we pull the trigger, it is the emotion of the moment that compels us to act. As investors we ignore this reality at our peril.

The University of Michigan collects data on consumer sentiment based on political party and the insights are a striking example of how our worldview impacts our perceptions. The information highlights that when a democrat is elected to the oval office democratic consumer sentiment spikes upward while republican sentiment plummets. When a republican is elected the effect is inverted. These changes in sentiment are at best loosely correlated (and typically not correlated at all) to unemployment rates, income growth, interest rates or other quantifiable factors that impact aggregate financial well-being. Rather, it’s us as humans acting … human. Turns out how we feel about something has a big impact.

When we look at how we respond to various events – like elections – it’s clear that “political economy” is a better way of understanding our environment and our behaviors than economics alone. It’s also essential to note that while we may understand the why of the financial markets a bit better that doesn’t mean we should change our approach. We continue to invest in companies with competitive advantages that can be sustained for the foreseeable future. We continue to hold those companies regardless of the emotions of the moment. Sometimes in the face of emotional swings so common to our human condition our best course of action is to follow the advice of the white rabbit in Lewis Carrol’s Alice in Wonderland: “Don’t just do something, stand there.” As we enter 2025, we will keep the wise words of said rabbit in mind and keep a steady hand on the tiller of your investments. Thank you for your continued trust and confidence in the Albion team. We wish you a healthy and prosperous new year.

ECONOMY & MARKETS by Jason WareWhat a charmed time this has been for Wall Street! The economy and earnings are doing well. Inflation and interest rates are coming down. Shoppers are outshopping. The US dollar has rallied, and the incoming administration is assumed to be more business friendly. The stock market is in its happy place as evidenced by yet another +20% annual gain. As we close out the year, let us explore each.

The US economy is strong. The labor market is healthy, people are pending, we have a boom in technology capex(AI and Cloud), and there remains a sturdy pro-growth fiscal tailwind. Things look fine today (nothing in the data points to recession) and growth in the years ahead should be stronger than the decade pre-Covid … not by a lot, but better … on rising real incomes, sustained expansionary policies from the Beltway, strong spending and investment on infrastructure and technology, and enhanced productivity.

On prices, the 2021-23 inflation problem has been solved. Not in terms of price level, that’s not going back down (a good thing). But as it relates to price growth, we’re now far better off. While the Fed’s 2% target remains elusive, we are close. Our view holds (for a few reasons) that we can expect inflation roughly in the mid-2s … that 2% will be this cycle’s floor not its ceiling (like in the 2010s) … and that’s just fine. Anything under 3% should be constructive for the economy and financial markets.

Meanwhile, the Fed is now in an easing cycle with a goal to arrive at “neutral.” For those with better things to do than study magic numbers in economics, the neutral rate is essentially inflation plus what economists call “r-star” (r*)– a real rate of interest that’s said to balance the economy. Neutral policy is neither expansionary nor contractionary. Presently, we consider this level to be perhaps 3.5-4.0% (note: for its part, the Fed currently thinks it’s 3%). Meaning, if things go well, we can expect a couple more quarter-point cuts along this path. Now, it’s possible (probable?) this won’t go perfectly to plan without some hiccups, but it could. And if so, that’s conceptually the track forward.

Bond yields take their cues from this base rate math. If 3.5-4.0% represents neutral fed funds and a reasonable term premium for the 10-year Treasury is maybe 1.0% or so, then 4.5-5.0% would be structural equilibrium. On the investment grade corporate side, add about +0.75-1.0% in risk premium. Certainly, these things will move around based on factors like mood, geopolitics, prospects for growth, inflation, and government deficits, making real-time bond yields messier than this straight-forward theoretical exercise. Nevertheless, today is a pretty good time to lock in yields, where appropriate, for balanced accounts.

Over in equity land, unsurprisingly we remain long run bullish on US stocks. The American system endures as the most innovative, dynamic, nimble, and resourceful economy on the planet. The finest universities, brightest minds, and most cutting-edge companies all reside here, not to mention the deepest and most efficient capital markets around. Combined, this is what Buffett calls the “American tailwind” – a force the now 94-year-old sage still believes will propel us onward in the years and decades to come. We agree. Accordingly, our belief is that stock prices will continue to do what they’ve always done: track the general direction of workforce demographics, economic growth, innovation, and business profits, all of which move up over time taking with them the long-term oriented investor.

Speaking of corporate profits, the single biggest item that informs stock prices, they’re at record highs. It’s likely that the S&P 500 logged ~$240 in earnings-per share (EPS) in 2024. If the economy holds up (our base case) we could see ~$275 in 2025 and perhaps ~$300 in 2026! For perspective, EPS troughed at ~$138 during Covid and was ~$162 the year before the pandemic. US companies are quite skilled at making money. More importantly, our portfolio companies continue to shine on this front. We still skew positive for our outlook on corporate earnings. Naturally though, there are some warts. Notable is valuation as stocks aren’t cheap. However we don’t deem them as expensive as those who cite “24x”, CAPE, or whatever. Moreover, it depends on where one chooses to look. Are there expensive parts of the market? Absolutely. More attractive expanses? Totally. At the index level, the S&P 500 currently has a price-to-earnings ratio (P/E) of just over 24x 2024 EPS and 21x that of 2025. Again, not cheap, but not crazy either. It’s been higher at times, and P/E is a terrible timing tool (its best use is to gage expected returns over longer periods, like a decade) so we can’t glean much from these figures as to where the market goes short run. Resultantly, we judge valuation as OK especially if earnings are expanding, inflation is benign, and we’re in an easing cycle with sensible and stable(ish) long rates. Too, post-election, we believe that earnings over the next year or two might come in higher than existing estimates on the notion that less regulation, lower taxes, and increased buybacks could fuel even loftier figures. We’ll see.

Underneath the index level, technology, AI, and the ‘Mag 7’ do look richer relative to other areas, while most everything else is cheaper (S&P 500 is ~16x ex-tech). Spots like health care (and other “defensives”), industrials, REITs, small caps, mid-caps, international, all sport lower valuations – both on a relative and absolute basis. The practical application of this being that portfolio construction and investment tilts matter, while diversification is still the only “free lunch” when investing. If equities broaden out (in earnest) in 2025, it’ll be important to have suitable exposures while preserving deliberate tilts toward quality businesses in tech and growing consumer names. Adding up the puts and takes, we think it unlikely the S&P 500 will be driven by multiple expansion in the years to come. Rather, earnings growth may contribute the lion’s share of the return. But don’t let that get you down beat. If earnings compound at, say, +6-8% (utterly doable) while dividends and buybacks add another couple percent, then the S&P 500 as purely an “earnings growth and shareholder returns story” can be a good stock market indeed. Falling P/Es would be a head wind to this calculus, but for now that’s not our expectation.

As we look ahead to 2025 we are calling it “A Year of Three-Twos.” That is, a US economy firmly growing mid-2s; (core) US inflation settling into the mid-2s; and a Fed that maybe cuts 2 times. 222 … an “angel number” (let’s hope!). Of course, amid all these variables and moving parts we’ll continue to do our job as your investment manager in navigating the landscape for our companies / investments. Thanks for your continued trust in us, and Happy New Year!

PLANNERS CORNER by Anders SkagerbergAs we step into 2025, the planning team remains committed to guiding you to a lifetime of good decisions.

The start of a new year is a chance to reflect, refocus, and take meaningful steps toward your financial goals. Whether you’re planning for a major milestone, fine-tuning your retirement plan, or simply looking to enhance your financial knowledge, we’re here to support you every step of the way.

Looking back, 2024 was a big year – markets were up, we had a presidential election, and so much more. As we look forward to the new year, no one knows for certain what it will hold, but we’re confident that with thoughtful planning and a focus on what truly matters, it can be a year of progress, opportunity, and positive change.

In this planner’s corner update, we will cover:

1. How to Crush Your Financial Goals in 2025
   Practical tips and strategies to set meaningful goals, automate your success, and celebrate progress along the way.
2. Key Updates for 2025
   A look at higher contribution limits, expanded gifting opportunities, Social Security adjustments, and new catch-up provisions for those nearing retirement.
3. What We’re Working on This Quarter
   An overview of our initiatives, from updating RMD calculations to integrating income and employer benefits changes into your financial plan.

Let’s make 2025 a year of financial progress and success. Together, we’ll navigate the opportunities and challenges ahead with confidence and clarity!

Next, How to Crush Your Financial Goals in 2025As we kick off the new year, it’s the perfect moment to take a step back and think about what matters most to you—and how your finances can support that vision.

Depending on your stage of life, your financial goals might be less about growing your wealth and more about maintaining it, simplifying your financial life, or finding ways to use your money to create lasting memories with those you love.

Whatever your focus, the key is to make your goals clear and actionable.

Instead of aiming to “save more” or “spend less,” think about specifics. Maybe you want to fund a family trip, increase your charitable giving, or update your estate plan. Having a concrete goal gives you something to measure progress against—and makes it much easier to see the finish line.

Once you’ve clarified your goals, it’s time to focus on how to make them happen. One of the simplest ways to stay on track is to automate whenever possible. Automating your distributions, bill payments, or even charitable contributions ensures you’re consistent without having to think about it too much. Plus, it gives you more time and energy to focus on what really matters—whether that’s planning your next adventure, enjoying time with family, or pursuing a hobby you love.

Of course, flexibility is just as important as structure. Life has a way of throwing curveballs—unexpected expenses, changes in tax laws, or even an unexpected opportunity you want to pursue. Having some wiggle room in your financial plan can help you roll with the punches while staying on track. For some, that might mean keeping a healthy amount of cash on hand or simply revisiting their plan more regularly to make adjustments.

As you think about the year ahead, it’s also worth reflecting on the bigger picture. How does your financial plan fit into the legacy you’re building? Maybe it’s about leaving something meaningful for your loved ones or supporting causes you’re passionate about. Having a conversation with your family about your values, your estate plan, or even your charitable intentions can make all the difference in ensuring your vision is carried forward in the way you intend.

Finally, don’t forget to pause and appreciate the progress you’ve already made. Achieving your goals—big or small—is worth celebrating.

Whether it’s checking off a bucket-list experience, reaching a financial milestone, or simply enjoying the peace of mind that comes with knowing you’re on track, these moments matter. They remind us that financial success isn’t just about the numbers; it’s about living the life you want and sharing it with the people you love.

Here’s to making 2025 a year full of progress, purpose, and the joy that comes from seeing your hard work pay off.

Next up, here are some key financial updates to be aware of for 2025.

Key Updates for 2025: Higher Contribution Limits:*

401(k)/Roth 401(k): Increased to $23,500, with a $7,500 catch-up for those aged 50+.

IRA/Roth IRA: Remains at $7,000 with an additional $1,000 catch-up if you’re 50+.

HSA: Increased to $4,300 for individuals and $8,550 for families, with a $1,000 catch-up for those aged 55+.

Qualified Charitable Distributions (QCDs): Increased to $108,000 for those over age 70.5. This can be a great way to support the charities you love while receiving valuable tax savings.

• Social Security Benefits COLA Increase:

Social Security benefits will receive a 2.5% Cost-of-living increase for 2025.

• Expanded Gifting Opportunities:

The annual gift tax exclusion has increased to $19,000, (up from $18,000) offering more opportunities for tax-efficient wealth transfers. This means that you can give $19,000 tax-free each year to any person. For a couple, that’s a combined $38,000 per year they can give to a single person.

• NEW “Extra” Catch-Up Contributions for those age 60, 61, 62, and 63:

Larger catch-up contribution limits are now in place for those aged 60-63, making it easier to save more if you’re nearing retirement age. The limit is $11,250 instead of $7,500. This is a new change as of this year and is part of the Secure 2.0 Act passed in 2022.

• Inherited IRA RMDs

If you inherited an IRA from someone other than your spouse after January 1, 2020, the SECURE Act introduced a 10-year rule requiring the account to be fully distributed by the end of the 10th year following the original owner’s death. For beneficiaries where the original account owner had already begun taking required minimum distributions (RMDs), the IRS requires annual RMDs in addition to the account being emptied by the end of the 10-year period.

However, due to clarifications and administrative challenges, the IRS waived the annual RMD requirement for 2020 through 2024. This means that even if you didn’t take any distributions during these years, you did not face penalties. Starting in 2025, the annual RMD requirement will resume, and beneficiaries must take these distributions or potentially face penalties. The 10-year deadline for fully depleting the account remains unchanged.

If you are interested in learning more about any of these updates or need additional clarification, as always, we are here to support you.

Next up, here are some of the things we are working on this quarter as well as a few action items for you.

What We’re Working on This QuarterThe start of the year is always a busy time, and we’re focused on ensuring your financial plan is positioned for success. Here’s what the planning team is focused on:

• Calculating Required Minimum Distributions (RMDs) for those who need them. For those who take monthly distributions to satisfy your RMD, we will be updating those amounts as well to reflect your new RMD for the year.
• Updating Payroll Information and Benefits: If you’ve had changes in pay or recently made benefits elections during open enrollment, we’re integrating those updates into your plan.
• Annual Tax Packages: for those with taxable accounts (non-retirement accounts) you will be receiving your annual tax package that includes a summary of your portfolio income for 2024. Reminder: this is not a tax document, just a summary. Investment account tax documents will be available from custodians starting in mid-February.

Action Items for You:

• If you’ve received a raise, send us your updated pay stub so we can adjust your financial plan accordingly.
• If your employer has an open enrollment period, share your benefits details with us to ensure your elections align with your goals.

Of course, this list is just a glimpse of what we’re focusing on this quarter. As always, we’re here to handle the details so you can stay focused on what matters most.

Ultimately, we’re thrilled to kick off another year of partnering with you to make thoughtful, informed financial decisions. Here’s to a successful and prosperous 2025!

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Quarterly Letter – Fourth Quarter 2024 appeared first on Albion Financial Group.

View Details

Market Recap – 2024 [PDF]Download2024 Recap:Economy:Even as growth slowed in Europe and China, the US economy remained strong in 2024. Unemployment is low and wage gains are solid, supporting continued growth in consumer spending. Regional Fed surveys suggest that domestic manufacturing is still in a slump, but services PMIs (representing the bulk of the US economy) are solidly in expansion territory. Fiscal policy continues to be an economic tailwind thanks to a 2024 federal budget deficit equal to nearly 7% of GDP according to CBO projections.

Inflation:The disinflation trend continued in 2024, albeit at a slower pace than in 2023 when inflation fell rapidly from its mid-2022 peak. With one month of data (December) still to come, CPI inflation had fallen 60-70 basis points in 2024 to +2.7% (y/y) headline and +3.3% core, while PCE inflation was down a more modest 20-30 basis points to +2.4% (y/y) headline and +2.8% core. Progress on inflation appeared to stall in late 2024 as shelter costs showed early signs of reacceleration.

Monetary Policy:The FOMC cut overnight interest rates at each of the last three meetings in 2024, by a total of 100 basis points (1%). Futures markets imply that one or two 25bp more cuts are likely to occur sometime in 2025, after a near term pause. The Fed’s updated Summary of Economic Projections (SEP) released at the December meeting also suggest a slower pace of rate cuts (2 instead of 4) in 2025 and a higher terminal rate (~3%) than was previously forecast by committee members.

Election:After Donald Trump earned a second term as US president and the GOP took control of both houses of Congress, US stocks rallied on the prospect of lower corporate taxes and less regulation. Meanwhile, rates moved higher on the potential inflationary impact of tariffs and tight border controls, as well as concerns regarding future US federal budget deficits.

Bond Market: Treasury yields moved higher for a 4th consecutive year, and the yield curve mostly reestablished an upward slope after a 2+ year period of inversion. Credit spreads gradually got tighter, reaching an all time tight of 74 basis points on the Bloomberg US Corporate Agg index shortly after the election. Mortgage rates for 30-year fixed were in the 6% to 7+% range all year, constraining transaction activity in the housing market.

Stock Market: US stocks soared for a 2nd straight year, led once again by large cap technology companies. Financials also delivered strong returns, thanks in part to a steepening yield curve. Most other parts of the equity market posted smaller but still positive total returns, including cyclicals, defensives, small caps, and internationals.

Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesAfter the “hawkish cut” at the December 2024 FOMC meeting, a near term pause on further rate cuts is likely, and the curve has mostly resumed its normal upward slope. Belly and long end rates in the 4% to 5% range may represent the “new normal” given solid economic growth, lingering inflation pressures, and large US fiscal deficits.

InflationAfter the disinflationary trend resumed in the summer of 2024, more recent inflation data has shown some renewed signs of stickiness. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post 2024 Market Recap appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 27, 2024 [PDF]DownloadWeekly Recap:The “Santa Rally” period (typically defined as the last five trading days of the year plus the first two of the new year) got off to a solid start last week, but then stalled on Thursday and Friday as rising rates in the belly and long end proved to be a headwind for US equities. Nevertheless, gains from Monday/Tuesday allowed most US and international equity benchmarks to finish in positive territory for the week.

As many have predicted, the Treasury yield curve has steepened of late, driven by a combination of solid economic growth, lingering inflation pressures, and concerns regarding the trajectory of US budget deficits. The 2s10s curve finished at +29 basis points, the highest level in nearly 3 years. See the Chart of the Week for a 2s10s time series.

Macro news was limited last week due to the holiday. Durable goods orders were down -1.1% in preliminary November data (-0.1% ex transports), while new home sales rose +5.9% on a seasonally adjusted basis in November after being down sharply in October. Initial (219k) and continuing (1.9mn) jobless claims were in line with recent trends.

Perhaps the most notable macro update was an 8-point sequential decline in the Conference Board’s Consumer Confidence Index, from an upwardly revised 112.8 in November to 104.7 in December. Most measures of consumer confidence showed a significant post-election bump higher, but this update from the Conference Board suggests that the boost in sentiment may have been short-lived as Americans continue to grapple with inflation and other concerns.

Chart of the Week: US Treasury 2s10s CurveAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesAfter the “hawkish cut” at the December 2024 FOMC meeting, a near term pause on further rate cuts is likely, and the curve has mostly resumed its normal upward slope. Belly and long end rates in the 4% to 5% range may represent the “new normal” given solid economic growth, lingering inflation pressures, and large US fiscal deficits.

Inflation After the disinflationary trend resumed in the summer of 2024, more recent inflation data has shown some renewed signs of stickiness. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – December 27, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 20, 2024 [PDF]DownloadDomestic equity and fixed income markets reacted negatively to Fed Day Jerome Powell and the FOMC delivered what was widely interpreted as a “rate cut.” Despite lowering overnight interest rates by 25 basis points, to a range of 4.25% to 4.5%, Powell made it clear that the FOMC’s attention has shifted from the balance of risks posture of recent meetings to a clearer focus on sticky inflation. The updated Summary of Economic Projections (SEP) show just two 25bp rate cuts in 2025, down from four that were projected in September, and Powell’s press conference comments suggest that a near term pause is likely.

Financial markets responded immediately, with rates moving 5-10bp higher across the curve within minutes of the press release, and equities falling. Fed Funds Futures markets are now pricing one or possibly two 25bp cuts next year, roughly consistent with the FOMC’s own projections, but markets are sharply divided as to whether further cuts in 2026 will occur. The glide path to a terminal rate in the neighborhood of 3% is likely to be long and bumpy, with rate hikes a possibility at some point along the way.

Markets got a bit of a reprieve on Friday though, thanks to PCE data for November that came in roughly 10 basis points below consensus across the board. Tech stocks had a strong session on Friday after the PCE print, mitigating a portion of the week’s decline in large cap benchmarks. Despite being slightly better than consensus, however, both core and headline PCE have trended higher on a y/y basis in recent months, which is a source of concern for investors and the Fed. See the Chart of the Week for a PCE time series.

Chart of the Week: Headline & Core PCE (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesAfter the “hawkish cut” at the December 2024 FOMC meeting, a near term pause on further rate cuts is likely, and the curve has mostly resumed its normal upward slope. Belly and long end rates in the 4% to 5% range may represent the “new normal” given solid economic growth, lingering inflation pressures, and large US fiscal deficits.

InflationAfter the disinflationary trend resumed in the summer of 2024, more recent inflation data has shown some renewed signs of stickiness. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – December 20, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 6, 2024 [PDF]DownloadWeekly Recap:Last week featured a continuation of recent themes regarding the US economy, including growth in services, softness in manufacturing, a strong labor market, and a resilient consumer.

Labor data was abundant and mostly positive last week, including:

• The “JOLTS Report” showed 7.74 million open jobs in the US (+372k m/m)

• ADP reported +146k net new payrolls in November

• Initial (224k) and continuing (1.87mn) jobless claims were largely unchanged

• The BLS reported +227k nonfarm payrolls, with +56k prior 2-month net revision

• Avg hourly wage growth rose 10bp sequentially to +0.4% m/m and +4.0% y/y

At the same time, however, U-3 Unemployment rose 10bp sequentially to 4.2%, while U-6 Underemployment also rose 10bp to 7.8%. The slight uptick may have partially allayed investor concerns that the labor market was becoming too strong, and as a result, the market outlook for a December rate cut changed from “probably” (roughly 2/3 implied odds coming into the week) to “almost definitely” (85% chance by week’s end). Rates fell slightly (2-5 basis points) across the curve on the increase in confidence around the near term path of Fed policy.

Equities were mixed amidst this macro backdrop. Technology stocks posted solid gains on the week, driving the Nasdaq and (to a lesser extent) the S&P 500 to fresh record highs. Other sectors were lower, including most defensives, cyclicals, and small caps. International stocks posted a solid week but remain far behind the US on a YTD basis, especially in the wake of the election result.

Chart of the Week: Net Change in Nonfarm PayrollsAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 22.3x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed is very likely to deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already within what are likely to be post-pandemic equilibrium ranges, unless the US economy enters a recession.

InflationAfter the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – December 6, 2024 appeared first on Albion Financial Group.

View Details

As the year draws to a close, many people feel inspired to give back, whether to the causes they care about or to the people who mean the most to them.

Whether you’re considering charitable donations or financial gifts for family members, understanding the financial implications of these gifts can make your generosity go further.

Here’s a financial planning guide to charitable and family gifting to make this season even more impactful.

Giving to CharityCharitable giving allows you to support the causes you’re passionate about, often with the added benefit of tax savings. Understanding specific strategies for charitable contributions can maximize your impact, ensuring more of your gift reaches the charity and less goes to taxes.

Tax Benefits: Understanding the BasicsTax benefits for charitable donations are only available when donations are made to qualified organizations, such as 501(c)(3) nonprofits. Additionally, these benefits apply only if you itemize deductions rather than taking the standard deduction. Some people maximize tax savings through a “bunching” strategy, where they combine donations in one tax year to surpass the standard deduction threshold.

Qualified Charitable Distributions (QCDs)Qualified Charitable Distributions (QCDs) offer an effective way for individuals 70½ or older to make charitable donations directly from their IRAs, potentially reducing taxable income. Here are the main considerations:

• Eligibility: You don’t have to be taking required minimum distributions (RMDs) to use a QCD. As long as you’re 70½, you can make QCDs.
• Limit for 2024: The QCD limit is $105,000 per individual, adjusted annually for inflation.
• Reporting Requirements: The forms used to report IRA distributions don’t indicate if a QCD was made. To ensure this distribution is not taxed, communicate with your tax preparer and inform them of your QCD and the amount.

Donating Appreciated StockIf you have stocks or other assets that have appreciated in value, donating them to charity can provide substantial tax savings:

• Comparison: If you sell appreciated stock, you’ll owe capital gains tax before donating the proceeds, reducing the overall impact of your gift. Donating the stock itself avoids capital gains tax and provides a deduction based on the stock’s full market value.
• Additional Benefit for Charities: Charities can sell the stock without any tax obligation, keeping the full value. This effectively removes taxes from the equation, maximizing funds for both you and the charity.
• Use with Donor-Advised Funds (DAFs): Appreciated stock can also be contributed to a DAF, offering an immediate tax deduction while allowing you to decide which charities to support over time.

Donor-Advised Funds (DAFs)DAFs allow you to contribute assets, claim an immediate tax deduction, and choose when and how to distribute funds to charities. This flexibility can be especially useful in years of unusually high income:

• Tax Savings in High-Income Years: By contributing more to a DAF during high-income years, you can reduce the amount taxed in the highest bracket, often resulting in significant savings.

Giving to FamilyIn addition to supporting charities, many people choose to share financial gifts with family members. By planning these gifts carefully, you can help loved ones while minimizing tax implications.

Annual Gift ExclusionThe annual gift exclusion is a straightforward way to transfer wealth to family members without incurring gift tax. For 2024, you can give up to $18,000 per recipient, per year. Here’s how it works:

• Gift Limit: Each individual can gift up to $18,000 per recipient annually without affecting their lifetime estate exemption. For instance, a couple could gift a combined $36,000 to each child without using any of their lifetime exemption.

Advanced Strategy: Annual Gifting through Irrevocable TrustsFor high-net-worth families, annual gifting can be elevated by establishing irrevocable trusts for grandchildren or other heirs. This strategy allows assets to grow over time on behalf of the beneficiaries while still taking advantage of the annual gift exclusion:

• How It Works: By contributing the annual exclusion amount into an irrevocable trust each year, you can gift money that grows tax-free within the trust for the grandchild’s future needs, ensuring that the funds remain in the family’s financial plan.
• Legal Considerations: To qualify the gift for the annual exclusion, specific rules must be followed to show that it’s a “present interest” gift. This often involves Crummey Powers, which give beneficiaries a temporary right to withdraw the funds, ensuring eligibility under IRS guidelines.
• Importance of Expert Guidance: This strategy is complex and requires precision. An estate attorney can guide you through the rules, explain Crummey Powers, and ensure the trust meets legal standards for tax purposes.

Lifetime Exemption and Gift Tax ConsiderationsFor gifts that exceed the annual exclusion, the excess amount counts toward the lifetime estate and gift tax exemption, which is $13.61 million per individual ($27.22 million per couple) in 2024. However, this amount is set to change:

• Upcoming Reduction: Under the Tax Cuts and Jobs Act (TCJA), the lifetime exemption is scheduled to revert to around $6 million per individual when (or if) the act sunsets in 2026. Staying informed of these changes can help guide your long-term estate and gifting strategies.

Direct Payments for Medical or Education ExpensesThere is an exception to gift tax rules for direct payments made to healthcare providers or educational institutions:

• How It Works: Payments made directly to cover medical or educational expenses don’t count toward your annual gift exclusion or lifetime exemption.
• Important Caveat: To qualify for this exemption, payments must be made directly to the provider or institution. If you give the money to a family member to pay the expenses, it will count toward the annual exclusion.

Gifting to 529 PlansHelping a family member with future education costs is a meaningful way to support their goals. 529 college savings plans grow tax-free when used for qualified educational expenses.

• Gift Acceleration: You can front-load 529 plan contributions by making five years’ worth of gifts at once—up to $180,000 for a couple—without using your lifetime exemption. However, only the account owner is eligible for any state tax benefits associated with contributions, so it may make sense to let the primary contributor (often a parent or grandparent) own the account.

The Importance of Planning Your GivingWhether you’re supporting a meaningful cause, helping family members, or both, strategic planning can enhance your impact and ensure your gifts align with your financial objectives. The holiday season provides a perfect opportunity to reflect on these goals, making the most of your giving today and for future generations.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post ‘Tis the Season of Giving: How to Maximize the Impact of Your Gifts with Smart Financial Planning appeared first on Albion Financial Group.

View Details

November 2024 Market Recap (FINAL)DownloadNovember 2024 Recap:Election: Domestic financial markets reacted positively to the US election outcome, which saw Donald Trump earn a second term as US president while the GOP took control of both houses of Congress. US stocks rallied on the prospect of lower corporate taxes and less regulation. Rates initially moved higher on the potential inflationary impact of tariffs and tighter border controls, as well as the potential fiscal impact of unfunded tax cuts. The selection of Scott Bessent as nominee for US Treasury Secretary seemed to calm rates markets toward the end of the month.

Inflation: Data released in November appeared to bring a measure of relief to investors amidst concerns that inflation might be ticking up again in real time. The most recent monthly prints for CPI (+2.6% y/y headline; +3.3% y/y core) and PCE (+2.3% y/y headline; +2.8% core) were right in line with consensus estimates. Meanwhile, Q3 Core PCE was revised lower by 10 basis points to +2.1% q/q annualized.

Economy: Incoming data continues to depict a strong US economy. Jobless claims fell in November as the impact of October storms and the Boeing strike faded. Unemployment remains low, and wage gains are strong. Regional Fed surveys suggest that domestic manufacturing is still mired in a slump, but services PMIs (representing the bulk of the US economy) are solidly in expansion territory. As Q3 earnings season winds down, US corporates appear on track for high single digit y/y EPS growth in 2024.

Monetary Policy: As expected, the FOMC cut overnight interest rates by 25 basis points at the November meeting. Futures markets imply that one more 25bp cut is probable (but by no means assured) at the December meeting, after which a pause is likely. At this point only two additional cuts (50bp total) are priced into the forward curve in 2025, a sharp deceleration in the pace of rate cuts relative to expectations from just a few months ago.

Bond Market: Treasury yields did a round trip in November, moving higher in the immediate aftermath of the election and then falling in the last week of the month on in-line inflation data and the nomination of Scott Bessent as US Treasury Secretary. Credit spreads rallied along with equities post-election and are near all time tights. Mortgage rates remain elevated but are likely to track lower in the coming weeks, following the path of Treasuries.

Stock Market: The impact of the election outcome and Trump’s “America First” policy agenda is readily apparent in stock prices. Domestic stocks soared, led by small caps (+11%) which tend to be more US-focused businesses. Conversely, international stocks finished lower in the aggregate, with trade-dependent emerging markets among the hardest hit.

S&P 500 Total Return by Sector – November 2024Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit y/y growth in 2024, with consensus calling for an acceleration to double-digit y/y growth in 2025.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed may deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – November 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – November 22, 2024 [PDF]DownloadWeekly Recap:US stocks finished mostly higher in a fairly quiet week for macro news. The post-election broadening of the US equity market rally (a trend that really began back in July) continued apace, with cyclicals and small caps outperforming.

International benchmarks posted only modest gains and continue to lag far behind the US in 2024. The prospect of higher tariffs and stricter border controls under a second Trump administration has weighed on sentiment around global trade, with the effects expected to disproportionately impact the more export-oriented economies of Europe and Asia. See the Chart of the Week for a comparison of US and international equity performance since the US election on November 5th.

Tech bellwether Nvidia saw some profit-taking on Friday but finished essentially flat on the week after posting blowout Q3 earnings, including yet another quarter of triple-digit y/y EPS growth. CEO Jensen Huang noted that production of the company’s new Blackwell chips has begun ramping up, but relentless demand from data centers will still exceed available supply for the next several quarters.

On the macro front, homebuilder sentiment improved on the prospect of fewer regulatory hurdles in the future, although that optimism has yet to flow through to increased construction activity as persistently high mortgage rates continue to impact affordability and demand. Elsewhere, S&P’s US manufacturing (48.8) and services (57.0) PMIs improved sequentially in the preliminary November reading, and the US labor market remained solid with the October storms-driven uptick in jobless claims now solidly in the rearview.

Chart of the Week: Total Returns for US and Foreign Benchmarks Post-ElectionAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, with consensus calling for double-digit y/y growth in 2025 as well.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed may deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – November 22, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – November, 15 2024 [PDF]DownloadWeekly Recap:Bond yields rose and equity markets gave back some of their post-election gains after fresh inflation data cast additional doubts on whether the Fed would cut overnight interest rates in December.

Consumer Price Index (CPI) data for October was released on Wednesday and showed little change sequentially, with core (ex food & energy) inflation still well above the Fed’s target at +3.3% y/y. See the Chart of the Week for a breakdown of CPI.

Later in the week, Producer Price Index (PPI) data showed a sequential increase in upstream inflation pressures, with core PPI inflation rising 30 basis points sequentially to +3.1% y/y. Import/export prices also rose sequentially, although trade is not currently a significant driver of inflation in the US.

By Friday’s close, futures markets were pricing in only slightly better than 50/50 odds of a rate cut in December. Meanwhile, rates moved higher across the curve last week, with 10y Treasury yields briefly touching 4.5% for the first time in five months.

Against this backdrop of sticky inflation and rising rates, equities were unable to sustain their post-election gains. The healthcare sector was particularly hard hit after President-elect Trump nominated RFK Jr. to head up the US Department of Health and Human Services. Small caps were also weaker last week after outperforming significantly in the first few days following the election.

Chart of the Week: Consumer Price Index by Component (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, with consensus calling for double-digit y/y growth in 2025 as well.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed may deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts possible in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter the disinflationary trend resumed over the summer, more recent inflation data has shown some renewed signs of stickiness. Services inflation in particular remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – November 15, 2024 appeared first on Albion Financial Group.

View Details

Conference Call – Recorded November 12, 2024In Albion’s November 2024 Conference Call, our panelists discussed the following topics:

• Essential Year-End Planning Items
• Macro-Economic Report
• Wage Growth Relative to Inflation
• Tariffs
• Interest Rates & The Fed’s Posture
• Mortgage Rates & Treasury Yields
• Market Valuations
• Mergers & Acquisitions and Initial Public Offerings in 2025
• Stock Market Risks
• Money Market and Cash Equivalent Yields
• Geopolitical Concerns and Global Markets
• AI Investments and Albion’s NVIDIA Acquisition
• US Government Deficit
• AI Infrastructure & Renewable Energy

Stream or download the audio recording of the call by clicking on this link.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Conference Call Recording – November 12, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – November 8, 2024 [PDF]DownloadWeekly Recap:US stocks moved sharply higher in the wake of Tuesday’s election outcome, which saw Donald Trump reclaim the White House while the Republican party achieved majorities in the House and Senate. Cyclicals and small caps were the biggest beneficiaries, as the prospect of deregulation and lower taxes gave investors greater confidence to invest in economically sensitive sectors. Meanwhile, international markets moved lower in the immediate aftermath of the US election and finished close to flat in the aggregate on the week, as Trump’s “America First” agenda and the prospect of significant tariffs weighed on foreign stocks.

Rates initially moved higher across the curve on the election result, but then drifted lower in the back half of the week. As expected, the FOMC delivered a 25 basis point rate cut on Thursday. Fed Chair Jerome Powell struck a balanced tone during the ensuing press conference, noting that the committee is attempting to find the “middle path” between moving too quickly and undoing the progress on inflation, and moving too slowly and allowing the labor market to weaken too much.

Also of note during the press conference, Powell indicated that he would serve out his full term as Fed Chair, even if asked to resign by President-elect Trump. He also noted that the committee would not speculate on the potential impact of Trump’s policy priorities (tariffs, stricter border control, deportation of undocumented immigrants, etc.) on inflation or the economy, and would not enact monetary policy changes in anticipation of any such policies. Rather, the committee will continue to assess incoming economic data in real time, and recalibrate monetary policy as needed in order to fulfill its dual mandate of price stability and full employment.

Chart of the Week: Fed Funds Target Rate (Lower Bound)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, with consensus calling for double-digit y/y growth in 2025 as well.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will deliver another 25 bp interest rate cut at the FOMC meeting in December of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – November 8, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – November 1, 2024 [PDF]DownloadWeekly Recap:Rates continued to drift higher and stocks pulled back in the final full week of trading ahead of the US election. Treasury yields finished the week 10-15 basis points higher across the curve, and are now a total of 60-80 basis points above where rates were trading immediately prior to the jumbo 50bp rate cut from the September FOMC meeting. The ICE BofA MOVE Index (a measure of implied volatility in Treasury yields) rose another 5 points last week to finish at 132.58, the highest print in over a year.

As rates and rate volatility have climbed over the past few weeks, stocks have struggled despite a reasonably good start to Q3 earnings season from a company fundamentals standpoint. Last week was no exception, as weakness in large cap tech stocks pulled the Nasdaq Composite and the S&P 500 lower. Nevertheless, 2024 remains a very good year for equities: most domestic and international benchmarks have delivered YTD total returns that are well into the double digits, albeit with two months remaining.

From a macro standpoint, the biggest surprise last week was the lower-than-expected nonfarm payroll print which saw net gains of just +12k m/m, while consensus had called for +100k. Also, the prior two months were revised lower by a combined 112k, suggesting that recent payroll growth has not been quite as strong as the market believed (see the Chart of the Week for an updated time series). That said, storm- and strike-related distortions played a significant role in the October data, and those effects should recede going forward. Meanwhile, wage growth (+4.0% y/y, up 10bp sequentially) and average weekly hours worked (flat sequentially at 34.3) suggest that demand for labor remains strong (a weakening labor market typically features falling wage growth and fewer hours worked per employee as schedules are cut back).

Chart of the Week: Nonfarm Payrolls Net Change (thousands)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – November 1, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – October 25, 2024 [PDF]DownloadWeekly Market RecapRising rates, and rising rate volatility, took a bite out of most equities last week. The tech sector was an exception and finished modestly higher, and Tesla (consumer discretionary) posted large gains after an upbeat Q3 earnings call that featured strong (if somewhat vague) growth projections from Elon Musk, allowing the Nasdaq to post a small gain on the week. Otherwise, domestic and foreign equity benchmarks were almost universally lower, with pronounced weakness in small caps and cyclicals.

Rates across most of the curve extended their march higher last week, a trend that has been in place ever since the 50bp cut to overnight interest rates at the September FOMC meeting. The ICE BofA MOVE Index (a measure of volatility in interest rates) rose 5 points on the week to finish at 128.4, near the top end of the 2024 trading range and nearly 40% higher from levels in the first few days post-FOMC. With bond yields moving higher, YTD returns for taxable investment grade fixed income have fallen by 2-3% so far in October.

Macro data released last week painted a familiar picture, including:

• Weakness in manufacturing: S&P US Manufacturing PMI = 47.8 (contraction)

• Strength in services: S&P US Services PMI = 55.3 (expansion)

• Misleading indicators: Conference Board LEI = -0.5% m/m; -4.8% y/y; -15.9% P-T

• Limited housing supply: Existing Home Sales = 3.84mn SAAR (near 25y low)

• Resilient labor market: Initial Jobless Claims = 227k (down 15k w/w)

• Well anchored inflation expectations: U of Mich 1y = +2.7%; 5-10y = +3.0%

Chart of the Week: Existing Home Sales (SAAR, millions)Albion’s “Four Pillars”Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – October 25, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – October 18, 2024 [PDF]DownloadWeekly Recap:Benign macro data, low rate volatility, a solid outlook from Taiwan Semiconductor (TSM), and some commodity relief in the form of falling oil prices combined to create a constructive backdrop for US equities. The S&P 500 and the Dow both finished the week at fresh all time highs, while the Nasdaq Composite remains just a hair below the record high set on July 16th. TSM rose 9.8% on Thursday after bolstering revenue guidance, reinforcing the upward trend in A/I theme stocks.

International equities were weaker, due in part to a second straight week of declines in China after disappointing comments from President Xi Jinping regarding the scope and magnitude of Beijing’s monetary and fiscal stimulus measures.

Rates barely budged last week and remain 40-50 basis point higher across most of the curve relative to levels immediately prior to the Fed’s 50bp rate cut in mid-September.

Oil prices dropped by more than $6 per barrel over the course of the week after Israel elected not to target Iran’s nuclear and oil production capabilities as part of its retaliatory response to the recent missile attack.

Macro data released last week was mostly constructive outside of housing:

• Import (-0.3% m/m) and export (-0.7%) prices fell sequentially and are down y/y

• Retail sales (+0.4% m/m; +0.5% ex-autos) surprised to the upside in September

• Initial jobless claims (+241k) pulled back from recent storm driven highs

• Housing starts (-0.5% m/m) and building permits (-2.9%) remain subdued

Chart of the Week: Import/Export Prices (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

ValuationThe S&P 500’s forward P/E of 22x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the low-to-mid single digits.

Interest RatesFutures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – October 18, 2024 appeared first on Albion Financial Group.

View Details

Executive Summary: * Creating a lasting financial legacy involves more than just wealth; it requires instilling values, open communication, and comprehensive planning to avoid the common “shirtsleeves to shirtsleeves in three generations” cycle. * Key strategies include early and frequent communication, recognizing that a legacy is more than money, establishing a robust estate plan, educating the next generation on financial literacy, and empowering rather than entitling heirs. * By focusing on these areas, families can ensure their wealth continues to benefit future generations while preserving the values that matter most.

After securing your own financial success, it’s natural to look to the next generation and consider the financial legacy you will leave behind.

And for most, that financial legacy is more than just money; it’s the impact they have, the opportunities they create, and the values they instill.

But, unfortunately, while many hope their legacy and wealth will provide lasting benefits for generations to come, that’s rarely the case, writes Courtney Pullen, author of Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health. Instead, Pullen writes that roughly 90% of affluent families lose their wealth by the end of the third generation—a phenomenon referred to as going from “shirtsleeves to shirtsleeves in three generations.”

In his book, he attempts to answer the critical question: What are the other 10% doing? And more importantly, how can you apply this to your family? To that end, here are five essential strategies to prevent the shirtsleeves to shirtsleeves in three generations cycle that plagues many wealthy families.

Strategy #1: Communicate Early and OftenCommunication is key, especially when it comes to your financial legacy.

Through open, honest, and clear communication, you can create an environment of understanding, clear expectations, and continuity between generations. Alternatively, without it, you can end up with confusion, unclear or unmet expectations, and worst of all, family members fighting amongst themselves over who gets what.

But, as Pullen writes, good communication doesn’t mean you discuss everything and of course, no family is going to be perfect, but successful families practice what he calls skillful communication. That is: they talk about the issues that need to be talked about and they do so without putting each other down.

To highlight the importance of communication, Pullen uses the example of The Mitchells, a couple in their 60s who owned a successful manufacturing business and consulted Pullen over concerns about their son. Ultimately, Pullen discovered that their son, who had started his own manufacturing business but was running it into bankruptcy, “hated the business”, but was in it because he felt it was “the only way to get his parent’s approval.”

But, when Pullen discussed this with his parents, they replied, “We don’t care what business he’s in as long as he’s happy. In fact, we’d just as soon he tried some other field that’s less risky.” Ultimately, this knowledge led their son to sell his business, go back to school for an advanced degree in history, and pursue a rewarding career as a professor at a community college.

Pullen goes on to explain that he’s seen many similar situations when working with wealthy families, especially when there’s a family-owned business involved, and often, he can trace the roots of these long-term challenges back to failed communication.

To avoid this, here are some practical tips to consider:

Practical Tips: Schedule Regular Family Meetings: Set up regular family meetings to discuss the family’s financial situation, goals, and plans. These meetings can be a platform for educating younger family members and addressing any concerns. * Encourage Questions: Foster an environment where family members feel comfortable asking questions and seeking clarity on financial matters. This builds their confidence and understanding over time. * Involve Multiple Generations in Planning:* Include younger generations in financial discussions and legacy planning. This not only educates them about financial management but also ensures that they understand the values and intentions behind the legacy, leading to better stewardship in the future.

Strategy #2: Realize That Your Financial Legacy Is More Than MoneyNext, it’s important to keep in mind that a financial legacy isn’t just about passing on money; it’s about passing on the core values and ethics that will guide how that money and opportunity are used. In other words, it’s about passing on what your family stands for.

But, before you can do that, families must first identify what they stand for.

And the beauty of this is that there is no one-size-fits-all for every family, every generation, or every individual. So, Pullen recommends that families first work to establish what is important to them and create their own family culture by defining their core values.

Some examples of core values could include:

• Intentionality: Making deliberate and thoughtful decisions about how wealth is managed and utilized.
• Work Ethic: Valuing hard work and dedication as key components to sustaining and growing wealth.
• Responsibility: Understanding the importance of stewardship and being accountable for financial decisions.
• Humility: Recognizing that wealth is a tool, not a measure of self-worth, and staying grounded in one’s values.
• Philanthropy: Committing to using wealth to give back to the community and support causes that align with family values.

One of my favorite lines in Pullen’s book comes from a “second-generation owner of a flourishing family business” who said that one of their core family values is: “We don’t go around acting like rich folks.” To their family, being humble with their wealth was critical to their family identity.

Again, these are just examples, and it’s up to each family to identify the core values that are important to them to ensure they are part of their legacy. At the end of the day, the most lasting financial legacies are those that carry forward the values and beliefs that make your family unique, making sure that the money isn’t just preserved, but used in ways that matter to everyone involved.

Strategy #3: Establish a Comprehensive Estate PlanNext, one of the most effective ways to preserve wealth across generations is with a well-structured estate plan.

Done right, a comprehensive estate plan ensures your assets flow directly to who you want, when you want, according to your exact wishes. Alternatively, failing to create a comprehensive estate plan can lead to confusion, assets being distributed based on what the court decides, and even disagreements among family members about what your wishes may have been.

Estate planning tools like wills, trusts, and powers of attorney are critical elements of your estate plan. These documents allow you to get very specific about who gets what, when they receive it, and any potential requirements or conditions they must meet to become eligible for an inheritance.

Of course, the details of each plan will vary based on the specific circumstances of each family and their overall goals and desires with wealth, but the point is that these documents are the best way to ensure your wishes are carried out and avoid any confusion about how you want your wealth to be transferred to the next generation.

Practical Tips: Professional Guidance: Work with a financial advisor and estate attorney to create or update your estate plan. These professionals can help you navigate the complexities of estate planning and ensure that your plan is tailored to your specific needs and goals. * Regular Reviews: Regularly review and adjust your estate plan as circumstances change, such as the birth of new family members, marriage or divorce, or shifts in financial goals. A good rule of thumb to consider is that if you’ve had a birthday that ends in a 5 or a 0, it’s a good time to review and potentially update your estate plan as needed. * Discuss your Plan*: Lastly, going back to the importance of communication – consider discussing your estate plan with the next generation. Of course, this doesn’t mean you need to share the details of who gets what or how much they get, but rather, this is an opportunity to explain why you’ve structured things the way you have, who will be in key roles, and any important decisions you’ve made. This can help avoid any confusion or conflicts down the line and ensure that your wishes are understood and respected.

By proactively establishing a comprehensive estate plan and regularly reviewing it, you can ensure your wealth is preserved and transferred according to your wishes, minimizing the risk of confusion or conflict among your heirs.

Strategy #4: Educate the Next Generation on Financial LiteracyEven with the best estate plan, generation wealth will not last if the next generation lacks the knowledge and skills to manage it effectively. That’s why financial literacy is a critical component of preserving and growing wealth across generations.

The Role of EducationProviding your heirs with a strong foundation in financial literacy equips them to make informed decisions and avoid common financial pitfalls. This education should go beyond the basics of saving and investing; it should include an understanding of the family’s financial goals, the responsibilities that come with wealth, and the tools available to manage it effectively.

For many affluent families, this expertise can be enhanced with the help of trusted financial professionals, like financial advisors, accountants, and attorneys. That said, it’s essential that each family member still have a baseline level of financial education, even if they work with trusted professionals. This ensures that they have the knowledge and skills to oversee their team of professionals and ensure their wealth is positioned to last for many generations to come.

Practical Tips: Formal Education: Consider providing formal financial education for your heirs, whether through courses, workshops, or seminars. This can help them build a solid understanding of financial concepts and strategies. * Practical Experience:* Encourage your heirs to gain practical experience by managing smaller family funds, engaging in philanthropic activities, or overseeing specific investments. This hands-on experience can be invaluable in building their financial acumen.

By equipping the next generation with financial literacy and practical experience, you empower them to make informed decisions and maintain the family’s wealth for generations to come.

Strategy #5: Empower, Don’t EntitleLast but not least, it’s critical to take steps to empower the next generation, not entitle them.

One of the interesting points that Pullen makes in his book is that it’s no surprise so many affluent families end up with an entitlement problem. In fact, he points out that entitlement is a pretty normal part of being human as he writes: “No matter what comforts, indulgences, or rewards we get, or whatever lifestyle we become accustomed to, it doesn’t take long for us to start assuming we’re entitled to that lifestyle and have a right to keep it.”

The challenge is that those in affluent families typically don’t come up against many of the common financial limitations that others face as Pullen writes “money dissolves many limits.” As a result, Pullen explains that it’s common for kids in affluent families to grow up thinking things like:

• “I deserve it and I should have it.”
• “I should always get everything I want.”
• “My needs and wants should always come first.”

So how can you avoid this? Fortunately, Pullen highlights five key factors that successful families incorporate to shift from entitlement to empowerment:

1. Be intentional: Accept the responsibility and advantages of wealth and create an intentional plan for how you will use your wealth.
2. Focus on future generations: Educate the next generation on financial literacy.
3. Communicate Openly: Again, successful families talk about the issues that need to be talked about and do so without putting each other down.
4. Create a family identity: Remember that financial legacy is more than just wealth and spend time discussing the core values that will make up your family identity.
5. Redefine success: Lastly, keep in mind that “success” will look different for each generation. For example, success for the first generation is often defined by the businesses they’ve built or the wealth they have created. But, for second and third generations, success could mean ensuring that the wealth is managed effectively and each member of the family is realizing their full potential.

By focusing on intentionality, education, open communication, and a strong family identity, you can shift from entitlement to empowerment, ensuring that each generation is prepared to uphold and build upon the family legacy.

Conclusion: How to Build a Legacy That LastsIn the end, creating a lasting financial legacy requires more than just accumulating wealth; it involves careful planning, open communication, and a commitment to instilling values and educating the next generation. By taking these steps, you can help ensure that your wealth not only endures but also continues to benefit your family for generations to come.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post From Shirtsleeves to Success: Ensuring a Lasting Financial Legacy appeared first on Albion Financial Group.

View Details

Weekly Market Recap – October 11, 2024 [PDF]DownloadWeekly Recap:Domestic stocks posted gains last week despite rising bond yields and slightly higher oil prices. Inflation and monetary policy were in focus. First, the minutes from the September FOMC meeting showed a nearly even split between committee members favoring 25bp vs. 50bp rate cuts. Fed Chair Jerome Powell’s personal preference for a 50bp cut appears to have been the deciding factor.

Then on Thursday, fresh CPI data appeared to undermine the wisdom of a 50bp cut, as headline and core inflation both came in slightly hotter than expected:

• Headline CPI = +2.4% y/y; consensus = +2.3%

• Core (ex food & energy) CPI = +3.3% y/y; consensus = +3.2%

In response to a divided committee and warmth in inflation, Treasury yields rose and the curve steepened. Futures markets continue to reprice the magnitude and pace of the rate cutting cycle, settling for now on 25bp cuts at the November and December FOMC meetings, following by 4 or 5 additional 25bp cuts in 2025.

Through it all though, US equity benchmarks finished higher on the week, with notable strength returning to Nvidia on comments from CEO Jensen Huang that demand for the company’s new Blackwell chip is “insane”, while production is now fully ramped. Other semiconductor companies and A/I theme stocks benefitted from a read-thru, causing the tech sector to outperform on the week.

The biggest laggard last week was Chinese stocks, which gave back some of their recent extraordinary gains after investors were left disappointed by a speech from President Xi Jinping regarding the upcoming monetary and fiscal stimulus.

Chart of the Week: Consumer Price Index Components (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for high single-digit or low double-digit y/y growth in 2024, provided that the economy continues to expand.

ValuationThe S&P 500’s forward P/E of 21.4x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will deliver 25 bp interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – October 11, 2024 appeared first on Albion Financial Group.

View Details

3rd Quarter 2024 – Quarterly Letter [PDF]DownloadIntroductionAs the leaves change color and fall, John Bird, our CEO, reflects on past lessons while eyeing the future. Then CIO Jason Ware notes the signs of post-pandemic normalization emerging, though challenges persist in fiscal policy and market uniformity. As investors navigate this evolving landscape, Financial Planner Anders Skagerberg describes practical measures that can safeguard financial identities. This autumn as nature changes, investors must be vigilant and adaptable in a dynamic financial ecosystem.

Beyond these informative articles, read through to the Community Update for information about our final Conference Call of the year and to meet the newest members of our growing team.

From John Bird’s DeskWhen we started Albion in 1982, the era of the “Nifty Fifty” had drawn to a close and much ink was spilt describing their rise and…the several following years when they were just average. For those of you who may not have experienced it, the Nifty Fifty was a moniker for a group of large and fast-growing companies in the1960’s and into the 1970’s. Names included General Electric, IBM, Sears Roebuck, Xerox, Proctor and Gamble, and Coca-Cola. Many investors considered them one decision stocks – companies you could buy and own forever. Investors bought them by the truck load. By the end of 1972 the group as a whole had a price-earnings ratio of 43 while the S&P 500 as a whole had a ratio of 18. For those who are unfamiliar with a price-earnings ratio (PE ratio or just “PE”) it is the price you pay for a dollar of corporate earnings. A PE of 18 means you pay $18 for a dollar of corporate earnings while a PE of 43 means you pay $43 for a dollar of corporate earnings.

All things being equal we’d rather pay less for a dollar of corporate earnings. However rarely are things equal. In the five years leading up to the end of 1972 the Nifty Fifty stocks had as a group averaged 22% annual earnings growth (compared to 4% for the S&P 500) and 30% earnings growth in 1972 alone (13% for the S&P 500). Investors were willing to pay up for growth they expected to continue well into the future.

Alas parties all must eventually end. By 2001 only one Nifty Fifty company – Walmart – had continued to outperform the S&P 500. Another item of note is how the composition of the stock market has changed over time. The following graph shows market sectors from 1807 through 2017.

There are several takeaways from this including the observation that the best performing sector in the future may not yet exist. It’s also worth noting that none of the sectors wholly disappeared. In fact all sectors continued to grow. For most sectors their representation on the graph shrunk because they grew far slower than other sectors and thus represent a smaller percentage of the overall economy.

This graph shows the evolution off the 12 sectors that make up the American economy over the past 200 years. The graph illustrates the capitalization of each sector based upon stocks included in the U.S. Stocks Database.These days we hear about the magnificent seven – seven companies that have grown far faster than the S&P 500. We note that in 2023 these magnificent seven delivered as a group 101% returns while the equal weighted S&P 500 index delivered 2.5%. Meaning the average stock in the S&P 500 returned 2.5%. There is logic to this. The hardware, software, energy and intellectual property investment required to make Artificial Intelligence and Large Language Models favors those companies with the ability to raise enormous amounts of capital and effectively put that capital to work. The magnificent seven have those resources.

Note that this concentration – where a handful of companies have an outsized influence on market index returns – has a precedent. The following graph shows the weight of the ten largest stocks in the S&P 500 – currently around 32%. While high it’s not record setting. Prior to 1973 the Nifty Fifty had more concentration in the top ten companies than we see today.

The weight of the 10 largest S&P 500 stocks is now 33.1% of the total $SPX, the highest level in almost 5 decades.It’s weak comfort knowing concentration among a few names has been greater in the past than it is today given that following peak concentration the Nifty Fifty trailed the broader market. We are well aware of this. We are also aware of the reality that much of technology today requires vast investments to remain at the leading edge and the companies that have so far succeeded in staying out front have a significant advantage. The depth and breadth of their existing capacity and the free cash flow they generate gives them the position and the resources to reinvest and stay in the drivers seat.

We will ride our winners, trim them from time to time to avoid being over exposed, and carefully study market dynamics to increase the odds that we will have even further reduced our exposure to highfliers before they fly too close to the sun. Because there is no such thing as a one decision stock.

Economy & Markets by Jason WareFor over three years in these pages (and elsewhere) we’ve spoke of “normalization” both economic and social. Normalization is the process of, well, getting back to normal. Across so many areas – GDP growth, consumer spending (the how and how much), supply chains, inflation, jobs, corporate earnings, oh, and the vaccines that gave us our lives back – this has happened. Now it’s interest rates. With the Fed’s -0.50% “jumbo cut” on September 18th a new easing cycle is underway. And with it, an oxymoronic feeling that perhaps somehow we’re now reaching … er … “peak normalization.” Wait, is that possible? Can that even be a thing? We’ll leave that philosophical question for another day. What seems quite clear is that there are few major chiropractic adjustments left on the post-pandemic economy. Normal is good, yet there are other areas where stuff is out of whack. The big ones being a more uniform equity market and fiscal policy. More on these in a moment. For now, let us review where things currently stand.

Our economic outlook has been uncharacteristically cautious for several quarters. A host of troubling leading indicators, Volcker-esque Fed tightening, shrinking money supply, a massive inflation surge, and downbeat consumer attitudes informed this view. Recession risks were high, have since diminished, but remain elevated. Through it all the US economy has stayed on a growth course, running a gauntlet that would make Churchill proud (“if you’re going through hell, keep going”). Total output (GDP) paced at roughly +2.25% in the first half of the year and is presently running about +3% for the third quarter. This stride may slow as we exit the year, though probably not to recessionary levels. The expansionary impact of large fiscal spending, abundant real wage growth, impressive business profits, and colossal capital formation (i.e., spending and investment) on AI has offset headwinds. As we opined in our last quarterly epistle, it’s a “growth at all costs” backdrop paired with an animal spirits redux in technology driving the business cycle. The fabled “soft landing” is possible; we all hope it occurs.

On the inflation front, an area of focus since 2022 and one where we’ve consistently offered an out of consensus sanguine view (don’t fret, it’ll sort itself out), it seems that Jerome Powell finally feels content giving the nod that it’s successfully been whipped. “WIN” buttons back into the drawer! To be fair, when assessing all manner of inflation details swirling about it is sensible to conclude that price stability has been achieved and underlying pressures have quieted. Still we reason that structural inflation falling much further is unlikely. Prior to the pandemic core inflation reliably ran at 1-2%. For many reasons, today and over the next few years it’ll probably run between 2-3%. Framed another way, from 2008-2021 the Fed’s 2% target was a ceiling; in the 2020s it will probably be a floor. This isn’t a bad thing. The economy and financial markets can do well in a 2-3% inflation regime.

Speaking of financial markets, US stocks continue apace. It’s been a fruitful year. One item that has changed since our last letter, albeit it’s early days, is the character of those returns. It’s no secret that a small group of lopsided winners account for the lion’s share of gains in this bull market. It’s been a “skinny bull” as we’ve coined it, but that might be shifting. The third quarter was the first time in the contemporary bull run where growth stocks, especially of the mega cap variety, did not lead the way. Instead, other areas like value, cyclicals, defensives, and small caps (eureka!) logged superior advances when compared to their big siblings. At last, Nvidia and AI wasn’t the only story worth discussing. On Wall Street it’s said that “trees don’t grow to the sky.” Translation: nothing lasts forever, future returns get pulled forward, analysts catch up to the story, and lofty expectations become harder to beat. The notion of a resilient economy coupled with Fed rate cuts is just what the doctor ordered for other parts of the equity market that aren’t the “Mag 7.” Finally, it’s been the “493’s” (500 S&P stocks minus 7) day in the sun as participation broadens out. This is a positive development for both your well diversified portfolio and the overall health of the bull market. To be clear, we expect good results from the mega cap stocks going forward. A more uniform market doesn’t have to mean they falter. Rather, we suppose a truly rising tide can lift more boats and the once yawning performance gap enjoyed by the few will better include the many. Stay tuned.

OK, “big fiscal” was cited as the other area that has evaded normalization’s grasp. Out of respect for our collective blood pressure we’ll skip the details. Deficits continue to run at ~6% of GDP, a high spot outside of war, crisis, or economic slump. Full employment and giant deficits are, historically speaking, strange bedfellows. What’s more, interest costs are now larger than total military spending. Just about everyone (including your humble wealth manager) agrees something must be done while simultaneously acknowledging the discouraging political realities in the Beltway. Forecasts from CBO, GAO, and professional economists alike aren’t uplifting. Sigh. But it isn’t all dire. Interest expense aside, much of the current outsized spending is flowing to productive uses, like the
first true “US industrial policy” in decades. We’re investing in our future and putting money to work on our own soil bestowing an assortment of longer run economic and national security benefits.

Bigger picture, the American system endures as the most innovative, dynamic, nimble, and resourceful economy on the planet. The finest universities, brightest minds, and most cutting-edge companies all reside here, not to mention the deepest and most efficient capital markets around. Combined, this is what Buffett calls the “American tailwind” – a force the now 94-year-old sage still believes will propel us onward in the generations to come. We concur. Although improved fiscal restraint is needed, an exercise with observable levers we can pull, forecasting any such fiscal normalization is difficult (too grand an ask for this author). Importantly, the path between here and there doesn’t have to be, and shouldn’t be, calamitous. And so our belief is that stock prices will continue to do what they’ve always done – track the general path of labor force demographics, economic growth, and business profits, all of which move up over time taking with them the enterprising long-term oriented investor.

Thanks for your continued trust in us.

Planners Corner by Anders SkagerbergShould You Freeze Your Credit? A Simple Guide to Protecting Your Identity and Your WealthAt a time when data breaches feel common, it’s natural to wonder if there’s anything you should do to protect your personal information and your hard-earned wealth. If you’ve ever heard about freezing your credit, you’re not alone—many people are asking whether it’s a good idea, especially with the recent data breach that may have included the personal records (names, addresses, Social Security numbers, and more) of up to 2.9 billion people.

So, if you’re wondering whether you should freeze your credit or not, read on to decide if it’s the right move for you.

But First, What Does Freezing Your Credit Mean?
Freezing your credit means putting a lock on your credit reports.

This stops identity thieves from opening new accounts in your name because creditors can’t check your credit report unless you “unfreeze” it. It’s like putting a padlock on a file—someone might try to access it, but unless they have the key, they won’t succeed.

Next, here are some of the key benefits to consider when freezing your credit:

The Upsides of Freezing Your Credit1. A Strong Defense Against Fraud: If your credit is frozen, thieves can’t open new credit lines, loans, or credit cards under your name. 2. Peace of Mind: Knowing your credit is locked up can help you sleep better at night, especially if you’re already concerned about your financial security. 3. No Harm to Your Credit Score: Freezing your credit doesn’t affect your score, so it’s a no-strings-attached way to add a layer of protection. 4. Easy and Free: It’s free to freeze and unfreeze your credit with all three major bureaus—Equifax, Experian, and TransUnion. And doing so is relatively simple and can be done online.

While freezing your credit offers a solid defense against fraud, peace of mind without harming your score, and is both easy and free, it’s important to consider the potential downsides.

The Downsides of Freezing Your Credit1. A Bit of a Hassle: If you’re planning on taking out a loan, mortgage, or even a new credit card, you’ll need to lift the freeze temporarily. It’s not hard, but it is one more thing to think about. 2. Can Slow Down Some Transactions: Some things like getting utilities set up may require a credit check, so you’ll need to remember to unfreeze your credit for those too. 3. Not a Cure-All: A credit freeze doesn’t stop all types of identity theft. It’s great for blocking new lines of credit but won’t protect you from other issues like tax fraud or someone getting into your existing
accounts.

So, while freezing your credit is a proactive step to protect against identity theft, it can be somewhat inconvenient, may slow down certain transactions, and does not guard against all forms of fraud.

So, Should You Freeze Your Credit?
Ultimately, whether or not you should freeze your credit depends on your financial situation, your personal risk tolerance, and whether or not you’ve been involved in a security breach. Here are some questions to consider:

Have you been involved in a security breach?
If Not: Freezing your credit may not be a top priority. That said, even if you aren’t aware of a security breach involving your personal information, that doesn’t mean it hasn’t happened.

If Yes: Freezing your credit can be a great step to help protect you from identity thieves.

Are You Applying for New Credit?
If Not: Freezing your credit might be a smart move, especially if you don’t foresee needing a new loan or credit card anytime soon.

If Yes: You’ll want to consider the hassle factor, especially if you’re in the middle of a major financial move like buying a new home.

What Other Protections Do You Have?
If you already have identity theft insurance or monitoring (or both) then freezing your credit can either be a great addition to your existing protection, or, you may decide it’s unnecessary, depending on your situation.

How Much Protection Do You Want?
Just like investing, everyone has a different comfort level with risk. That comfort level will guide your decision on whether to freeze your credit. But unlike investing, there’s really no advantage to taking extra risk by leaving your credit unlocked. Since freezing your credit is simple and comes with no downside, it’s often a smart move to just take the time and lock things down for peace of mind.

Part of a Bigger Picture
At Albion Financial Group, we believe that making smart decisions over time is key to securing your financial future. Freezing your credit can be one of those good decisions, but it should fit into a broader plan that includes monitoring your accounts, maintaining solid cybersecurity habits, and keeping tabs on your bigger financial picture, either on your own, or with the help of a trusted advisor.

Now, if you’ve decided that freezing your credit is the right choice, here’s what you need to do:

Meet the Three Major Credit BureausWhen you decide to freeze your credit, you’ll need to do it with the three main credit bureaus:

1. Equifax: One of the oldest and most recognized credit reporting agencies. Freezing your credit with Equifax is simple and can be done online.
2. Experian: Known for their credit monitoring services, Experian also allows easy credit freezes. Their website walks you through the process stepby-step.
3. TransUnion: Like the others, TransUnion’s freeze can be done quickly online.

Once you’ve got your credit freezes in place, just remember that you’ll need to unfreeze your credit when applying for any new loans, and then you can always refreeze it when you’re finished.

Important note: Freezing your credit with just one or two bureaus won’t fully protect you, as lenders can check any of the three major bureaus when reviewing credit applications. For complete protection, you should freeze your credit with all three agencies. In addition, while smaller agencies like Innovis, ChexSystems, and NCTUE may also hold some of your information, the majority of credit applications are processed through the three main bureaus, so freezing your credit with them will cover most scenarios.

Wrapping It All Up
In the end, deciding whether to freeze your credit is like deciding whether to put extra locks on your doors. It’s not necessary for everyone, but for those who want that extra peace of mind—especially with the recent data breach—it can be a wise choice.

ALBION COMMUNITY UPDATE
Conference Call: Scheduled for Tuesday, November 12th at 10 AM MT. Our expert panelists from the Advisor and Investment teams will discuss key issues and provide insights on the current economic and market landscape.

We highly value these moments to connect and share ideas with you. We encourage your participation and welcome any questions you may have—either live during the call or in advance by sending us an email. A recording
of the call will be available on our blog and YouTube channel afterwards, and a copy will be emailed to you. We hope you can join us. www.albionfinancial.com/events

New FacesWe are delighted to announce that Briana Mofhitz-Faieta and Leticia Chetty have both joined the firm as Associate Wealth Advisors. Both of them will be working closely with Liz Bernhard and Patrick Lundergan.

Briana is an alumna of the University of Oregon, while Leticia has degrees from both Brigham Young University – Hawaii and from Utah Valley University.

Also joining the Albion family, as a Financial Planner, is Heath Heavy. Heath is a graduate of Western Michigan University (Go Broncos!) and is a CFP®.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Third Quarter 2024 – Quarterly Letter appeared first on Albion Financial Group.

View Details

Weekly Market Recap – September 27, 2024 [PDF]DownloadWeekly Recap:Fresh inflation data was supportive of the Fed’s decision to cut overnight interest rates by 50 basis points earlier this month. Headline and core PCE rose just 0.1% m/m in August, slightly below consensus expectations in both cases. Core PCE (the Fed’s preferred inflation gauge) now stands at 2.7% y/y and remains on a disinflationary path towards the Fed’s 2% target.

US stock prices continue to benefit from the combination of falling inflation and healthy economic growth. The Dow closed at a fresh record high on Friday, while the S&P finished the week just a hair off an all-time high set on Thursday. The Nasdaq remains almost 3% off the highs set in early July. Meanwhile, small cap performance remains inconsistent as the market rally broadens in fits and starts.

Rates and credit spreads were stable last week, resulting in limited movement in bond prices. The MOVE Index (a measure of interest rate volatility) finished the week in the low-90s, near the bottom end of the 2+ year trading range that has persisted since the Fed began raising rates in early 2022.

In international news, Chinese stocks finished the week 4.5% higher after the announcement of aggressive monetary and fiscal stimulus from Beijing, aimed at countering the country’s flagging economic growth. The People’s Bank of China cut rates on existing mortgages by 0.5% and lowered the reserve requirement ratio by 0.5% in an effort to inject liquidity into the banking system. Meanwhile, the central government plans to issue special sovereign bonds worth 2 trillion yuan, to be spent on various subsidies meant to stimulate consumer spending.

Chart of the Week: US Personal Consumption Expenditure Index (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. S&P 500 earnings are on track for low double-digit y/y growth in 2024, provided the economy continues to expand at its current rate.

ValuationThe S&P 500’s forward P/E of 21.4x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will deliver interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already at or below what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – September 27, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – September 20, 2024 [PDF]DownloadWeekly Recap:Last week the FOMC finally launched its much-anticipated pivot, delivering a 50 basis point cut in what will clearly be the first of several reductions in overnight interest rates. How many additional cuts will be delivered, and over what period of time, remain topics of debate amongst market participants. In the official release and during the ensuing press conference, Fed Chair Jerome Powell stressed that despite the 50bp reduction (unusual outside of crisis situations), the US economy remains on solid footing in the eyes of the committee. Notably, Fed Board of Governors member Michelle Bowman dissented, issuing a short statement summarizing her view that with inflation currently above the Fed’s 2% target, a 25 basis point cut would have been more appropriate at this time.

Equity investors largely reacted with enthusiasm, as expected. The S&P 500 and the Dow set fresh all time highs on Thursday and Friday, respectively, thanks to notable strength in cyclicals and growth stocks. Small caps also enjoyed a tailwind.

Rates across much of the curve actually rose following the announcement, rather than falling as some might have expected. 10y Treasury yields ended the week 9bp higher while 30y yields finished up by 10bp, an indication that the bond market may have already fully priced the entire upcoming rate cutting cycle. Rising yields in the belly and long end are helping to restore the curve’s natural upward slope. Normalization in many parts of the economy (growth, margins, consumer, labor, etc.) has been a theme of the post-pandemic economy. As the Fed’s rate cutting cycle unfolds over the coming months, it appears that that theme may finally be applying to rates markets as well.

Chart of the Week: US Treasury 2s10s Yield CurveAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

Valuation The S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will deliver interest rate cuts in each of the last two FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already at or below what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter becoming sticky in the 3-4% range in the first half of 2024, more recent data has reinforced the disinflationary trend, and the Fed has expressed confidence in the path to its 2% target. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – September 20, 2024 appeared first on Albion Financial Group.

View Details

Executive Summary

• When transferring wealth, there are pros and cons to giving while you’re alive versus after you’ve passed.
• For starters, transferring wealth after death ensures control during your lifetime and potential tax benefits after death, but may come too late to be truly impactful for your heirs.
• Alternatively, gifting wealth during your lifetime allows you to see the positive effects and provides immediate support for your beneficiaries but could risk your financial security and possibly create financial dependence.
• In the end, balancing these approaches involves considering tax implications, family dynamics, and your own financial security.

When it comes to transferring wealth, the default approach for most is to pass along an inheritance after you die, or give with a “cold hand.” And this makes sense in many ways, not only because of the tax benefits involved (your heirs can receive a favorable “step-up” in cost basis for certain assets) but also because it ensures that you still have access to your wealth while you’re alive—a key concern for many as people are living longer and medical costs are rising.

However, some financial experts argue that inheritances often come too late to be truly beneficial. Bill Perkins, author of “Die with Zero,” suggests that gifting money earlier, when it’s the most needed, can be a wise decision. He believes that waiting until after death to transfer wealth means missing the opportunity to see the positive impact your gifts can have and possibly delaying support until a time when it is less meaningful.

In his book, Bill tells the story of a woman who had recently gone through a divorce and was struggling to make ends meet as a single mom. Decades later, after her financial situation had stabilized, she inherited a significant sum from her parents. Reflecting on that experience, Bill writes that she would have much rather received even a fraction of the money decades earlier when it would have had a major impact on her ability to make ends meet at a critical time. This example highlights the importance of timing and not waiting until it is too late to make a difference.

In this article, we will explore the pros and cons of giving with a “warm hand” and a “cold hand”. By considering different factors such as tax implications, family dynamics, timing, and your own financial security, our goal is to help you make an informed decision that aligns with your unique values, goals, and personal situation.

Giving With a Cold HandSimply put, giving with a cold hand means waiting to transfer your wealth until after you die.

First, let’s explore some of the benefits to this approach:

Pros of Giving with a Cold HandHere are some of the key benefits of waiting until after death to transfer your wealth:

Tax Benefits: One of the main advantages of waiting to transfer wealth until after your death is the potential for significant tax savings. Your heirs may benefit from a “step-up” in cost basis for certain assets, which can reduce capital gains taxes if they decide to sell the inherited assets. For example, if you bought stock for $20/share but it is now worth $100/share, typically if you sold the stock you would have to pay taxes on the gain of $80. But, if your heirs inherit the stock when it’s worth $100/share, the cost basis (the amount you paid for it) then shifts from $20 to the current market value of $100/share. The result is that if your heirs sold the stock immediately when they inherited it, there would be no taxable gain.

Control and Security: By retaining your assets during your lifetime, you maintain total control over your wealth. This can provide peace of mind, knowing you have the necessary funds for any unexpected expenses or long-term care needs.

Legacy Planning: Waiting until after death to distribute your wealth can also allow for a more structured and planned approach. This can include setting up trusts with specific instructions to ensure your wealth is used and distributed for generations to come, according to your wishes.

Ultimately, there are some key benefits to giving after death as it can provide tax benefits for your heirs, allow for more control and security during your lifetime, and enable you to create a lasting legacy.

Cons of Giving with a Cold HandAlternatively, here are some of the cons of giving with a cold hand:

No Immediate Benefit: First, a major drawback to this approach is that you won’t be able to witness the positive impact your wealth can have on your heirs right now, reducing the satisfaction you can get when transferring wealth.

Potential for Higher Taxes: Also, despite the tax benefits that can come from passing on assets after death, depending on the size of your estate and the current estate tax laws, your heirs might face significant estate taxes, which could reduce the amount of wealth they ultimately receive. Currently, with the lifetime exemption amount hovering around $13.61M per person (the amount you can transfer to your heirs free of estate taxes) this is not a huge consideration for many. That said, the current amount is set to expire on December 31st, 2025, and will be reduced to $5.6M per person if Congress does not extend the current laws. This is where smart financial planning can be critical as you navigate the complexities of estate taxes.

Family Disputes: Delaying the distribution of your wealth until after your death can sometimes lead to family disputes or conflicts over the inheritance, particularly if there are disagreements about your intentions or the terms of your will. Alternatively, by making gifts while you’re alive, your heirs can rest assured that your wishes are being carried out as you intended.

Less Impactful Timing: As Perkins highlights, inheritances often come when recipients are already financially stable. On average, people receive inheritances around the age of 50, a time when many are already financially secure. Alternatively, many could have used the funds in their 30s or 40s as they were starting families, buying homes, and often paying off student loan debt.

In summary, while giving with a cold hand allows for tax benefits, control, and security during your lifetime, it means you won’t see the positive impact on your heirs and could lead to less impactful timing of the inheritance. Next, let’s explore “giving with a warm hand,” which involves making gifts during your lifetime to ensure your wealth benefits your loved ones when they need it most.

Giving with a Warm HandGiving with a warm hand is the concept of transferring wealth to your heirs while you are still alive.

This approach to estate planning goes against the traditional notion of passing down assets after death and instead focuses on sharing your wealth with loved ones during your lifetime. By giving with a warm hand, you can witness the impact of your generosity and ensure that your loved ones are financially secure and supported while you are still here. In some ways, it can also allow for more control over how your wealth is distributed today and can help minimize potential conflicts among heirs.

Ultimately, for some, giving with a warm hand can allow for a more personal and fulfilling way of passing down wealth to future generations.

Pros of Giving with a Warm HandImmediate Impact: By gifting your wealth during your lifetime, you can see firsthand how your generosity benefits your heirs. This can be especially rewarding if the funds are used for meaningful purposes such as education, starting a business, or buying a home.

Tax Benefits: There are also certain tax advantages to gifting during your lifetime. For example, you can take advantage of the annual gift tax exclusion ($18,000 per person per year for 2024) and potentially reduce the size of your taxable estate, which could lower total estate taxes upon your death.

Strengthened Relationships: Providing financial support while you’re alive could also strengthen family bonds and foster a sense of gratitude and responsibility among your heirs. It also allows you to offer guidance and support in managing their inheritance.

More Meaningful Timing: As mentioned, by giving to your heirs in their 30s and 40s, you may be able to give financial support when they need it most – when starting a business, buying a home, or raising a family. This can make your gift even more meaningful and impactful for both you and your heirs.

Cons of Giving with a Warm HandWhile giving with a warm hand has many benefits, there are also potential drawbacks to consider:

Reduced Financial Security: Gifting substantial amounts of wealth during your lifetime can potentially compromise your financial security, especially if unexpected expenses arise or if you live longer than anticipated. That’s why it is critical to understand how much you need to sustain yourself throughout the rest of your life, build in a very conservative and healthy buffer, and ensure that you have adequate resources to cover yourself before giving away large sums of money.

Complexity: Lifetime gifting can also add complexity to your financial plan, especially when gifting different amounts to different beneficiaries over time, which may ultimately affect how you want the remainder of your wealth transferred after you pass.

Dependency Risks: Of course, each situation is unique, but there’s a risk that your heirs may also become overly reliant on, or have an ongoing expectation of your financial support, which could hinder their ability to manage their own finances independently.

In the end, giving with a warm hand involves transferring wealth to your heirs while you are still alive, allowing you to witness the positive impact and provide support when it is most needed. Though it can foster stronger family bonds and offer tax benefits, it requires careful planning to avoid compromising your financial security and creating dependency among your heirs.

Deciding Which Approach is Right for You
Ultimately, understanding your family’s dynamics and financial needs is crucial when deciding how and when to transfer your wealth. Remember, personal finance is personal, and there’s no one-size-fits-all approach.

Fortunately, open communication with your heirs about your intentions and their needs can help prevent misunderstandings and conflicts. Additionally, consulting with a trusted professional is essential to navigate the complex tax landscape associated with transferring your wealth, both before and after death. They can help you understand the tax benefits and drawbacks of both lifetime gifting and bequests.

And of course, ensuring your own financial security should be a top priority, so working with a wealth advisor to create a comprehensive plan that helps you understand how much money you need to be secure is essential.

Finally, remember that there are benefits to both approaches, and for some, it may be best to do a little bit of both, rather than focusing exclusively on one approach or the other. As an example, this could mean making annual tax-free gifts to your heirs during your lifetime while still transferring a larger sum after you pass.

In The EndIn the end, whether you choose to give with a ‘warm hand’ or a ‘cold hand,’ thoughtful planning, open communication, and professional advice are key.

By carefully considering the pros and cons, as well as the unique needs of your family, you can create a wealth transfer strategy that provides meaningful support to your heirs while ensuring your own financial security.

Ultimately, the best approach is the one that aligns with your values and helps you achieve your unique financial goals.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Transferring Wealth: The Pros and Cons of Giving While You’re Alive vs After You’re Gone appeared first on Albion Financial Group.

View Details

Weekly Market Recap – September 6, 2024 [PDF]DownloadWeekly Recap:September is a notoriously difficult month for stocks, and so far 2024 has been no exception thanks to lingering concerns about the strength of the US economy. The S&P 500 fell every day last week and finished down more than 4%, while a rout in technology stocks dragged the Nasdaq to a nearly 6% decline. Small caps also struggled and continue to lag well behind large caps on a YTD basis.

Soft labor market data is partly to blame. Last week’s updates point to continued normalization of labor supply and demand, leaving open the question as to whether the Fed’s inflation-fighting campaign may yet cause the economy to overshoot to the downside. Per the JOLTS report, US job openings have fallen by roughly 1/2 million in the past two months as demand for labor weakens. The ADP employment report showed a net increase of just 99k payrolls, the lowest monthly total since January of 2021, before Covid-19 vaccines were widely available. And finally, nonfarm payrolls from the BLS (142k) came in slightly below consensus (165k), while the prior two months were revised lower by a combined 86k.

Yields fell across the curve in response, particularly in the front end as markets priced in an increasingly aggressive rate cutting campaign, including 4 or 5 cuts of 25bp prior to year-end across just 3 FOMC meetings. As a result of falling short term yields, the 2s10s curve went and stayed positive for the first time since it originally inverted in July of 2022. It is likely that over the next 18-24 months, the “normalization” theme that has applied to so much of the post-pandemic economy over the past couple years will finally begin to apply to the yield curve as well, gradually restoring its natural upward slope.

Chart of the Week: Nonfarm Payrolls Total Net Change (m/m, SA)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.6x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will enact multiple interest rate cuts across the last three FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the 3-4% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – September 6, 2024 appeared first on Albion Financial Group.

View Details

Executive Summary:

• Employee stock options allow employees to purchase company stock at a fixed price, offering potential gains if the stock price goes up.
• There are two main types of stock options: Incentive Stock Options (ISOs) with favorable tax treatment and Non-Qualified Stock Options (NQSOs) with more flexibility but less favorable tax treatment.
• Key considerations for managing stock options include understanding the vesting schedule, timing of exercise, tax implications, concentration risk, market conditions, and aligning with your financial goals.
• Lastly, consulting with trusted advisors is critical to making informed decisions and maximizing the benefits of your stock options.

Employee stock options are a powerful tool used by many companies to attract, retain, and motivate employees.

At a high level, they provide employees with the opportunity to purchase company stock at a fixed price, potentially leading to big gains if the stock price goes up. Many well-known companies, like Apple, Google, Microsoft, Amazon, and Tesla, use stock options, including both Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs), to align employee interests with company performance.

But, it’s not just large publicly traded companies that offer stock options. Many startups and small businesses use stock options as an attractive alternative to high salaries to conserve cash and reward early employees.

If you have stock options, understanding how they work and how to manage them effectively can help you make smart decisions and maximize the benefits they can provide.

First, What are Employee Stock Options?Employee stock options are contracts that grant employees the right to buy a specific number of shares of the company’s stock at a predetermined price, known as the exercise or strike price, after a certain period known as the vesting period. These options typically have an expiration date, by which time they must be exercised or they will expire. Stock options provide employees with the potential to become shareholders in the company and benefit from its success.

Stock Option Example: As an example, a typical stock option might give an employee the right to purchase 1,000 shares of the company’s stock at a strike price of $50 per share. If the stock price rises above $50, the employee can exercise their options and buy 1,000 shares at that lower price, effectively making a profit. Then, employees can decide whether to hold onto the stock or sell it for a profit.

Alternatively, if the stock price drops below $50, the employee can simply choose to wait, either until the price goes up beyond the strike price, or until the options expire, avoiding any potential loss.

Two Main Types of Employee Stock OptionsWhen it comes to stock options, there are two main types: Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs).

What are Incentive Stock Options (ISOs)?Incentive stock options are company stock options granted to employees that may provide tax benefits if certain conditions are met.

• Tax Advantages: ISOs offer favorable tax treatment if certain conditions are met. When employees exercise ISOs, they do not have to pay regular income tax on the difference between the exercise price and the fair market value of the stock. Instead, this difference, known as the “bargain element,” is subject to Alternative Minimum Tax (AMT). Then, if the shares are held for at least one year after exercise and two years after the grant date, any gain on the sale of the shares is taxed at the more favorable long-term capital gains rate.
• Eligibility: ISOs can only be granted to employees (not to directors, contractors, or consultants).

Ultimately, ISOs can be a valuable tool for both employers and employees. They can serve as a way to incentivize and reward top-performing employees, while also providing tax benefits for both parties. But, because there’s a layer of complexity involved in receiving favorable tax treatment, it’s essential to consult with a trusted advisor before executing your options.

What are Non-Qualified Stock Options (NQSOs)?Non-qualified stock options are a type of employee stock option that allows employees to purchase company stock at a fixed price, with fewer restrictions and no special tax benefits compared to incentive stock options.

• Tax Treatment: NQSOs do not qualify for special tax treatments. When employees exercise NQSOs, the difference between the exercise price and the fair market value of the stock is taxed as ordinary income at their highest marginal rate. This amount is also subject to payroll taxes. Then, any subsequent gain or loss upon selling the stock is treated as capital gain or loss.
• Flexibility: NQSOs can be granted to employees, directors, contractors, and others, providing greater flexibility for the company.

Ultimately, NQSOs can be a valuable tool for companies looking to attract and retain top talent, even without the same tax benefits as ISOs. By offering employees the opportunity to purchase company stock at a discounted price, NQSOs can act as a powerful incentive for them to perform well and contribute to the company’s success.

Key Considerations for Managing Stock OptionsWhen it comes to your stock options, planning is key. Here are some important considerations to keep in mind when managing your stock options:

1. Vesting Schedule: Understand the vesting schedule of your options. Vesting determines when you can exercise your options and purchase the shares. Options typically vest over a period of time, such as four years, with a portion of the options vesting each year.
2. Exercise Timing: Deciding when to exercise your options can have significant implications. For example, when exercising ISOs, many try to avoid exercising during a year with high income to minimize the alternative minimum tax (AMT) implications. In addition, there are certain rules to consider, such as not exercising more than $100,000 in ISOs in a given year AND the 10-year time limit to exercise your options from the grant date.
3. Tax Implications: Consult a tax advisor to understand the tax consequences of exercising and selling stock options. The timing of your exercise and sale, as well as the type of option (ISO or NQSO), can significantly impact your tax liability.
4. Concentration Risk: While stock options can provide substantial financial rewards, they also carry risk. Relying too heavily on company stock (when you already rely on them for a paycheck) can expose you to significant financial risk if the company’s stock price falls or the business falters. Diversifying your investment portfolio is crucial to managing this risk.
5. Market Conditions: Consider the current market conditions and the performance of your company when deciding to exercise and sell your options. While no one knows what the future holds, it’s wise to weigh everything you know about the company with what you know about the current state of the market as market volatility can affect the value of your stock options.
6. Financial Goals: Align your stock option strategy with your overall financial goals. Whether you plan to use the proceeds for retirement, buying a home, or other financial objectives, having a clear plan can guide your decisions.

These are just a few of the key considerations to keep in mind when it comes to managing your stock options. As always, it is important to consult with a trusted professional for personalized advice based on your unique situation.

Remember that stock options can be a valuable asset but also come with potential risks and complexities. By understanding the basics and carefully considering your options, you can make informed decisions that align with your financial goals.

ConclusionIn the end, employee stock options can be a valuable component of your compensation that can lead to significant gains if managed wisely. Understanding the different types of options, their tax implications, and the strategies for exercising and selling them is essential. By considering these factors and consulting with trusted advisors, you can make informed decisions that align with your unique goals and risk tolerance.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Understanding Employee Stock Options appeared first on Albion Financial Group.

View Details

Weekly Market Recap – August 23, 2024 [PDF]DownloadWeekly Recap:The Fed was once again in focus last week, and financial markets were not disappointed. First came the minutes from the July FOMC meeting, which included the following summation of the committee’s current outlook:

“The vast majority of participants observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”

Next up was Jerome Powell’s speech at the Jackson Hole Economic Symposium on Friday, where the Fed Chair essentially declared victory in the fight against inflation, noting:

“Inflation has declined significantly. The labor market is no longer overheated, and conditions are now less tight than those that prevailed before the pandemic.”

Bond prices rose as rates moved lower across the curve in response to these statements, while futures markets continue to debate whether the September rate cut will be just 25 basis points (~70% implied probability) or a full 50 basis points (~30% chance).

Equities of all stripes were higher as well, with notable strength in small caps and cyclicals (ex energy) as the rally in stocks once again showed signs of broadening out beyond its mega cap tech base.

Chart of the Week: Fed Funds Target Rate (lower) with Implied Fwd RatesAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will enact multiple interest rate cuts across the last three FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the 3-4% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – August 23, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap (FINAL) – 20240816DownloadWeekly Recap:Macro data released last week, while somewhat mixed, was generally supportive of the soft landing narrative.

Inflation data came in below expectations, bolstering rate cut confidence:

• PPI dropped to +2.2% y/y (consensus = +2.3%; prior month = +2.7%)

• CPI dropped to +2.9% y/y (consensus = +3.0%; prior month = +2.9%)

Labor market and consumer-related data remained solid:

• Initial jobless claims eased lower for a 2nd straight week, to 227k

• Retail sales rose +1.0% m/m in July (consensus = +0.4%)

• U of Michigan consumer sentiment rose slightly to 67.8 in prelim August data

Manufacturing and housing remain challenged, but so far that has not tipped the broader economy into recession and may not derail the soft landing outcome:

• Empire manufacturing remained in contraction territory at -4.7 for August

• Industrial production fell 0.6% m/m and capacity utilization fell to 77.8% in July

• Housing starts fell 6.8% sequentially in July to a SAAR of 1,353k

• Residential building permits fell 4.0% sequentially in July to a SAAR of 1,396k

Amidst this slew of macro data, the S&P 500 registered gains each day last week, with all sectors finishing the week in positive territory. The Nasdaq outperformed on renewed strength in mega cap tech stocks. In fixed income, rates fell modestly in the belly and long end of the curve as the market finds a new equilibrium after the flight-to-safety trade in early August. Credit spreads tightened during the week on renewed risk appetite, pushing corporate bond prices higher.

Chart of the Week: Consumer Price Index by Component (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will enact multiple interest rate cuts across the last three FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the 3-4% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – August 16, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – August 9, 2024 [PDF]DownloadWeekly Recap:Following a tense weekend where renewed concerns about the US economy collided with technicals associated with an unwind of the Japan carry trade, US stocks started out in freefall on Monday the 5th, extending a decline that had begun during the latter portion of the previous week. The S&P 500 opened more than 4% lower and the Nasdaq was down more than 5% to start the session. Most notably, the VIX (the Chicago Board Options Exchange Volatility Index) briefly spiked to more than 65, a level only reached previously during the severe market shocks associated with the pandemic in March of 2020 and the financial crisis in Q4 of 2008. See the Chart of the Day for a time series of the intraday highs on the VIX.

Thankfully, stocks stabilized during the course of Monday’s session, aided in part by the 10:00 am release of the ISM Services Index (51.4) for July, which came in better than expected across the board. The rest of the week was a gradual recovery as the panic subsided, with stocks finishing only modestly lower by Friday’s close.

Fixed income also experienced some normalization over the course of the week. Rates moved higher across the curve as the flight-to-safety trade waned, and credit spreads inched tighter day by day, in sync with the gradual recovery in equities. Mortgage rates appear to be a beneficiary of the recent fall in rates, with the national average 30-year fixed rate mortgage falling roughly 1/4 percent week over week in the most recent market survey.

Besides the ISM Services print, macro news was sparse last week. Initial jobless claims (233k) pulled back slightly, and total consumer credit outstanding grew by $8.9 billion in June, slightly lower than consensus estimates.

Chart of the Week: VIX Intraday HighAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.2x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will enact multiple interest rate cuts across the last three FOMC meetings of 2024, with additional cuts in 2025. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the 3-4% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – August 9, 2024 appeared first on Albion Financial Group.

View Details

Understanding and Navigating the 4 Phases of Retirement from Dr. Riley MoynesExecutive Summary:

• Retirement involves significant financial and emotional transitions, impacting routines, identity, and purpose.
• Dr. Riley Moynes’ framework of four phases helps retirees navigate these changes: the vacation phase, the loss and lost phase, the trial and error phase, and the reinvent and rewire phase.
• Addressing emotional challenges is crucial to avoid depression and find fulfillment in retirement.
• Engaging in meaningful activities and serving others can lead to a rewarding and purpose-driven retirement.
• Lastly, understanding these phases and staying proactive ensures retirees can make the most of their golden years.

Retirement is one of the biggest financial transitions of your life, so many prepare for years or even decades in advance.

From maximizing workplace retirement plans to optimizing Social Security benefits timing, retirees-to-be invest significant time understanding the financial nuances and tradeoffs needed for a secure and lasting retirement.

But, while many prepare financially, few consider the non-financial side of retirement, specifically, the emotional and psychological transition they will experience in retirement.

And that can be hard, because the reality is that leaving behind your career, whether you were financially ready or not, can create significant challenges, ultimately leading to higher rates of divorce and depression among retirees.

Fortunately, just like you can prepare for the financial aspects of retirement, there are things you can do to smooth out the emotional and psychological ride into retirement, helping you to “squeeze all the juice out of retirement.”

In his book, “The Four Phases of Retirement: What to Expect When You’re Retiring” and viral Ted Talk, Dr. Riley Moynes presents a framework to help retirees understand and navigate this significant life event through the 4 Phases of Retirement, which we will explore below.

The 4 Phases of Retirement from Dr. Riley MoynesPhase 1: The Vacation PhaseThe first phase of retirement is the vacation phase – a time when you enjoy your newfound freedom.

Just like being on vacation, you can wake up whenever you want and spend your time however you want – pure bliss, right? Well, just like being on vacation, there often comes a point where you’re ready to go back home, settle into your routines, and “sleep in your own bed again.”

In other words, the new, fun, and exciting feeling of being able to do anything at any time wears off, and you’re left to wonder: is this all there is?

According to Dr. Riley Moynes, the vacation phase of retirement typically lasts a year before it starts to lose its luster. He says that once you find yourself questioning if this is all there is, you have officially moved on to phase 2.

Phase 2: Loss and LostAs the name implies, phase 2 is not a fun place to be, and in his Ted Talk, Dr. Moynes describes it for many as “feeling like getting hit by a bus.”

In this phase, retirees can experience 5 major losses:

The 5 Major Losses in Retirement1. Loss of Routine: While work provides structure and routine, the newfound freedom of retirement can be unsettling for many. 2. Loss of Identity: Many people intertwine their identity with their work, often defining themselves by their job (e.g., “I am a doctor” or “I am an accountant”). 3. Loss of Relationships: Strong career relationships built over decades can suffer as you no longer interact with colleagues daily. 4. Loss of Purpose: Many derive their sense of purpose from their work, especially those who feel they are doing their life’s work. 5. Loss of Power: Retirees often lose the power and influence they once had as key decision-makers in their careers.

Ultimately, these major losses can lead to what Dr. Moynes refers to as the 3 D’s: depression, divorce, and cognitive decline. This period can be incredibly challenging as retirees struggle to find a new sense of purpose and direction without the familiar structure of their careers. Many may feel isolated and uncertain about how to move forward, which can exacerbate these feelings of loss.

Fortunately, by the time retirees decide they can’t go on like this, they have officially entered phase 3: trial and error.

Phase 3: Trial & ErrorPhase 3 is all about throwing things at the wall to see what sticks.

It’s a time when retirees ask themselves a couple of powerful questions:

1. How can I make my life meaningful again?
2. How can I contribute?

Dr. Moyne’s advice is simple: do more of the things you love and the things you’re good at.

And he says if you are having trouble figuring out what that is, start with some reflection. Ask yourself: a) what are some of your greatest accomplishments and b) what do you love doing?

Where those two things overlap is where you should focus your time.

Remember, this phase is all about experimenting and finding what brings you joy and fulfillment. Interested in volunteering at your local community garden or library? Go ahead and give it a try.

And if you’re struggling to come up with ideas, here are ten activities to consider during retirement:

10 Ideas to Find Purpose in Retirement1. Volunteering: Engage in volunteer work at local non-profits, schools, hospitals, or community gardens. Volunteering allows you to give back to the community, meet new people, and find a sense of fulfillment. 2. Mentorship: Offer your expertise and experience to mentor younger professionals in your previous field or other areas of interest. This can be done through formal programs or informal networks. 3. Lifelong Learning: Enroll in classes at local community colleges or online platforms. You can study subjects that interest you, ranging from history and literature to science and technology. 4. Hobbies and Crafts: Dive deeper into hobbies you’ve always enjoyed or pick up new ones. Whether it’s painting, woodworking, gardening, or cooking, engaging in creative activities can be very fulfilling. 5. Fitness and Wellness: Focus on maintaining your physical health through activities like yoga, swimming, hiking, or joining a fitness group. This can also include mental wellness practices like meditation or mindfulness. 6. Travel and Exploration: If you enjoy traveling, consider planning trips to places you’ve always wanted to visit. Travel can broaden your horizons and provide new experiences and memories. 7. Writing and Blogging: Share your life experiences, knowledge, or interests through writing. Start a blog, write a memoir, or even work on a novel. This can be a great outlet for self-expression. 8. Part-Time Work: Find part-time work or freelance opportunities in areas you’re passionate about. This can help maintain a sense of structure and purpose while allowing you to use your skills. 9. Community Involvement: Get involved in local community groups or organizations. This can include joining clubs, attending town meetings, or participating in community events. 10. Family and Friends: Spend quality time with family and friends. Strengthen your relationships by organizing regular get-togethers, outings, or family vacations. Being an active part of your loved ones’ lives can bring immense joy and fulfillment.

Phase 3 is all about experimenting with different activities until you find what brings you joy. Remember, this process is unique for everyone—there is no right or wrong—and it can continue to evolve throughout retirement

Last but not least, on to Phase 4: Reinvent and Rewire.

Phase 4: Reinvent & RewireIn phase 4, retirees find answers to the most important question of them all: what’s the point?

But, in Dr. Moynes’ experience, not everyone makes it to phase 4, with some retirees bouncing back and forth between phases 2 and 3. But, for those that do, he finds that it almost always involves service to others, in some capacity.

This could involve giving back to your community through volunteer work or mentorship. In his TED Talk, Dr. Moynes mentions a retiree who found joy in delivering “piping hot pizzas to hungry humans” part-time, not for the money, but for the satisfaction of serving others.”

For Dr. Moynes, success in phase 4 came through a friendship he formed that evolved into community classes teaching other friends how to use their iPhones and iPads. He joked that it all started because he and his fellow retirees were all given various Apple products for Christmas from their kids, but half of them could barely figure out how to turn them on, let alone use them. So, he and a friend taught a class on how to use their devices that snowballed into hundreds of classes on a variety of subjects over the years: from how to repair bikes, to learning different languages.

The best part of all? Dr. Moynes has found that through Phase 4, retirees can recover many of the losses from Phase 2: routine, identity, relationships, purpose, and power. This phase not only helps retirees regain a sense of stability but can also bring renewed meaning and satisfaction to their lives.

So, knowing what you know now, where do you go from here?

Dr. Moynes’ advice is simple:

Here Are 4 Steps You Can Take to “Squeeze the Most Juice” out of Retirement1. Enjoy the vacation in phase 1. 2. Be prepared for the losses in phase 2. 3. Try as many different things as possible in phase 3. 4. And lastly, squeeze all the juice out of retirement in phase 4.

In the end, with 10,000 people hitting retirement age every day and retirement potentially lasting a third of their life: a) you are not alone and b) this is a problem worth solving.

By understanding and embracing these four phases, you can turn the challenges of retirement into opportunities for growth, fulfillment, and happiness. Whether you are just beginning your retirement journey or are already navigating its complexities, remember that each phase is a step towards a richer, more rewarding life. The key is to stay open, flexible, and proactive in finding what makes your retirement truly golden.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post How to Make the Most of Your Golden Years appeared first on Albion Financial Group.

View Details

Weekly Market Recap – August 2, 2024 [PDF]DownloadWeekly Recap:Weak labor market data on Thursday and Friday of last week heightened fears regarding the condition of the US economy, turning what had been a rotation trade into a fear trade. Equities of all stripes were down sharply as VIX spiked to its highest level in more than a year. Defensive sectors like utilities, staples, and real estate outperformed on the week, while most growth and cyclicals companies were lower. Small caps reversed course on their recent outperformance and shed nearly 7% on the week, significantly underperforming large caps.

With some market participants suddenly clamoring for an emergency rate cut, Treasury yields fell sharply as bond prices rose. 2y yields dropped 50bp on the week, 10y yields finished 40bp lower, and Fed funds futures markets finished Friday’s session with 4 to 5 rate cuts priced in by year-end. Credit spreads leaked wider by about 10 basis points, a comparatively modest amount that could be a precursor of more widening to come.

The data driving the equity selloff largely came from the labor market, although a weaker-than-expected ISM Manufacturing print also contributed, coming in at 46.8 for July. On the labor front, initial jobless claims (a leading indicator of labor market stress) rose to 249k, the highest figure in nearly a year. Then on Friday, nonfarm payrolls fell to +114k in July from a downwardly revised +179k in June, missing consensus by a wide margin. Perhaps most importantly, U-3 unemployment rose 20 basis points to 4.3%, officially triggering the “Sahm Rule” (trailing 3m avg U3 more than 50bp greater than trailing 12m low U3) which in the past has proven to be a very reliable real-time marker for the actual start of a US recession (recession dates are officially determined after the fact by NBER).

Chart of the Week: US Unemployment Rate (U-3)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in the 2nd half of 2024, with additional cuts in 2025. Belly and long end rates have already priced in a rate cutting cycle and are likely near their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the ~3% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – August 2, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – July 26, 2024 [PDF]DownloadWeekly Recap:The sector rotation trade gained momentum last week, as large cap tech significantly underperformed while most other parts of the US equity market rallied. Cyclicals and defensives were almost universally higher, with energy stocks the lone exception thanks to sagging oil prices driven by soft demand from China. Small caps massively outperformed once again, with the Russell 2000 climbing 3.5% on the week to reach 10+% so far in July. International markets finished lower, particularly E/M thanks to weakness in Chinese stocks.

In fixed income, rates moved lower across most of the curve, particularly in the front end as monthly PCE data reinforced the disinflation narrative. Dovish comments from former FOMC member Bill Dudley, who surprisingly called for a July rate cut to stave off a possible recession, also helped push short rates lower. While futures markets continue to price almost no chance of a cut from the FOMC at the end of July, the implied odds of a September cut are now virtually 100%.

Macro data released last week was consistent with recent trends. The first estimate of Q2 US GDP growth came in at +2.8% (q/q annualized), with better-than-expected personal consumption (along with some inventory build) as strong income growth continues to support consumer spending. Home sales (new & existing) remain weak due to persistently high mortgage rates. The preliminary reading of S&P’s PMIs for July saw manufacturing (49.5) slip back into contraction, while services (56.0) exceeded consensus and kept the composite (55.0) in expansion territory. And finally, Core PCE (the Fed’s preferred inflation gauge) was +0.2% m/m in June and +2.6% y/y, a relief to market participants who are wary of any reacceleration in inflation ahead of the September FOMC meeting.

Chart of the Week: US GDP Growth with Consensus Fwd Estimates (q/q, ann.)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in the 2nd half of 2024, with additional cuts in 2025. Belly and long end rates have already priced in a rate cutting cycle and are likely near their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the ~3% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – July 26, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – July 19, 2024 [PDF]DownloadWeekly Recap:A sharp sector rotation trade played out across US equity markets for a second consecutive week, with high flying tech stocks coming under selling pressure while previously unloved areas of the market found a bid. Cyclicals, real estate, and small caps were areas of relative strength. The Dow was the winner among US large cap benchmarks, while the Nasdaq was down more than 3% and is now slightly in the red for the month of July. Meanwhile, international equity markets had a challenging week, and remain well behind the US on a YTD basis.

Bond yields moved higher by 5-6 basis points across most of the Treasury curve, pivoting midweek after a fairly strong bond rally that had seen yields fall by ~25 basis points over the previous 2+ weeks.

Macro was a mixed bag last week. Import/export prices continue to suggest that international trade is not a significant source of inflation at this point. On the positive side, retail sales in June were better than expected, and housing activity rebounded slightly, with permits and starts both up 3+% sequentially. On a more challenging note, jobless claims ticked higher once again as the labor market continues to normalize, and the Conference Board’s Leading Economic Index (LEI) fell another 0.2% m/m. The LEI is now 14.8% off of its peak from the end of 2021, and in the past, declines of this magnitude have always been followed by a US recession. See the Chart of the Week for a time series.

Lastly, despite causing significant disruption in many industries, it does not appear that Friday’s global Crowdstrike outage had any meaningful effect on most financial asset prices (CRWD is a notable exception, of course).

Chart of the Week: Conference Board LEI – Decline from Peak (%)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in the 2nd half of 2024, with additional cuts in 2025. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the ~3% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – July 19, 2024 appeared first on Albion Financial Group.

View Details

Albion Financial Group – July 2024 Conference Call Video RecordingIn our July 2024 conference call our panelists discussed the following topics:

• General views on the economy
• Current state of inflation and our outlook
• The jobs market and recent trends
• The Fed, interest rates, and bond yields
• Present conditions in the stock market, including the concentration of returns
• 2024 presidential election and its potential impact on markets
• Sunsetting tax laws
• Social Security planning considerations
• Downsizing during retirement
• Portfolio management concepts and asset allocation

Stream the audio of yesterday’s conference call at this link.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Conference Call Recording – July 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – July 23, 2024 [PDF]DownloadWeekly Recap:Unlike the first week of July, which was largely a continuation of the tech-dominated rally of the past ~18 months, last week saw a broadening of the rally to include previously unloved sectors like cyclicals, real estate, and small caps. Among large cap benchmarks the Dow was the best performer, but the real star was the Russell 2000 (small cap benchmark) which surged 6% on the week. That said, the Dow and the Russell both remain far behind the more tech-heavy S&P 500 and especially the Nasdaq on a YTD basis.

The primary catalyst was Thursday’s lower-than-expected CPI print, which saw headline inflation drop 30 basis points sequentially to 3.0% y/y, while core inflation fell 10 basis points to 3.3%. The decline in Core CPI was largely driven by declining services inflation, rather than core goods which has already been in deflation for some time. Core services is the primary driver of inflation in the economy at this point, so seeing the moderating trend there is encouraging.

Earlier in the week, during his semi-annual 2-day testimony before Congress, Fed Chair Jerome Powell highlighted the fact that inflation is no longer the only risk on the committee’s mind, as the gradual normalization of the labor market has led to three consecutive sequential increases in U-3 unemployment, to 4.1% as of the most recent print. Financial markets interpreted Powell’s comments to mean that a September rate cut is in play, and the subsequent CPI print sent the implied odds of a September cut to nearly 100%. Rates fell across the curve as well, driving solid gains for fixed income investors on the week.

Chart of the Week: Consumer Price Index by Component (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in the 2nd half of 2024, with additional cuts in 2025. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation became sticky in the 3-4% range in the first half of 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – July 12, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – July 5, 2024 [PDF]DownloadWeekly Recap:The first week of the second half of 2024 was largely a continuation of what has been the dominant trend of the past 18 months, with technology stocks pulling large cap benchmarks higher while other parts of the market were mixed. The S&P 500 gained 2% on the week, despite the fact that 56% of the index constituents (281 out of 503 stocks) finished lower. Meanwhile, the tech-dominated Nasdaq (+3.5% on the week) continued to pull ahead in the 2024 performance race, while the more cyclical Dow (+0.7% on the week and just +5.5% YTD including dividends) lags far behind. Similarly, US small and midcap benchmarks (which are not nearly as tech-heavy as large caps) finished lower on the week, and have also meaningfully underperformed on a YTD basis.

Rates finished lower across the curve last week thanks to so softer-than-expected macro data, allowing bond prices to rise. Despite the holiday it was a busy week for macro, including below-consensus prints for both manufacturing and services activity in the month of June:

• ISM’s Manufacturing PMI slid deeper into contraction territory at 48.5

• ISM’s Services PMI fell into contraction at 48.8 (lowest print since May of 2020)

The week concluded with the monthly jobs report from the BLS, which showed steady growth in both jobs (+206k NFP) and hourly earnings (+3.9% y/y). Labor force participation ticked higher to 62.6%. Perhaps most importantly, the closely-watched U-3 unemployment rate rose 10bp sequentially to 4.1%. Despite rising sequentially for the 3rd straight month, U-3 remains slightly below the level that would trigger the Sahm Rule and potentially indicate the start of a US recession.

Chart of the Week: Nonfarm Payrolls (m/m net change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in 2024, most likely at some point in the 2nd half of the year. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – July 5, 2024 appeared first on Albion Financial Group.

View Details

As Albion grows and matures – and we’re now in the early years of our fifth decade – it’s inevitable that we find ourselves celebrating the retirement of long-time team members, honoring their contributions, yet continuing into the future without disruption. We’ve had a few over the years and it’s time to celebrate another. Doug Wells, Partner and head of business development, will be retiring in early July. Doug reached out to Albion in the 1990’s when he was looking for financial planning advice. He liked what he saw. Several years later, in 2002, Doug came back and pitched Toby and me on why we should hire him. Those of you who know him know he can be persuasive! We brought him into Albion and never looked back. His desire to learn was immediately apparent and within a few years had earned, in addition to his MBA, the CFP (Certified Financial Planner) and CFA (Chartered Financial Analyst) designations. He helped us along our path of continuous improvement where we strive to add more value to everything we do on behalf of clients. And he worked to get the word out into our community about Albion. Over the years he turned his network of business associates into a group of lifelong friends. From being a ski instructor at Deer Valley, hosting a radio show on KPCW, trying Bikram Yoga, or organizing group mountain bike rides, Doug has never shied away from trying new things. And with that spirit, he is trying a new chapter in his life, that of retirement.

He has helped scores of Albion clients make the decision to retire. More often than not the decision is far more personal than financial; it can be difficult to leave what you’ve known for decades and step off into the unknown. Having successfully counseled people through the transition he knew it was time to follow his own advice.

We will miss Doug. His energy, upbeat attitude, and intelligence are all characteristics we knew we could depend on. But we also know he leaves behind a highly functioning team that is already filling the void he leaves behind. Thank you, Doug, for choosing Albion!

Note: This blog post is an excerpt from Albion’s Quarterly Letter to clients. Find the entire letter posted in the Learning Center of this website.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Quarterly Letter Excerpt: From John Bird’s Desk appeared first on Albion Financial Group.

View Details

Q2 2024 – Market Recap [PDF]DownloadQ2 Recap:InflationAfter several hotter-than-expected inflation prints in Q1, the data released in Q2 suggest that price pressures began to cool a bit. The m/m increase in Core CPI and Core PCE fell sequentially in both April and May, leaving Core CPI at +3.4% y/y and Core PCE at +2.6% y/y. Substantially all of the remaining inflation in the economy is in core services. Food and energy inflation are roughly +0.5% y/y combined as of the end of Q2, while core goods inflation is actually negative (i.e., deflation) at -0.4% y/y.

Monetary PolicyThere were no changes to overnight interest rates in Q2, and the June update to the Summary of Economic Projections clearly reflected a “higher for longer” outlook, due to lingering inflation concerns. The median projection among FOMC members fell to just one 25bp rate cut in 2024, although to be fair, the committee was quite close to being evenly split between one rate cut and two. Fed Chair Jerome Powell reiterated during the most recent press conference that the committee will need to see more sustained progress towards the 2% inflation target before they will have sufficient confidence to begin cutting rates.

EconomyData released in Q2 suggest a slowing, but still growing, US economy. The labor market is normalizing: new jobless claims rose by ~20k per week, open jobs fell to 8.06 million, and unemployment ticked higher by 20 basis points to 4.0%, but job creation remained solidly positive (3m avg +249k nonfarm payrolls added). Persistently high mortgage rates have inhibited housing sector activity. Manufacturing remains weak, but strength in services driven by solid consumer demand continues to drive the economy forward. Analysts currently forecast an acceleration in S&P 500 earnings growth in Q2, with bottom-up consensus estimates at +8.8% y/y.

Bond MarketTreasury yields moved higher across the curve in Q2, particularly in the belly and long end as investors continue to grapple with longer-term inflation assumptions and US budget deficits. Credit spreads tightened in April and early May, but then retrenched in June to finish slightly wider for the quarter. In the aggregate, the US investment grade bond market is down slightly YTD at the halfway point of 2024.

Stock MarketGains were concentrated in Q2, continuing the “narrow rally” theme. Large caps that could be tied to the generative A/I theme did well in Q2, led by semiconductor stocks like Nvidia (+36.7%). Public utility stocks also continue to benefit from the significant expansion in power and cooling that will be required to support the growing A/I infrastructure. Elsewhere though, it was a difficult quarter, with cyclicals, small caps, and most international benchmarks finishing lower.

Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in 2024, most likely at some point in the 2nd half of the year. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Market Recap – Q2 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – June 21, 2024 [PDF]DownloadWeekly Recap:Most equity benchmarks finished in the green once again last week, albeit with different leadership this time. Tech stocks took a step back on Thursday and Friday, particularly the semiconductor companies (Nvidia, Broadcom, Taiwan Semiconductor Manufacturing, Qualcomm, etc.) that had been fueling the recent rally. In the end, cyclicals and small/midcap stocks outperformed on the week as what had been a very narrow rally broadened out a bit.

Despite a variety of macro updates that in the aggregate were a bit weaker than expected, rates moved higher by 3-5 basis points across the curve. Meanwhile, IG corporate credit spreads widened for the 3rd consecutive week, and have now widened by nearly 10 basis points on average since the end of May.

Most of the macro updates from last week suggested a gradually softening outlook for the US consumer, including:

• US retail sales ex autos fell 0.1% sequentially for the 2nd straight month

• The NAHB Housing Market Index fell 2 points to 43 in June

• Housing Starts fell 5.5% m/m on a seasonally adjusted basis in May

• Residential Building Permits fell 3.8% m/m on a seasonally adjusted basis in May

• The Conference Board LEI fell 0.5% m/m and is now -14.2% off its cycle peak

However, there were a few bright spots that allowed cyclicals to rise, including:

• Industrial Production rose 0.9% m/m in May

• US Manufacturing Capacity Utilization rebounded 50bp to 78.7% in May

• S&P’s Manufacturing PMI rose to 51.7 in preliminary June data

• S&P’s Services PMI rose to 54.8 in preliminary June data

Chart of the Week: Conference Board LEI (Total)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or twice in 2024, most likely at some point in the 2nd half of the year. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – June 21, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – June 14, 2024 [PDF]DownloadWeekly Recap:In a week where an updated dot plot from the FOMC showed that consensus among committee members had moved to just one 25bp rate cut by year-end, futures markets actually increased the odds of a second rate cut from roughly 50/50 to more like 90/10.

The reason was inflation data. All three inflation metrics released last week came in well below consensus expectations, beginning with CPI data for May which hit the tape only a few hours before the conclusion of the 2-day FOMC meeting:

• Headline CPI was flat sequentially and fell to +3.3% y/y

• Core (ex food & energy) CPI rose 0.2% m/m and fell to +3.4% y/y

Then on Thursday, the Producer Price Index (PPI) showed similar softness, coming in 30bp below consensus estimates across the board:

• Headline (final demand) PPI was -0.2% m/m and fell to +2.2% y/y

• Core (ex food & energy) PPI was flat sequentially and fell to +2.3% y/y

Finally, import/export prices released on Friday showed a similar trend:

• Import prices printed at -0.4% m/m and fell to +1.1% y/y

• Export prices printed at -0.6% m/m and fell to +0.6% y/y

In response, bond prices rose as rates fell by ~20bp across the entire Treasury yield curve. On the equity side, real estate and large cap growth stocks were the biggest beneficiaries of the fall in rates, while cyclicals and small caps finished lower. The tech sector also got yet another boost from rosy A/I-driven earnings reports and forward guidance from Broadcom, Oracle, and Adobe.

Chart of the Week: Consumer Price Index (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Belly and long end rates are likely already near their post-pandemic equilibrium levels, unless the US economy enters a recession.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Moderating energy prices have recently been helpful in terms of the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – June 14, 2024 appeared first on Albion Financial Group.

View Details

This content is password protected. To view it please enter your password below:

Password:

The post Protected: From College Savings to Retirement: How to Fund a Roth IRA with Extra 529 Money appeared first on Albion Financial Group.

View Details

Weekly Market Recap – June 7, 2024 [PDF]DownloadWeekly Recap:Stocks were higher in the aggregate (fueled by another 10% rise in NVDA) during a busy week for macro news that provided mixed signals with respect to the state of the US economy. Early in the week, some softer-than-expected updates on labor and manufacturing suggested that the economy was slowing to the point where multiple rate cuts by year-end were a probable outcome, but Friday’s stronger-than-expected monthly jobs report turned that notion around in a hurry.

On Monday, ISM’s Manufacturing PMI for May fell to 48.7 (contraction territory), with fresh weakness in new orders. Later in the week, however, ISM’s Services PMI gained more than expected, with strength in both new orders and employment. This is consistent with the pattern in the US economy for the past 2+ years, during which a strong services sector (the bulk of the US economy) has offset what has essentially been a recession in manufacturing.

Labor market data also painted a mixed picture. On Tuesday, the Job Openings and Labor Turnover Survey (aka, the JOLTS report) showed a second consecutive large m/m drop in open jobs in the US, falling to 8.06 million (the pandemic era peak was over 12 million). Weekly initial jobless claims also ticked up slightly to 229k, which is towards the higher end of the range that has persisted for the past 2+ years. But then on Friday, the month jobs report from the BLS far surpassed consensus with 272k nonfarm payrolls added (consensus = 180k), and 4.1% y/y growth in average hourly earnings (consensus = +3.9%). The strong report left traders rushing to cover their rate cut bets, leaving the odds of a second cut in 2024 at roughly 50/50 as the week drew to a close.

Chart of the Week: Nonfarm Payrolls AddedAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.7x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Moderating energy prices have recently been helpful in terms of the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

The post Weekly Market Recap – June 7, 2024 appeared first on Albion Financial Group.

View Details

Market Recap – May 2024 [PDF]DownloadMay Recap:Inflation: Data released in May suggested that price pressures may have eased back just slightly in April. The m/m change in Core CPI fell 10 basis points sequentially to +0.3%, leaving the y/y figure at +3.4%. Similarly, the m/m change in the PCE Core Deflator also fell 10 basis points to +0.2%, with the y/y figure holding steady at +2.8%.

Monetary Policy: May featured what might be termed “a meeting in two parts,” at least in terms of how financial markets reacted. At the conclusion of the FOMC meeting on May 1st, markets breathed a sigh of relief that the committee did not appear to be seriously contemplating rate hikes to combat sticky inflation. Rates fell across the curve in early May as a result, while Fed funds futures markets priced in a second rate cut prior to year-end. However, when the minutes from that meeting were released on May 22nd, investors were discouraged by the very clear reminder that many committee members lacked confidence that inflation was sufficiently under control to seriously contemplate rate cuts in the near term. Odds of a second rate cut in 2024 fell to roughly 50/50 by month end.

Economy: Data released in May was mixed. The labor market remains strong but is gradually normalizing: new jobless claims remain low at ~220k per week, but job creation slowed (175k nonfarm payrolls added) and unemployment ticked higher by 10 basis points to 3.9%. Consumer confidence indicators were also mixed: the Conference Board’s index rebounded 4.5 points to 102.0, while the University of Michigan saw an 8 point decline to 69.1 with weakness in all components. Meanwhile, persistently high mortgage rates appear to have stalled any upward momentum in housing sector activity. Q1 GDP growth was revised lower by 30bp to +1.3% q/q annualized, but Q1 corporate earnings growth was robust at roughly +6% y/y for the S&P 500, well in excess of inflation.

Bond Market: Treasury yields see-sawed, initially falling after what felt like a dovish FOMC meeting, only to reverse course and retrace most of that ground later in the month after the meeting minutes were released. Finally, yields fell again after the May 30th release of a downwardly revised Q1 GDP print, leaving bond prices higher on the month. Credit spreads remained steady throughout at levels that are very tight by historical standards.

Stock Market: Stocks of nearly all stripes were higher in May, aided by the tailwinds of lower rates, solid corporate earnings, and renewed enthusiasm for A/I themed companies after yet another blowout earnings report from Nvidia. Falling oil prices pushed the energy sector slightly into the red, but all other sectors in the S&P 500 finished higher, led by technology stocks.

S&P 500 Total Return by Sector – May 2024Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.3x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Monthly Market Recap – May 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 24, 2024 [PDF]DownloadWeekly Recap:Last week’s market action was a product of two countervailing forces: a disappointing (but hardly surprising) reminder that the Fed is not ready to declare victory over inflation, followed by renewed euphoria regarding the potential of G-A/I after Nvidia yet again exceeded the market’s expectations with blowout Q1 earnings and revenue guidance.

Minutes from the April 30 / May 1 FOMC meeting showed that committee members are concerned about the recent stickiness in inflation, and see potential upside risks to the inflation outlook from geopolitical events via energy prices. Members cited a lack of confidence to move forward with rate cuts, a sentiment that has also been reflected in post-meeting public statements. Rates moved higher across the curve in response, particularly in the front end as the odds of a 2nd rate cut in 2024 fell to roughly 1-in-3, the lowest they’ve been all year.

After the close on that same day, Nvidia released Q1 earnings and updated revenue guidance that somehow exceeded the lofty expectations baked into consensus estimates and the stock price. NVDA rose more than 9% on Thursday, and was up another 2.6% on Friday, dragging other A/I-theme stocks higher too.

The net result of these two forces was a heavily skewed equity market, in which the S&P 500 finished slightly higher on the week at the index level, despite the fact that nearly 3/4 of the index constituents were lower. As the chart of the week shows, it is highly unusual for the index to be up when so many constituents are down. In fact, the S&P 500’s weekly net advancer/decliner score of -235 is the lowest for any week with a positive index price change in the past 30+ years.

Chart of the Week: S&P 500 Weekly Price Change % vs. Advancers-DeclinersAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.5x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Weekly Market Recap – May 24, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 10, 2024 [PDF]DownloadWeekly Recap:In a mostly quiet week for macro news, rate volatility eased lower and stocks moved higher, although Friday’s U of M consumer sentiment print caused a modest reversal of those trends.

The BofA MOVE index (a measure of Treasury rate volatility, similar to the VIX for equities) finished the week at 94.23, its lowest level since the start of April and one of the lowest prints of the past 2 years. While rate vol is still elevated relative to pre-pandemic norms, it has been trending lower over the past 12 months, to the benefit of stock prices. See the Chart of the Week for a time MOVE index time series.

Stocks finished the week in the green across the board, led by utilities which have been on a remarkable run lately after being mostly unloved for the better part of 2 years. As of Friday’s close, S&P 500 Utilities Sector Index had risen 13.5% since mid-April, vaulting it into second place in YTD performance amongst sectors in the S&P, trailing only Communications which has been driven primarily by technology stocks within the sector, including Meta (Facebook) and Alphabet (Google).

While the week was mostly quiet from a macro perspective, it ended on somewhat of a sour note as the University of Michigan’s Consumer Sentiment survey came in weaker than expected across the board in the preliminary May reading. The headline index fell nearly 7 points to 67.4, with significant weakness in both Current Conditions (68.8 vs. consensus of 79.0) and Future Expectations (66.5 vs. consensus of 75.0). Perhaps most concerning was that consumers’ inflation expectations moved higher: short term (1y) expectations increased 30bp to 3.5%, while longer term (5-10y) expectations increased 10bp to 3.1%.

Chart of the Week: BofA MOVE IndexAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.4x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Weekly Market Recap – May 10, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 3, 2024 [PDF]DownloadWeekly Recap:With inflation and monetary policy still in focus, last week’s FOMC meeting and some soft macro data pushed rates lower and allowed stocks to rise.

As expected, there was no change to overnight interest rates, and Jerome Powell continued to preach patience, noting that in recent months there has been a lack of progress towards the committee’s 2% target. However, the committee did announce a significant reduction in the pace of Quantitative Tightening (“QT”), which could be viewed as a precursor to rate cuts. The committee reduced the monthly redemption cap on Treasuries from $60 billion to $25 billion, a move that appears to be aimed at arresting further upward movement in Treasury yields.

The rates market interpreted this as a mildly dovish outcome. In the ensuing sessions, the odds of a second rate cut in 2024 rose from roughly 15% pre-FOMC to 80% by the end of the week (one cut has remained priced in throughout). Yields fell by 10+ basis points across the curve, with greater declines in the front end.

Soft macro data also played a role last week. First, the monthly jobs report from the BLS saw just +175k net nonfarm payrolls which was well below consensus, while U-3 Unemployment and U-6 Underemployment both ticked higher by 10 basis points, to 3.9% and 7.4%, respectively. And a bit later on Friday morning, the ISM Services Index unexpectedly dropped into contraction territory at 49.4, the lowest reading since December of 2022. The services sector has largely kept the US economy afloat during the post-pandemic period even as manufacturing has slumped, so any protracted softness in services could be a significant challenge to growth.

Chart of the Week: Net Nonfarm Payrolls AddedAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Weekly Market Recap – May 3, 2024 appeared first on Albion Financial Group.

View Details

Market Recap – April 2024 [PDF]DownloadApril Recap:Inflation: Data released in April continued to paint a picture of sticky inflation, with most metrics coming in slightly higher than consensus expectations. Core CPI is now +3.8% y/y based on the most recent print, while the Core PCE Deflator (the Fed’s preferred inflation gauge) stands at +2.8% y/y, both of which are above the Fed’s 2% inflation target. Moreover, real time inflation data suggests that core inflation (CPI and PCE) has been running at an annualized pace of around 4.5% so far in 2024.

Monetary Policy: There were no FOMC meetings in April (technically a meeting began on April 30, to conclude with a rate decision and press conference on May 1), and thus no changes to overnight interest rates. However, sticky inflation data caused market participants to further reassess the timing and magnitude of a rate cutting cycle. At the start of April, futures markets were pricing in 2 or 3 rate cuts in 2024, most likely beginning sometime over the summer. By month end, futures markets implied only one rate cut this year, occurring in either November or December.

Economy: Data released in April was mixed. The labor market remains strong: jobless claims are low (~200k initial claims per week), open jobs are plentiful (8.75 million per the most recent JOLTS report), job creation continues (303k nonfarm payrolls added), and unemployment is low (3.8%). There have been signs of a trough in US manufacturing, which has been in recession for nearly 2 years. However, consumer confidence has wanted in recent months thanks to sticky inflation, and higher mortgage rates appear to have stalled the upward momentum in housing sector activity. Q1 corporate earnings growth has been modest so far at +3.5% y/y, roughly in line with inflation meaning that real (inflation-adjusted) growth is close to flat.

Bond Market: Treasury yields moved higher over the course of April as market participants further recalibrated their expectations regarding the so-called “Fed pivot”, resulting in lower bond prices across the board. Credit spreads remain tight by historical standards, pricing in very little default risk. Mortgage spreads tightened a bit further in April, driving a smaller increase in mortgage rates (+38bp on average for 30y fixed) compared to the move in 10y Treasury yields (+48bp).

Stock Market: After posting significant gains in Q1, most domestic and international stocks struggled in April. China was a notable exception, with the MSCI China Index posting a 6.4% gain on the month, pushing E/M benchmarks into positive territory. In the US, all sectors except Utilities finished in the red, with rate-sensitive sectors like Real Estate and Technology facing the most selling pressure.

S&P 500 Total Return by Sector – April 2024Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Market Recap – April 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April 26, 2024 [PDF]DownloadWeekly Recap:Risk appetite returned to financial markets last week as equities experienced a broad-based rally. All sectors in the S&P 500 finished higher, led by a strong post-earnings rebound in several large cap technology stocks that pushed the Nasdaq to a 4.2% gain on the week. Small caps and international stocks also fared well.

Rate volatility eased back a bit, particularly in the front end which has come to grips with the reality of a very patient Fed. Belly and long end yields inched higher by a few basis points, but the 2y finished the week right where it began: just shy of 5%. Futures markets are now pricing in only one 25bp rate cut by year-end, down from six at the start of the year.

Meanwhile, credit spreads compressed a bit last week on the uptick in risk appetite, keeping high quality corporate bond prices flat despite the mild backup in parts of the Treasury yield curve.

Macro data was mostly fine last week – not too hot, and not too cold. The first estimate of Q1 GDP came in lower than consensus expectations, but real-time GDP estimates (like the Atlanta Fed’s GDPNow) suggest that the final figure could eventually be revised higher. Consensus estimates call for continued slow growth for the balance of 2024 (see Chart of the Week).

Finally, PCE inflation data for March came in largely in line with expectations. Headline and Core PCE both expanded by +0.3% m/m in March, as they both had the previous month. Core PCE (the Fed’s preferred inflation gauge) remained at +2.8% on a y/y basis, above the Fed’s 2% target.

Chart of the Week: US GDP Growth (q/q, annualized)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Weekly Market Recap – April 26, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April 19, 2024 [PDF]DownloadWeekly Recap:It was a tough week for stocks and bonds as market participants began to debate whether 2024 might see zero cuts to overnight interest rates, rather than multiple cuts as had been assumed in the early part of the year. As of Friday’s close, futures were still pricing in two 25bp rate cuts by year-end, with July being the first “live” meeting where a rate cut was roughly a 50/50 proposition. Sticky inflation and hawkish commentary from FOMC members have undermined what was previously a consensus view that a relatively aggressive rate cutting cycle would begin over the summer.

As a result of the less dovish outlook for monetary policy, Treasury yields have moved higher across the curve. Last week saw a parallel shift higher by 8-10 basis points, putting yet another dent in YTD fixed income performance. Mortgage rates have moved wider in sync with Treasury yields, with the national average for 30y fixed rate back above 7% according to Freddie Mac’s weekly mortgage market survey.

Stocks had a difficult time staying afloat amidst the backup in rates. Rate-sensitive sectors were the hardest hit, including real estate and technology. The recent selloff in large cap tech has pushed the Nasdaq back behind the S&P 500 on a YTD basis.

In macro news, last week’s most significant release was the Conference Board’s Leading Economic Index (LEI), which resumed its downward trajectory in March after a brief uptick in February. The index is now 13.7% off its year-end 2021 cycle peak (see the Chart of the Week). In the past, declines of this magnitude and duration have always been followed by a recession.

Chart of the Week: Conference Board LEI – Percent Decline from PeakAlbion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates twice in 2024, beginning at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Weekly Market Recap – April 19, 2024 appeared first on Albion Financial Group.

View Details

Thanks to all of you who were able to join us at our annual Albion ski day. As most of you know our roots as a firm are in Alta, Utah. We began our investment management and financial advising journey in the basement of the Alta Lodge in 1982 and through the rest of the 1980’s officed up at the end of Little Cottonwood Canyon. While we’ve long since moved down into the Salt Lake valley our hearts are still attached to that mountain oasis. On to this quarters’ musings.

Money Laundering. Shell games. Hiding the true owner of assets for nefarious purposes. These are a handful of reasons behind one of Washingtons’ efforts; the Corporate Transparency Act (“CTA”), a part of the Money Laundering Act of 2020. Turns out rulemakers believe our current system of LLC’s, Partnerships, and Corporations allow the actual humans who own these entities to hide behind a nearly impenetrable wall of structures to mask their ownership. And perhaps through these opaque structures engage in illegal activities with very little risk of being discovered. The purpose of this law is to pierce that veil.

Unfortunately this will apply to many of our clients. Those with closely held businesses, family partnerships and/or limited liability companies, and closely held entities will find themselves subject to the reporting requirements.

The provided information is not public. Rather, the gathering entity – the Financial Crimes Enforcement Network (“FinCEN”) is authorized to disclose information to U.S. federal law enforcement agencies, with court approval to certain other agencies, to non-US law enforcement agencies upon request of a US federal law enforcement agency, and with consent of the reporting company to financial institutions and their regulators.

Prior to this act the burden of collecting beneficial ownership information fell on financial institutions. This shifts the burden to the entities themselves.

None of us are happy about additional reporting requirements and what feels like further intrusion of the federal government into our affairs. And this note could wax philosophic for paragraphs on the topic. But we’ll spare you such a soliloquy. And focus instead on who this applies to and what you must do to comply. To be clear we are not attorneys and nothing here should be considered legal advice. We encourage every reader to consult with counsel to determine if they have a reporting requirement under the act and if so to ensure reports are filed in a timely manner.

There are twenty-three exempt categories which can be summarized in a few categories. First are financial institutions; for example banks, securities issuers, credit unions, bank holding companies, broker-dealers, money services businesses, securities exchanges and clearing companies, investment companies and investment advisors, venture capital fund advisers, insurance companies, state licensed insurance producers, entities registered with commodity exchanges, accounting firms, pooled investment vehicles. These entities already have stringent reporting requirements.

The next significant category is made up of governmental entities. This includes federal, state and tribal entities and includes political subdivisions which means counties, cities, towns and school districts.

The final category are “large” operating companies. For this law “large” is considered to be companies with over twenty employees, over $5,000,000 in gross receipts from US customers, and with an operating presence at a physical office within the United States.

Know that the entities as outlined above are but an approximate summary of exempt organizations. It’s essential to dive into the details and if there is any question to retain counsel to determine whether or not your entity is exempt. Fines for non-compliance are punitive and run up to $500 per day of non-compliance which can accumulate up to $10,000. None of us want to get this wrong.

So what types of entities will be subject to the reporting requirements? Unfortunately many of the small family partnerships, LLC’s, trusts, and corporations we and our clients work with on a daily basis are subject to this law.

The information required with the reporting includes the legal name, any trade names, DBA’s or trading as names, the current street address and principal place of business, the jurisdiction of formation or registration, and the tax ID number. Beneficial owners must report their name, date of birth, residential address, an ID from an acceptable document (passport, US driver’s license), and the name of state or jurisdiction issuing the document. An image of the document must be provided and it cannot be expired.

Businesses in existence prior to January 1, 2023 must file by January 1, 2025. Businesses formed during calendar year 2024 must report within 90 days of creation of the entity and businesses formed after January 1, 2025 must file within 30 days of creation of the entity.

More information can be found through your legal counsel and online at fincen.gov/boi.

This quarterly note differs from the usual fare. However given the circumstances we believe it’s important to front and center with all of you regarding this new requirement as year end (and the risk of non-compliance) will be here in the blink of an eye.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance.

The post Quarterly Letter Excerpt: From John Bird’s Desk appeared first on Albion Financial Group.

View Details

If something cannot go on forever, it will stop. Economist Herbert Stein articulated this principle nearly forty years ago when discussing growing trade deficits with lawmakers. This humble insight can be applied to many situations. These days it feels as though post-pandemic economic strength will go on forever. Yet, we know that it won’t. It can’t. Our central theme of “normalization” is evident over the past eighteen months, and eventually the business cycle will overcorrect causing recession (not to be feared entirely as contractions cleanse the system). But that day isn’t today. Indeed, as we exit the first quarter the US economy is doing fine. Better than fine really, it’s quite robust. Consumer spending is resilient, jobs are plentiful, businesses are investing, and government budgets are expansionary. Real GDP grew by +2.5% in 2023, accelerating from the previous year, and estimates for Q1 sit around +2%. While these are backward-looking figures, more current information – like spending data from credit and debit card companies, retail sales, services PMIs, jobless claims, and even (recently) improving consumer confidence – suggests that momentum has carried into 2024.

But why the potency? The simple truth is economic strength is closely tied to jobs, which remains solid. And because the economy is strong that keeps the labor market strong as business profits support employment and wages. It’s a virtuous loop. And while signs of normalization (there’s that word again) in the labor are present, like softer demand for workers and increased supply, layoffs are low and hiring is steady. This balance is beneficial nurturing a more secure foundation. Until this situation changes, economic expansion should continue. The critical question is now, can we successfully move from too tight to well-adjusted in the jobs market without the pendulum swinging negative? Time will tell.

Inflation’s stride has also cooled over the past 20 months, from over 9% to roughly 3%. While much progress has been made, Jerome Powell asserts more work and greater confidence in the trend is needed to declare victory. We agree. The Fed’s target is ~2% and the “last mile” won’t be easy. Still, our long-held view endures – the contemporary war against inflation will be won.

Speaking of the Fed, last July we opined that the central bank was done hiking interest rates. Be it lucky or good, that view proved correct. We continue to reason that the Fed won’t need to raise rates further. We’ve gone from 0% to ~5.5%, a ton of credit tightening, and without a jump in unemployment. Job well done. The new Wall Street parlor game centers on how long the Fed will maintain its current stance before lowering rates. The answer hinges on the trajectory of the economy, employment, and inflation. Our best guess is the first cut will occur in the second half of this year.

All told, “soft landing” odds have increased compared to a year ago, a time when our preferred forward indicators signaled maximum caution. Several indicators have improved, meaning there’s been considerable diminution of risk over the past year. At this point we see recession odds at about a coin toss (down from over 80%). Historically, in any given year it’s ~15%.

In bonds, the action will likely be on the front end of the yield curve as big moves further out have mostly occurred. While things can move cyclically based on data and mood, structurally speaking longer duration securities appear sensibly priced for the current environment.

Meanwhile, firms are in good shape with profits holding steady in 2023. Despite “no growth”, revenues were higher last year due to an advancing economy and increasing prices. But so too were costs, in many cases more than revenues, resulting in compressed operating margins and inert profits. Looking ahead, analysts predict energetic earnings growth of +11% in 2024 and +13% for 2025, driven by a healthy economy and margin re-expansion. Those are high bars. From our perch, margins may have indeed bottomed if we can avoid a downturn. Thus the near-term direction of profits will largely hinge on the macroeconomy. Regardless, our primary attention is the longer-term outlook. Especially for those investments we own on your behalf. And here, we are optimistic for the years ahead.

For its part, the stock market has continued its momentum, driven by expectations of no recession and Fed rate cuts. Despite unease over the looming election, investor attitudes are (unsurprisingly) cheerful on the back of impressive recent performance. Moreover, the inflation problem is under control and geopolitics, while tense, sit more at a simmer than a boil. Yet risks remain if fundamentals, including lofty earnings expectations, fail to deliver.

On valuation, there’s some level of enthusiasm to be sure, particularly in areas like AI. However, at this juncture, this verve is probably more rational than irrational (paging Alan Greenspan and Bob Shiller!). As declared, the economy is sound, inflation is falling, the 10-year Treasury yield is off its peak, the Fed has finished raising rates, corporate earnings are ample, and technology is bliss. Given this backdrop, although the stock market is not exactly cheap, it is also not overly expensive when you consider where key factors like inflation, interest rates, and profits are expected to be in the coming years. Moreover, there is still approximately $6 trillion in cash “on the sidelines,” mainly in money market funds, a portion of which (not all, but some) will likely seek higher returns when the Fed eventually begins to ease.

Bottom line: while short-term estimates vary, our longer run outlook for US equities remains wildly bullish.

As always, there is perpetual motion in economics and financial markets, so it’s vital to make decisions based on the available information. We find great joy in this important vocation. Which I suppose leads us back to where we began, with Mr. Stein’s observation … but with a twist. What happens if something, like the work of a steadfast financial advisor, can go on forever? Thanks for your unrelenting trust.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance.

The post Quarterly Letter Excerpt: Economy and Markets appeared first on Albion Financial Group.

View Details

Retirement planning in America is constantly transforming. The widely accepted concept that everyone can retire is only a few generations old. In such a rapidly changing world, how we achieve such a feat will also continue to evolve, which means that traditional approaches to securing retirement income need to be revised. Longevity is on the rise, traditional pensions (defined benefit plans) are becoming relics of the past, and the onus of retirement planning now squarely rests on the individual.

Given the statistical likelihood of living well into our 90s, especially for non-smokers and those of higher socioeconomic status, the necessity for robust and foolproof retirement planning strategies has never been more apparent. This reality drives us to rethink and innovate in how we protect your financial future.

When creating comprehensive retirement plans for clients, it is important to identify and address some of the potential hurdles future retirees face. I often return to a list that author Larry Swedroe coined as the “Five Horsemen of the Retirement Apocalypse.” One of these five included “historically low bond yields,” which is no longer as relevant today, but I still find this list useful when trying to understand how to best plan for our clients’ futures. So, the following Four Horsemen remain top of mind for retirement planning in 2024:

• Historically High Equity Valuations: With the U.S. stock market’s long bull run, it is wise to adjust expectations and prepare for potential downturns in equity investments.
• Increased Longevity: As life expectancy rises, retirement planning must account for potentially longer retirement periods, necessitating a portfolio that can last 30+ years.
• Long-Term Care Costs: With the likelihood of needing long-term care increasing with age, planning for these costs is essential to avoid financial burden and ensure quality of life.
• Social Security and Medicare Benefits: There’s a chance that benefits could be reduced or taxes might go up to support these programs. We need to plan for multiple outcomes.

All we have to do is look at annuity sales in 2023 to see that consumers and advisors alike are turning to insurance contracts for peace of mind in the face of these headwinds. In ways, it’s unfortunate to see a record 25% increase in year-over-year annuity sales, as often, it’s primarily the agents who benefit from these products. Most annuity sales tactics use the same general concerns discussed above to incite fear and force quick action at the client’s own peril. My general thought process for insurance and annuities is straightforward: insurance is a great risk transfer tool but an expensive way to invest. If an annuity contract cannot be clearly explained, including all fees and market-based outcomes, I’m not interested.

A critical, yet often missed, step in sound financial planning is customizing withdrawal strategies to suit individual needs. This should usually be the first move in crafting a tailored retirement income strategy. When done in concert with a comprehensive financial plan, customized retirement withdrawal strategies can provide greater financial security because they allow for flexibility. None of us know what the future holds and unlike an annuity contract that locks you into a particular set of terms with possible penalties for making changes, customized income strategies allow you to make adjustments at the margins or pivot when necessary as your retirement years unfold.

As we consider the often jarring transition from saving to spending, it is essential to understand the various withdrawal strategies for portfolio assets available in retirement, which broadly fall into four categories:

• Constant-Dollar Withdrawal: Start with a fixed percentage, then adjust annually for inflation. It can suit those needing a consistent income to cover fixed expenses.
• Constant-Percentage Withdrawal: Withdraw a consistent percentage of your portfolio each year. Nice for those with flexible spending needs and lower fixed costs.
• Variable-Percentage Withdrawal: The withdrawal percentage adjusts based on your portfolio’s annual value. Suitable for flexible spenders without the aim to leave a significant inheritance.
• Spend Only the Income: This approach only spends dividends and interest, preserving the principal. It suits individuals with low expenses compared to their portfolio size or those wishing to use their current asset base for legacy planning.

Note that none of these strategies are a set-it-and-forget-it approach. They are part of a constant discussion about how we can help you most efficiently and comfortably spend the money you have worked so hard to earn.

Morgan Housel’s “The Psychology of Money” emphasizes the personal nature of financial decisions, reminding us of the wide variance in how people view and manage money. This diversity points to the absence of a one-size-fits-all approach to retirement planning. The goal is to find a strategy that aligns with your needs, ensures stability, and adapts to life’s uncertainties.

As your financial planners, we’re dedicated to navigating the complex landscape of retirement planning with you. If you have friends or family who require sound advice and a comprehensive review of retirement income planning options, please reach out and refer them to our team. Our goal is to ensure that our client’s retirement strategies are not only robust and tailored to their needs but also flexible and ready to adjust to the constantly evolving financial world.

Albion Financial Group is an SECregistered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance.

The post Quarterly Letter Excerpt: Planners Corner appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April 12, 2024 [PDF]DownloadWeekly Recap:Sticky inflation put market participants on edge last week. For the 3rd month in a row, CPI came in slightly above expectations, and the deceleration of the disinflation trend is in danger of turning into a complete halt. Investors are slowly accepting that the last 1-2% in the journey to get back to the Fed’s 2% inflation target will not be speedy or smooth.

Immediately after the CPI print, futures markets took yet another 25bp rate cut out of the forecast for 2024, leaving only two such cuts (50bp total) implied. Markets were pricing six cuts for a total of 150bp at the start of the year; four of those have now been removed from expectations in just a few months.

In response, rates rose across the Treasury yield curve, especially in the front end. Much like last year, it has been a tough start for bonds in 2024. Tighter credit spreads have helped limit some of the price declines in corporates, but bonds of nearly all stripes are lower YTD.

Other news was also less than positive last week. Oil prices rose on escalation of the conflict between Israel and its neighbors in the middle east. And Q1 earnings reports from some large US banks included mildly disappointing guidance for 2024 net interest income. Deposit migration towards higher yielding CDs and money market vehicles continues to put pressure on funding costs, suggesting that the bank sector may have already seen peak net interest margin for this cycle.

This cocktail of challenges resulted in lower stock prices across all sectors, market caps, and geographies.

Chart of the Week: Consumer Price Index (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.6x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates twice in 2024, beginning at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

InflationAfter falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

The post Weekly Market Recap – April 12, 2024 appeared first on Albion Financial Group.

View Details

As we end another tax season, it’s crucial to address prevalent misconceptions surrounding taxes. Despite their annual familiarity, taxes remain a topic shrouded in confusion and misunderstanding. In this guide, we aim to shed light on some of the most pervasive myths and clarify the nuances of tax deductions, credits, penalties, refunds, and more. By debunking these misconceptions, we hope to empower readers with a clearer understanding of their tax obligations and opportunities for financial optimization.   

Tax Deductions  There’s a common misconception that tax deductions automatically translate into a dollar-for-dollar reduction in taxes owed. This is not the case. While they do lower taxable income and can result in less taxes owed, tax savings thanks to deductions are based on your tax rate, unlike tax credits which offer a direct offset of taxes.  

Deduction Example:  Last year, we aided a client in donating $20,000 worth of equipment to charity. Despite the substantial donation, the actual tax benefit depends on various factors, most significantly the client’s tax bracket. If the client’s income were to put them into the highest federal income tax bracket of 37%, the donation would lead to a total tax reduction of $7,400, not $20,000 ($20,000*0.37). A deductible expense simply means that you get a discount on the expense and are not required to pay income tax on the purchase. 

Tax Credits  When it comes to tax credits, it is often understood that they’re interchangeable with tax deductions, which is not true. Tax credits directly reduce the amount of tax owed, dollar for dollar. Once your taxes have been calculated, any tax credits will subtract the total amount of taxes owed. 

Tax Credit Example:  Take, for instance, the Child Tax Credit, which offers a $2,000 credit for a child 17 and under who is claimed as a dependent. If a single parent with a young child has a federal tax liability of $5,000, they could likely claim this credit thus reducing their tax liability to $3,000. 

Additionally, it’s important to note that tax credits aren’t necessarily free money. While they can be an added bonus, most credits only provide a refund if you owed taxes to begin with, meaning you earned enough in taxable income during the year to qualify for the credit, but not too much to no longer qualify. Understanding these distinctions is key to maximizing your tax benefits and avoiding misconceptions. 

Tax Deductions vs. Tax Credits  Consider the comparison of tax deductions and tax credits in a shopping context. A tax deduction resembles a favorable promo code, providing a certain percentage off your total purchase—equivalent to your marginal tax rate (or the highest rate your income is taxed). Conversely, a tax credit operates akin to a gift card, offering a specific dollar amount reduction from your overall purchase. While not precisely free money, it’s a close second.   

Tax Penalties  Another misconception exists around tax penalties, which are often believed to apply solely to those intentionally evading taxes. Tax penalties can stem from various factors, including underpayment, late filing, or inaccuracies on your tax return, regardless of intent.  

Tax Penalty Example:  I received a letter a couple years back detailing an underpayment penalty on my tax return. The letter outlined that I owed more than what was listed on my tax return. Since it had been many months since filing my return, I was also being charged additional fees on the “late” amount because the additional taxes were due by April 15 (as federal taxes always are). Despite the stressful process, I enlisted the help of a CPA to appeal the penalty and avoided owing the additional taxes and penalties. If you end up owing more tax than originally paid, you will owe penalties on top of the underpayment amount for however long it takes for the IRS to notify you of the underpayment amount.   

Tax RefundsRegarding tax refunds, many believe that refunds are free money from the government. It’s important to understand that a tax refund is not a gift from Uncle Sam, but rather signifies the return of your overpaid taxes throughout the year, though that doesn’t stop them from feeling oh so nice to receive. 

Tax Refund Example:  If you owe $10,000 in federal taxes for 2023 and $9,000 was withheld from your paycheck for federal taxes throughout the year, you will owe $1,000 at tax time. Conversely, if $11,000 was withheld, you would receive a $1,000 refund. I spoke with a CPA friend recently who said that the only thing clients ever want is a refund, joking that he would be seen as a magician if he increased his clients’ paycheck withholdings for them to get massive refunds upon filing their tax returns. Many personal finance gurus have strong opinions for how to optimize withholdings. Find what works for you, just withhold enough that you don’t incur penalties. 

Business Write-Offs/DeductionsThere’s a common misbelief that all business expenses are automatically deductible. Not all expenses qualify for deductions. Business expenses must meet the criteria of being regular, ordinary, and necessary for the operation of your business to be deductible, with certain limitations and rules in place. 

Business Deduction Example:  An individual takes a business trip to a tropical destination, intending to deduct all associated expenses, such as hotel stays and meals. The IRS may deny such deductions if the trip is deemed primarily for personal enjoyment rather than business purposes. Make sure your business expenses qualify to be deducted prior to spending money you hope will be tax deductible. 

Gifting  It is often believed that gifting will result in taxation for gifts exceeding the annual gift exclusion limit. While true in a way, it’s essential to understand that the tax-free exclusion amount—$17,000 for 2023 and $18,000 for 2024—applies on a per person basis. Also, individuals can give up to $13.61 million (2024 amount) in tax-free gifts in their lifetime (known as the lifetime gift exclusion), so this exclusion of $18,000 (for 2024) is the amount that can be gifted without counting against the lifetime exclusion. This can get very complex as there are varying gifting strategies to consider, and attempting to implement any of them on your own can be extremely difficult. 

Gifting Example:  Consider an older couple aiming to provide generous gifts to their two married children without incurring taxes. In this situation, each spouse could gift $18,000 to both children and their spouses, totaling $72,000 in tax-free gifts per spouse or an impressive $144,000 collectively as a couple. All of this could be done without counting against the lifetime amount in tax-free gifts that can be given.  

529 to Roth Conversions  A common misconception exists regarding education savings and deductions, particularly regarding the conversion of unused 529 balances to a Roth IRA (a new strategy from the Secure Act 2.0). While there is some truth to this notion, it’s crucial to understand the limitations involved.  

529 to Roth Example:  Consider a scenario where you have $50,000 sitting in a 529 account but decide not to pursue further education. In such a case, you may contemplate rolling the funds into a Roth IRA, which could be an option. This maneuver comes with restrictions. For instance, the 529 account must have been open for at least 15 years, and the rollover cannot exceed the current year’s Roth contribution limits—$7,000 for 2024. There’s also a lifetime maximum of $35,000 per beneficiary for these rollovers. While there are more intricacies to be aware of, the process is not as straightforward as commonly believed. 

Tax Preparer Liability  There’s a common belief that the liability for errors or inaccuracies associated with tax returns is solely on the tax preparer. It’s imperative to recognize that the individual, the taxpayer, is responsible for the accuracy of their tax returns, regardless of professional assistance.  

Tax Preparer Liability Example:  If someone hires a CPA to file their tax return but provides inaccurate income information or doesn’t send all required information/supporting documents, they remain accountable for any discrepancies. In the event of an IRS audit uncovering errors, the individual is liable for rectifying the mistakes and covering any resulting back taxes and penalties. 

Conclusion:  As we end tax season for tax year 2023, we extend our gratitude to the remarkable CPAs we collaborate with. As we at Albion Financial Group are not accountants and do not give tax advice, their expertise ensures accurate tax filing and reporting, guiding us away from the pitfalls of common misconceptions. To those dedicated CPAs tirelessly navigating the complexities of the tax code, we salute your unwavering commitment. Here’s to the invaluable knowledge they impart and the smooth tax planning ahead!  

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance.

The post Smart Money Moves: Tax Misconceptions appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April 5, 2024 [PDF]DownloadWeekly Recap:Equities finished the week lower, driven in part by escalating geopolitical risk in the middle east. Oil prices rose to 6-month highs, with Brent crude breaching $90 per barrel for the first time since October of last year. Energy stocks finished the week higher, and the sector is now among the best-performing in the S&P 500 so far this year.

Bonds were lower on the week, thanks to a backup in rates. Several FOMC members made public comments during the course of the week, with a fairly consistent message: the Fed is still not in a hurry to lower overnight interest rates. Futures markets responded by shifting the first “odds on” rate cut from June to July, and Treasury yields moved higher across the curve.

Macro data released last week suggested that the US economy remains on first footing as we head into Q1 earnings season, with the manufacturing sector continuing to show signs of a recovery in activity. ISM’s US Manufacturing PMI printed at 50.3 for the month of March, the first print in expansion territory (>50) in roughly a year and a half. This echoes the move higher in S&P’s US Manufacturing PMI, which breached 50 in January and has moved a bit higher in the two months since (the final March print was 51.9).

Meanwhile, the labor market remains strong, as it has throughout the post-pandemic period:

• There are 8.75 million open jobs in the US per the JOLTS report

• 303k net new nonfarm payrolls were reported for the month of March

• U-3 unemployment fell 10bp sequentially to 3.8%

Chart of the Week: Net Nonfarm Payrolls AddedAlbion’s “Four Pillars”:Economy & EarningsThe US economy was resilient last year, and Wall Street analysts expect full-year 2023 corporate earnings to be roughly flat y/y versus 2022. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.5x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates several times in 2024, most likely beginning sometime this summer. The belly and long end of the curve have already priced in a rate cutting cycle, with yields falling more than 100bp in November/December of 2023.

InflationAfter reaching 40yr highs in mid-2022, inflation has moderated significantly over the past 18 months. Goods inflation has fallen due to softening demand and supply chain normalization, while services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

The post Weekly Market Recap – April 5, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – March 29, 2024 [PDF]DownloadWeekly Recap:Mild weakness in large cap tech pulled the Nasdaq lower, but otherwise the holiday-shortened week was a positive one for most US stocks. The S&P 500 set a fresh record high on Wednesday and again on Thursday, the 23rd and 24th such highs reached already in 2024 (see the Chart of the Week). Meanwhile, small caps outperformed last week, closing some (but certainly not all) of the YTD relative performance gap with large caps. International stocks also posted modest gains on the week.

Fixed income was mostly stable, with yields rising slightly towards the front end of the curve and falling a few basis points in the long end. Credit spreads were stable and remain on the tight side of long run averages. Muni bonds underperformed slightly on the week, perhaps from being used as a source of funds for the upcoming tax deadline.

In macro news, there were mixed signals regarding consumer confidence in March. The Conference Board’s Consumer Confidence Index printed at 104.7 versus consensus expectations of 107.0, and the February print was revised lower across the board. However, the University of Michigan’s Consumer Sentiment gauge rose nearly 3 points to 79.4 in the final March reading versus the preliminary figure of 76.5 from two weeks ago.

Finally, PCE Deflator data for February was released on Good Friday while markets were closed, and mostly came in right in line with consensus:

• PCE Deflator rose +0.3% m/m and +2.5% y/y (consensus = +0.4%; +2.5%)

• PCE Core Deflator rose +0.3% m/m and +2.8% y/y (consensus = +0.3%; +2.8%)

Chart of the Week: S&P 500 (* Denotes Record High)Albion’s “Four Pillars”:Economy & EarningsThe US economy was resilient last year, and Wall Street analysts expect full-year 2023 corporate earnings to be roughly flat y/y versus 2022. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates several times in 2024, most likely beginning mid-year. The belly and long end of the curve have already priced in a rate cutting cycle, with yields falling more than 100bp in November/December of 2023.

InflationAfter reaching 40yr highs in mid-2022, inflation has moderated significantly over the past 18 months. Goods inflation has fallen due to softening demand and supply chain normalization, while services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

The post Weekly Market Recap – March 29 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – March 22, 2024 [PDF]DownloadWeekly Recap:Stocks and bonds of nearly all stripes enjoyed a strong week after a “goldilocks” FOMC meeting. While there was no uncertainty going into the meeting regarding the rate decision, investors were keenly focused on the committee’s outlook for the economy and future rate decisions, as reflected by the updated Summary of Economic Projections (SEP). And on that front, the committee delivered a welcome update, upgrading its consensus outlook for 2024 GDP growth while also maintaining a median projection of three 25 basis point rate cuts by year-end.

The front end of the Treasury curve breathed a sigh of relief, with 2y yields falling 14bp while 10y yields dropped 11bp. Meanwhile, credit spreads inched tighter yet again. The average OAS on Bloomberg’s US Corporate Credit Index finished the week at 88bp, a level not seen since Q4 of 2021.

Equity investors responded with enthusiasm. All three major US large cap benchmarks (the Dow, S&P, and Nasdaq) rose to fresh all time highs on Thursday. Small caps also posted solid gains, but remain well behind tech-dominated large cap benchmarks on a YTD basis. The same is true for international stocks, which continue to lag the US due to the more cyclical, less tech-heavy nature of international equity markets.

On the macro front, the most interesting development last week was the February release of the Conference Board’s Leading Economic Index (LEI). The index rose sequentially (+0.1% m/m) for the first time in nearly two years, extending what appears to be a recent stabilization after a long, protracted decline that began at the start of 2022 (see the Chart of the Week for a time series). The improvement in the LEI seemed to offer some corroboration of the Fed’s upgraded economic outlook, and was cheered by market participants.

Chart of the Week: Conference Board Leading Economic Index (Total)Albion’s “Four Pillars”:Economy & EarningsThe US economy was resilient last year, and Wall Street analysts expect full-year 2023 corporate earnings to be roughly flat y/y versus 2022. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 21x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates several times in 2024, most likely beginning mid-year. The belly and long end of the curve have already priced in a rate cutting cycle, with yields falling more than 100bp in November/December of 2023.

InflationAfter reaching 40yr highs in mid-2022, inflation has moderated significantly over the past 18 months. Goods inflation has fallen due to softening demand and supply chain normalization, while services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

The post Weekly Market Recap – March 22, 2024 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – March 15, 2024 [PDF]DownloadWeekly Recap:Financial assets struggled last week after hotter-than-expected CPI and PPI prints tempered investors’ expectations regarding the upcoming Fed pivot.

• Headline CPI rose +0.4% m/m and +3.2% y/y (consensus = +3.1% y/y)

• Core CPI rose +0.4% m/m and +3.8% y/y (consensus = +3.7% y/y)

• Headline PPI rose +0.6% m/m and +1.6% y/y (consensus = +1.2% y/y)

• Core PPI rose +0.3% m/m and +2.0% y/y (consensus = +1.9% y/y)

In response, futures markets pulled another 25bp rate cut out of 2024, reducing the total number of implied cuts from four (100bp total) to three (75bp), while repricing the odds that the first cut will come in June from ~90% down to ~60%.

Predictably, rates moved higher across the Treasury yield curve, especially in the front end. 2y yields finished the week higher by 26bp. Credit spreads tightened on the week, softening the blow to US corporates.

Meanwhile, equities struggled across most sectors, market caps, and geographies, with rate-sensitive real estate names more heavily impacted. Small and midcap benchmarks underperformed, due in part to their higher REIT concentrations as compared to large cap indices.

In contrast, energy stocks were an upside outlier. A report from the International Energy Agency predicted a global supply deficit could persist for the balance of 2024, and US stockpiles recently saw their first drawdown in nearly two months, driving WTI and Brent crude to 4+ month highs.

Albion’s “Four Pillars”:Economy & EarningsThe US economy was resilient last year, and Wall Street analysts expect full-year 2023 corporate earnings to be roughly flat y/y versus 2022. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

ValuationThe S&P 500’s forward P/E of 20.6x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesFutures markets imply that the Fed will cut overnight interest rates several times in 2024, most likely beginning mid-year. The belly and long end of the curve have already priced in a rate cutting cycle, with yields falling more than 100bp in November/December of 2023.

InflationAfter reaching 40yr highs in mid-2022, inflation has moderated significantly over the past 18 months. Goods inflation has fallen due to softening demand and supply chain normalization, while services inflation remains somewhat elevated, in part due to heavily lagged shelter costs.

The post Weekly Market Recap – March 15, 2024 appeared first on Albion Financial Group.

View Details

Weekly Recap: September has often been a seasonally weak period for stocks, and so far 2023 has been no exception. Going back more than 100 years, there are only three calendar months with negative average price returns for the S&P 500: February at -0.14%; May at -0.04%; and September which is by far the lowest […]

The post Weekly Market Recap – September 8, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – September 1, 2023 [PDF]DownloadWeekly Recap:Macro news released last week showed continued normalization of the labor market. JOLTS job openings fell to 8.8 million, the lowest print in more than 2 years. And while monthly nonfarm payrolls were in line with consensus at +187k, several of the underlying components of the report were a bit soft. Net NFP revisions for the prior 2 months totaled -110k, average hourly earnings rose just 0.2% m/m (the lowest in over a year), and the labor force participation rate rose to 62.8%, the highest level since February of 2020. Lastly, the unemployment (U-3) and underemployment (U-6) rates both rose, to 3.8% (+30bp) and 7.1% (+40bp), respectively.

Rate volatility continued to subside as August drew to a close, allowing most financial asset prices to rise. The ICE BofA MOVE Index (essentially the equivalent of VIX for interest rates) fell ~7% on the week to close at 102.92, the lowest level since early February and one of the lowest prints since the Fed first began raising interest rates nearly 18 months ago. Rate vol is still elevated relative to the second half of 2020, however, when the Fed’s ZIRP pandemic response looked set to continue for years to come. See the Chart of the Week (bottom left of the page) for a time series.

With rates (and rate vol) falling and credit spreads stable, bond prices rallied for the second week in a row. Stocks finished higher as well, with growth sectors outperforming while defensive sectors lagged. That’s been the trend throughout much of 2023, resulting in what is now fairly dramatic dispersion in YTD sector returns (see bottom right chart for details). This same dynamic (growth outperforming, defensives lagging, with cyclicals in the middle) also shows up in the YTD performance difference between the Nasdaq (+34.9%) and the Dow (+6.7%), with the S&P 500 (a blend of the two from a sector standpoint) sitting almost squarely in the middle (+18.9%).

Chart of the Week: ICE BofA MOVE IndexAlbion’s “Four Pillars”:Economy & EarningsThe US economy showed resilience in the first half of 2023, and Wall Street analysts expect full-year corporate earnings to be roughly flat y/y. Albion’s base case expectation is that the US economy will enter recession in the second half of 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 19x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest RatesRates rose dramatically in 2022 due to a sharp pivot in monetary policy, and have remained elevated in 2023 as progress on inflation has been slower than hoped. Fed Funds Futures now show a slight odds-on probability of one addition 25bp rate hike before year-end.

InflationAfter reaching 40yr highs in spring of 2022, inflation has moderated somewhat over the past 12 months. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – September 1, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: The Jackson Hole Economic Symposium was last week’s main event, with investors focused on Fed Chair Jerome Powell’s Friday speech as an indicator of near-term monetary policy. Powell struck a hawkish tone as he continued to emphasize that inflation remains too high for the committee’s liking, and that additional policy tightening may still […]

The post Weekly Market Recap – August 25, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Stocks fell for the 3rd week in a row as a combination of rising rates and China growth concerns weighed on P/E multiples. US investors woke up Monday morning to a slew of weak July macro data coming out of China, as a long-simmering decline in the Chinese property sector showed signs of […]

The post Weekly Market Recap – August 18, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Stocks were mixed and bonds were mostly lower last week despite July inflation data that came in close to expectations: * Headline CPI was +0.2% m/m and +3.2% y/y (slightly below consensus of +3.3%) * Core CPI was +0.2% m/m and +4.7% y/y (in line with consensus) * Headline PPI was +0.3% m/m […]

The post Weekly Market Recap – August 11, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Last week Fitch Ratings became the second credit rating agency to downgrade the sovereign rating of the United States one notch from AAA to AA+ (the first was S&P in 2011). While arguably of no real concern in terms of a direct impact on US borrowing costs, this move did dampen sentiment and […]

The post Weekly Market Recap – August 4, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Last week’s main event was the July FOMC meeting, at which the committee raised overnight interest rates by 25bp, to a target range of 5.25% to 5.50%. The accompanying statement was little changed from the previous meeting, although the committee did upgrade its assessment of current US economic growth from “modest” to “moderate”. […]

The post Weekly Market Recap – July 28, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Equities were mixed last week: rate-sensitive sectors (growth and real estate) struggled while shorter-duration, higher dividend-paying sectors (cyclicals and defensives) outperformed. Small and midcaps also outperformed thanks to their less growth-heavy sector weightings. Normally one might expect that kind of returns distribution to be driven by rising rates, and at the front end […]

The post Weekly Market Recap – July 21, 2023 appeared first on Albion Financial Group.

View Details

This conversation covered 2023’s economic landscape so far, including interest rate hikes, bank failures, the labor market, the national debt ceiling, inflation trends, a looming recession, Artificial Intelligence, generational demographic shift, and more! Click here to see the video of the call hosted by Zoom.

The post Conference Call Recording – July 13, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Better-than-expected inflation data drove rates lower across most of the curve last week, which in turn facilitated P/E multiple expansion and sent stocks higher. The party got started in earnest on Tuesday, when core and headline CPI both came in below expectations for the month of June. Closely watched core CPI was just […]

The post Weekly Market Recap – July 14, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Last week was a tough one for stocks and bonds alike, as resilient labor market data lent support to the Fed’s “higher for longer” interest rate road map: JOLTS job openings remained historically elevated at 9.8 million ADP employment change nearly doubled m/m at 497k for May Nonfarm payroll growth of 209k in […]

The post Weekly Market Recap – July 7, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap: Stocks moved lower last week on a cocktail of soft economic data and a reminder from Jerome Powell that the Fed is not done raising interest rates. On the latter point, Powell testified before the US Senate Banking Committee that “it will be appropriate to raise rates again this year, and perhaps twice.” […]

The post Weekly Market Recap – June 23, 2023 appeared first on Albion Financial Group.

View Details

Weekly Recap Last week’s headline event was undoubtedly the FOMC meeting, and for the first time in 15 months the Fed kept overnight interest rates unchanged. While this outcome was widely anticipated, investors were keen to hear from Jerome Powell as to the likely forward path of monetary policy. His commentary was decidedly hawkish, as […]

The post Weekly Market Recap – June 16, 2023 appeared first on Albion Financial Group.

View Details

Elon Musk’s biographer Ashlee Vance was interviewed this week by Albion Partner Doug Wells on his KPCW radio program Mountain Money on the subject of Vance’s new book “When the Heavens Went on Sale” Ashlee Vance is an American business columnist and author, best known for his biography of Elon Musk, titled “Elon Musk: Tesla, SpaceX, […]

The post Elon Musk Biographer Speaks with Doug Wells About Latest Book appeared first on Albion Financial Group.

View Details

Weekly Recap Stocks enjoyed a melt-up during a quiet macro period ahead of this week’s May CPI report and the June FOMC meeting. Cyclicals generally outperformed despite fairly tepid (and limited) macro data, suggesting that duration played a key role in relative sector performance. Small caps were also better, driven in large part by their […]

The post Weekly Market Recap – June 9, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – June 2, 2023 [PDF]DownloadWeekly RecapStocks and bonds rallied in unison last week as the US debt ceiling drama was resolved without a government default. Unlike the prior week, where gains were limited to a relative handful of A/I and chip-related stocks, last week’s move higher in stocks was broad based. All sectors in the S&P 500 finished in the green, with cyclicals and growth stocks leading the way while staples lagged the rally a bit.

Bonds rallied too, as whatever default premium had been baked into Treasury yields was quickly removed by investors. Public commentary from Fed officials favoring a June pause was also helpful, driving the odds of a 25bp hike next week from 70% at the end of the prior week to just 30% by Friday’s close. Credit spreads finished modestly tighter as well.

On the economic front, the main message from incoming data was that labor markets remain strong. JOLTS job openings reversed a recent trend towards normalization with a print of 10.1 million, ADP employment significantly exceeded expectations, and jobless claims were steady.

Meanwhile, the monthly jobs report from the BLS showed strong payroll gains, but also a modest uptick in the unemployment rate, a sequential decline in hours worked, and mild deceleration in the rise in average hourly earnings:

• Change in Nonfarm Payrolls = +339k (cons. est. +195k)
• Unemployment rate = 3.7% (prior month = 3.4%)
• Average weekly hours = 34.3 (prior month = 34.4)
• Average hourly earnings = +4.3% y/y (prior month = +4.4% y/y)

Chart of the Week: Monthly Nonfarm Payrolls AddedAlbion’s “Four Pillars”Economy & EarningsThe US economy enjoyed a strong second half of 2022, but growth has slowed in early 2023 and corporate operating margins have fallen as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average, suggesting that valuation could be a mild headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid-single digits.

Interest RatesRates rose dramatically in 2022 in response to a sharp pivot in monetary policy, and have remained elevated in 2023 as progress on inflation has been slower than hoped. Futures markets are currently pricing one additional 25bp rate hike over the summer, with the possibility of rate cuts near the end of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation has moderated somewhat over the past 12 months. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – June 2, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 26, 2023DownloadWeekly RecapLast week saw a concentrated rally in technology stocks after GPU manufacturer Nvidia provided an updated forecast for revenue growth that far exceeded analysts’ expectations. In particular, any stock that investors believed to be A/I- or semiconductor-related saw strong buying pressure. Meanwhile, most other companies and sectors finished the week lower despite slow-but-steady progress towards a debt ceiling deal over the course of the week.

Macro data was a bit less cooperative, however, particularly on the inflation front as the PCE Deflator came in higher than expected in freshly released April data:

• Headline PCE m/m = +0.4% (+0.3% cons est; +0.1% prior month)
• Headline PCE y/y = +4.4% (+4.3% cons est; +4.2% prior month)
• Core PCE m/m = +0.4% (+0.3% cons est; +0.3% prior month)
• Core PCE y/y = +4.7% (+4.6% cons est; +4.6% prior month)

Stubborn inflation sent rates higher on the week, particularly in the front end as investors priced in one additional 25bp rate hike over the summer. Futures markets are fairly evenly split as to whether that hike will occur at the June or July meeting, while expectations of rate cuts in the back half of the year are gradually waning.

Other macro data released last week mostly suggested a resilient economy. Personal incomes and spending rose more than expected in April, as did durable goods orders. In addition, there was a modest rebound in the University of Michigan’s consumer sentiment gauge, with assessment of current conditions improving while consumers’ near and longer-term inflation expectations fell.

Chart of the Week: Core PCE Deflator (y/y change)Albion’s “Four Pillars”Economy & EarningsThe US economy enjoyed a strong second half of 2022, but growth has slowed in early 2023 and corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be below the long-run historical average.

Interest RatesRates rose dramatically in 2022 in response to a sharp pivot in monetary policy, and have remained elevated so far in 2023 as progress on inflation has been slow. Futures markets are currently pricing one additional 25bp rate hike over the summer, with the possibility of rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation has moderated somewhat over the past 12 months. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – May 26, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 19, 2023 [PDF]DownloadWeekly Recap:Markets were volatile day by day last week as optimism around a debt ceiling deal ebbed and flowed. A strong two-day rally on Wednesday and Thursday eventually ran out of steam as it became clear that a deal was not going to take place before the weekend, leading to a small pullback on Friday. Still, all major US equity benchmarks finished solidly in the green, with growth stocks leading the way and defensive sectors firmly on the back foot.

Renewed appetite for risk assets was clearly reflected in fixed income markets as well. Bond prices fell as rates rose across the curve, and credit spreads tightened.

While not front and center on investors’ minds last week, macroeconomic data continued to paint a picture of a slowing US economy, albeit not universally. Signs of deceleration included:

• Empire Manufacturing sunk back into contraction territory at -31.8
• Philly and New York Fed regional surveys remained in the contraction zone
• Existing home sales, residential building permits, and mortgage applications all fell
• Initial jobless claims (242k) remain elevated relative to recent cycle lows
• The Conference Board’s Leading Economic Index (LEI) fell to a fresh cycle low

On a more positive note:

• Retail sales for April (+0.4% m/m) rebounded after falling in March
• The National Association of Home Builders market index rose to 50 (neutral)
• Industrial Production rose 0.5% in April, while Capacity Utilization increased +30bp

Chart of the week: Conference Board LEI (v/v change)Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but growth has slowed in early 2023 and corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be below the long-run historical average.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy, but have been steady to slightly lower across most of the curve so far in 2023. Futures markets are currently pricing a Fed pause after 500bp of hikes over the past 14 months, with the possibility of rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation has moderated somewhat over the past 12 months. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – May 19, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 12, 2023 [PDF]DownloadWeekly Recap:Most stocks and bonds were modestly lower last week despite April CPI numbers coming in a tiny bit better than expected. While the m/m change in both core and headline CPI registered at +0.4%, the y/y change in headline CPI (the most commonly cited inflation figure) fell to 4.9%, ending a 23-month period where inflation was greater than 5% on a y/y basis (the last sub-5% print was in April of 2021).

Notably, the opposing trends in inflation (lower) and overnight interest rates (higher) have brough the two together, creating an environment where nominal yields on cash equivalents (money market funds, short term Treasuries, and CD’s) equal or exceed inflation. Positive real yields on cash have been a rare occurrence in the period since the 2008/09 financial crisis, occurring only briefly in 2019 after the conclusion of the Fed’s previous hiking cycle. See the Chart of the Week for a time series of prime money market fund (SWVXX) yield versus the y/y change in CPI.

Despite the trend lower in inflation, investors’ expectations of near term rate cuts waned a bit last week, and the Treasury curve shifted higher. Meanwhile, risk assets continue to be impacted by anxiety around the debt ceiling deadline, with stocks and commodities finishing lower while credit spreads widened.

A notable exception to the general market weakness was Google, which rocketed higher by more than 11% last week after the company showcased a number of advancements in its use of generative A/I at the company’s annual “Google I/O” developer conference. Google’s surge was enough to pull the Comms sector into positive territory on the week, and helped the Nasdaq eke out a small gain as well.

Chart of the Week: Money Market Fund Yield versus y/y Headline CPIAlbion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap/GDP) suggest that compound annual returns over the next decade are likely to be in the single digits.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy but have mostly fallen (except for the very front end) so far in 2023. Futures markets are currently pricing a Fed pause after 500bp of hikes over the past 14 months, with the possibility of rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – May 12, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – May 5, 2023 [PDF]DownloadWeekly Recap:After delivering the widely anticipated 25bp rate hike last week, the Fed has now raised its target overnight interest rate by 500bp across just 10 meetings spanning 14 months. This is the fastest +500bp move since 1980, when Paul Volcker raised rates by more than 1,000 basis points in just 5 months to finally tame runaway 1970s inflation. It is widely anticipated that last week’s 25bp increase marks the end of this hiking cycle, with futures markets pricing in a rate cut as soon as the September meeting.

In fixed income, the Treasury yield curve inversion showed preliminary signs of moderating last week, with the front end rallying while longer term yields rose. Credit spreads widened as lingering concerns regarding the banking sector were exacerbated by the seizure of First Republic and its ensuring sale to JP Morgan over the prior weekend.

Equities were mixed and experienced significant intra-week volatility, with the VIX touching 20 on Thursday for the first time in more than a month. Regional bank stocks came under heavy selling pressure before staging a strong comeback on Friday, but most still finished down for the week. Energy stocks were also weaker on sharply lower oil prices.

The highlight of last week’s macro calendar was the monthly jobs report from the BLS, which came in stronger than expected and fueled a rally in equities. 253k nonfarm payrolls were added, easily beating consensus estimates of 185k, while U-3 unemployment (3.4%) and U-6 underemployment (6.6%) both fell by 10bp.

Chart of the Week: Fed Funds Target Rate Lower BoundAlbion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy, but have mostly fallen (except for the very front end) so far in 2023. Futures markets are currently pricing a Fed pause after 500bp of hikes over the past 14 months, with the possibility of rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – May 5, 2023 appeared first on Albion Financial Group.

View Details

April 2023 Market Recap [PDF]DownloadInflationData released in April showed that disinflation took hold again in March after a more muddled real time picture earlier in the year. Core CPI decelerated to +0.4% m/m and stands at +5.6% y/y, while the Core PCE Deflator (the Fed’s preferred inflation gauge) was unchanged at +0.3% m/m and 4.6% y/y. Further upstream, real time PPI data now shows outright deflation, with core PPI at -0.1% m/m and headline at -0.5% m/m. Import and export prices also fell sequentially in the most recent data.

Monetary PolicyWith no FOMC meetings in April, market participants focused on public statements from committee members to gain insights into the likely forward path of monetary policy. Futures markets are now implying that a 25bp rate hike in May is virtually assured, after viewing the outcome as nearly a toss-up a month ago. All signs currently point to a pause over the summer, with opinions split as to what happens in the back half of the year. Futures markets are implying two 25bp cuts by year-end, whereas public statements from Jerome Powell and other Fed officials have pointed towards a longer period of rate stability before any cuts take place.

EconomyAnnualized Q1 GDP of +1.1% shows that the US economy is decelerating. Most regional and national gauges of manufacturing activity are in contraction territory, and housing is mixed. Labor markets and the consumer remain bright spots, although the March bank failures appear to have dented consumer confidence somewhat, and initial jobless claims have risen over the past 6-8 weeks.

Bond MarketUS fixed income enjoyed a solid month of April, with rates falling modestly across the Treasury curve and credit spreads inching tighter as concerns regarding the banking system eased. Mortgage rates ticked slightly higher in April but remain within the 6-6.5% range that has persisted for most of the year.

Stock MarketEquity markets were mixed in April. US large cap benchmarks posted solid gains, led by the Dow thanks in part to bounce back performance from financials and energy stocks. Mid and small caps were weaker and continue to underperform large caps on a YTD basis. International stocks were mixed as well, with developed markets extending their 2023 outperformance relative to emerging markets.

April 2023 S&P 500 Total Return by SectorThe post April 2023 Market Recap appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April, 21 2023 [PDF]DownloadWeekly Recap:Stocks were mixed and bonds were lower last week, as somewhat hawkish comments from regional Fed presidents (and FOMC members) Raphael Bostic and James Bullard outweighed a clear weakening in incoming economic data.

Starting with the economy, most forward-looking metrics deteriorated last week. After a sharp rebound in activity in February, housing starts and new residential building permits fell sequentially in March, calling into question whether the nascent housing recovery is sustainable. Initial jobless claims continued to drift higher, extending the trend that began in March. And finally, the Conference Board’s Leading Economic Index (LEI) fell sequentially for the 12th month in a row, to a level that historically has been consistent with the onset of recession within a few months.

However, unlike earlier periods this year when a softening economy was met with optimism that the Fed may soon pivot to rate cuts, the comments from Bostic and Bullard served as a reminder that the Fed is firmly committed to the inflation fight. In response, Fed Fund Futures lowered the odds of any rate cuts happening in the back half of the year and yields rose across the Treasury curve, pushing bond prices lower.

The impact on equity prices was mixed as there was a discernable rotation across styles and sectors. Longer-dated growth stocks underperformed, causing the Nasdaq to lag the Dow and S&P. Defensives (staples, real estate, and utilities) held up better, to the benefit of small and midcap benchmarks with greater exposure to those sectors.

Chart of the Week: Conference Board LEI (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy, but have mostly fallen (except for the very front end) so far in 2023. Futures markets are currently pricing in one additional 25bp rate hike in May, followed by a pause with the possibility of rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – April 21, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April, 14, 2023 [PDF]DownloadWeekly Recap:It was a strong week for equities after inflation data for March came in slightly below expectations, although rates markets did not share in the enthusiasm after fresh survey data revealed that consumers’ near-term inflation expectations are rising.

Fresh inflation data was abundant last week. First, headline CPI was +0.1% m/m in March and fell to +5.0% y/y, while core CPI was +0.4% m/m and increased slightly to +5.6% y/y. Meanwhile, headline PPI was -0.5% m/m and fell to +2.7% y/y, the first time aggregate input price inflation has been below 3% since early 2021. Finally, import (-0.6% m/m) and export (-0.3% m/m) prices both fell sequentially.

Despite these clear disinflationary (or in some cases outright deflationary) trends, the University of Michigan’s monthly consumer sentiment survey showed a sharp uptick in 1-year forward inflation expectations, jumping from a final print of +3.6% in March to a preliminary April reading of +4.6%.

Knowing that the Fed has heightened sensitivity to inflation expectations, bond investors responded to the U of M survey by pushing yields higher across the curve on Friday, resulting in price declines for most high quality fixed income.

Equities also gave back some of their WTD gains on Friday after the U of M survey release, but key US benchmarks still managed to finish in the green for the week. Somewhat surprisingly, cyclicals were the biggest winners, despite the mid-week release of FOMC minutes containing a staff economic outlook that included a mild recession later this year.

Chart of the Week: Headline and Core CPI (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy, but have mostly fallen (except for the very front end) so far in 2023. Futures markets are currently pricing in one additional 25bp rate hike in May, followed by a pause and then multiple rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged.

The post Weekly Market Recap – April 14, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – April 7, 2023 [PDF]DownloadWeekly Recap:US equities were mixed last week, with energy and most defensives higher while other sectors were lower. Small caps extended their recent run of under-performance relative to the S&P 500. Energy stocks were buoyed by a surprise production cut from OPEC+ that sent oil prices higher by roughly $5 per barrel.

In contrast to the recent softness in equities, bonds continued to rally last week on safe haven buying, at least until Friday’s nonfarm payroll report halted the move lower in yields. Meanwhile credit spreads have been largely stable over the past two weeks after initially widening in the aftermath of the March bank failures.

Economic data released last week was mixed. ISM’s Manufacturing Index (46.3) sank further into contraction territory in the March print, while its Services Index (51.2) weakened sequentially but remains in expansion territory for now. The monthly JOLTS report showed early signs of a move towards better balance in the labor market, with job openings falling to 9.9 million, the lowest such print in nearly 2 years (albeit still elevated by historical standards).

That said, the March jobs report from the Bureau of Labor Statistics continues to show robust job creation in the US economy:

• 236k nonfarm payrolls added
• U-3 Unemployment fell 10bp to 3.5%
• U-6 Underemployment fell 10bp to 6.7%
• Average hourly wages rose +0.3% m/m and +4.2% y/y (below consensus)
• Labor force participation rose to 62.6%, the highest since March of 2020

Chart of the Week: US Nonfarm Payrolls AddedAlbion’s “Four Pillars”Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. The equity risk premium has expanded slightly over the past few weeks on concerns regarding the financial system.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy, but have fallen signficantly (except for the very front end) so far in 2023. Futures markets are currently pricing in two 25bp cuts to overnight rates by year-end.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged. Real-time inflation data ticked higher sequentially in early 2023.

The post Weekly Market Recap – April 7, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – March 24, 2023 [PDF]DownloadWeekly Recap:Stocks, bonds, and commodities all finished higher last week as authorities worked to contain the fallout from recent bank failures. The week began with news that UBS would absorb rival Credit Suisse in somewhat controversial fashion, with Credit Suisse AT1 bondholders facing a total write-down of their principal value while the company’s common shareholders received 3 billion Swiss francs in the transaction (~$3.2 billion). Faced with the prospect of a buyer’s strike in the AT1 market, the ECB and the Bank of England both immediately issued communiques indicating that any future bank resolutions in their jurisdictions would be handled in accordance with the established order of capital structure seniority, meaning common shareholders would be wiped out before subordinated bondholders took losses.

With that as a backdrop, the FOMC announced a 25bp rate hike at the conclusion of its March meeting on Wednesday afternoon. Tweaks to the language in the press release opened the door to a pause in the hiking cycle as soon as the next meeting in early May, and during the ensuing press conference Fed Chair Jerome Powell acknowledged that the real economy had slowed significantly while also reiterating that the US banking system is “sound and resilient.”

However, Powell also stated emphatically that the Fed does not anticipate cutting rates at all in 2023, and on that point the market clearly disagrees. As of Friday’s close, the Fed Fund Futures market was pricing in at least three 25bp rate cuts by year-end, in stark contrast to the Fed’s own “dot plot” projections (see Chart of the Week). This dichotomy suggests that market participants believe there is significant risk of a US recession in 2023, a scenario that could force the Fed’s hand on rates.

Chart of the Week: FOMC “Dot Plot”Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. The equity risk premium has expanded slightly over the past few weeks on concerns regarding the financial system.

Interest RatesRates rose in 2022 in response to a sharp pivot in monetary policy, but have fallen significantly (except for the very front end) so far in 2023. Futures markets are currently pricing in three 25bp cuts to overnight rates by year-end.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged. Real-time inflation data ticked higher sequentially in February of 2023.

The post Weekly Market Recap – March 24, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – March 17, 2023 [PDF]DownloadWeekly Recap:Market remained on edge last week as investors digested the unfolding drama in the financial sector. The week began with several announcements aimed at staving off contagion from Silicon Valley Bank and Signature Bank. By Tuesday, however, it was clear that Credit Suisse, the giant Swiss bank with more than $500 billion in assets, was also facing a crisis of confidence amongst clients and counterparties and would not survive intact. Swiss officials raced to find a solution, but the sheer size of the institution meant there was really only one viable option – a shotgun marriage with longtime rival UBS, which was finally arranged on Sunday the 19th.

Domestic equity markets were mixed, with noncyclical large caps posting modest gains. Most cyclicals (financials, energy, materials, and industrials) and small caps were lower, as investors priced in a higher chance of a US recession.

Bond markets rallied for the second week in a row, as yields fell on safe haven demand. High yield corporates were the exception thanks to rapidly widening credit spreads, consistent with an increase in perceived recession risk.

Economic data was mixed last week. Core CPI (+0.5% m/m) came in slightly higher than expected, but Core PPI was flat m/m in a sign that upstream price pressures continue to moderate. Housing showed renewed signs of activity, with residential building permits (1.52mn) and housing starts (1.45mn) both rising sharply m/m. Initial jobless claims fell back below 200k in a clear sign of labor market strength. However, the Conference Board’s Leading Economic Index (LEI) fell sequentially for the 11th month in a row, and several gauges of manufacturing activity (Philly Fed, New York Fed, and Empire Manufacturing) remain in contraction territory.

Chart of the Week: Conference Board Leading Economic Index (y/y change)Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. The equity risk premium has expanded slightly over the past two weeks on concerns regarding the financial system.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in one more 25bp hike in March, followed by a pause and then several rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged. Real-time inflation data ticked higher sequentially in February of 2023.

The post Weekly Market Recap – March 17, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – March 10, 2023 [PDF]DownloadWeekly Recap:Last week was calm at the start, with rates relatively stable through Wednesday’s close while equities were only slightly lower. That all changed on Thursday, however, as market participants watched the rapid descent of Silicon Valley Bank into receivership. In the span of barely 24 hours, investors went from worrying about inflation and Fed policy to wondering how many small technology firms might suddenly have liquidity challenges and grappling with the possibility of a wider crisis of confidence within the banking system.

Asset price changes were consistent with a broad-based increase in risk aversion:

• Treasuries rallied
• Credit spreads widened
• Commodities fell
• Equity prices moved lower

Predictably, financials were the worst performing sector, while defensives such as staples and utilities were less impacted. Small caps underperformed, as one might expect given their greater dependency on banks for liquidity and financing.

This episode has radically altered investor expectations regarding the forward path of Fed policy, under the assumption that the Fed is less likely to further tighten policy if the banking system appears wobbly. One week ago, futures markets were pricing in 3 or 4 additional rate hikes in 2023, and no rate cuts prior to year-end. Futures now suggest that the Fed will hike 25bp in March and then stop, and that as many as three rate cuts could occur by December. As a result, the implied year-end Fed Funds rate has fallen nearly 150bp, from 5.56% to 4.10%, in just three days.

Chart of the Week: Futures-Implied Fed Funds Rate at Year-End 2023Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in one more 25bp hike in March, followed by a pause and then several rate cuts in the back half of the year.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged. Real-time inflation data ticked higher sequentially in February.

The post Weekly Market Recap – March 10, 2023 appeared first on Albion Financial Group.

View Details

Market Recap February 2023 [PDF]DownloadFebruary 2023 RecapInflationData released in February indicated a mild reacceleration of inflation during the month of January. Core CPI was +0.4% m/m for the second straight month, while Core PPI surprised to the upside at +0.5% m/m, accelerating sequentially by 20bp. Finally, the m/m change in the Core CPE Deflator (the Fed’s preferred inflation gauge) rose 20bp to +0.6%. In addition, the December prints for all three metrics were revised higher relative to their original release.

Monetary PolicyAs expected, the FOMC raised overnight interest rates by 25bp on February 1st. At the time, futures markets implied that only one more 25bp rate hike was expected at the March FOMC meeting before the Fed would pause and adopt a more neutral policy stance. However, after a very strong Nonfarm Payroll report (+517k) on February 3rd, and the aforementioned uptick in inflation data, futures markets finished the month with three additional 25bp rate hikes priced in before a pause, and implied virtually no chance of any rate cuts before year-end.

EconomyIncoming data in February suggests that the US economy is experiencing solid growth so far this year. As of month-end, the Atlanta Fed’s GDPNow estimates an annualized real time GDP growth rate of +2.8%. Housing showed signs of stabilization in February, the labor market remains very strong, and several gauges of manufacturing activity moved from contraction to expansion. Consumer confidence is mixed, with signs of relief regarding inflation tempered by some anxiety about future prospects for the economy.

Bond MarketAfter a strong rally in January, bonds reversed course in February. Rates rose across the curve as investors recalibrated their expectations for inflation and Fed policy, pushing bond lower. The move higher in rates was especially pronounced in the front end, widening the Treasury yield curve inversion. Nearly 90% of curve points were inverted at month-end (i.e., shorter-term yields higher than longer-term yields), with the much-watched 3m/10y point inverted by 85bp, the deepest since late 1981. Credit spreads were largely stable on the month, so municipal and corporate bond prices declined roughly in line with Treasuries.

Stock MarketEquities were also stung by the February reversal in the inflation trend, as rising bond yields pushed up discount rates, causing mild P/E multiple compression. Q4 earnings season was also not especially kind to stockholders. Many companies issued conservative guidance for 2023, particularly regarding operating margins thanks to labor and input cost pressures, causing analysts to lower their forward earnings estimates.

Chart of the Month– S&P 500 Total Return by SectorAlbion’s “Four Pillars”Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in a total of four 25bp hikes in 2023, with a “terminal” Fed Funds policy rate slightly above 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Goods inflation has fallen due to softening demand and excess inventory, while services inflation remains elevated, in part due to shelter costs which are somewhat lagged. Real-time inflation data ticked higher sequentially in February.

The post Monthly Market Recap – February 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – February 24, 2023 [PDF]DownloadWeekly RecapThe holiday-shortened week was a tough one for financial markets thanks to recent trends in inflation, which does not appear to be cooling as quickly as market participants had hoped. The January print of US PCE (personal consumption expenditures, the Fed’s preferred inflation gauge), was higher than expected and showed sequential increases across the board:

• Headline PCE Deflator: +0.6% m/m, +5.4% y/y
• Core PCE Deflator: +0.4% m/m, +4.7% y/y

In response, rates continued to rise across the curve, particularly in the front end as the yield curve inversion deepened. Futures markets are now pricing in 25bp rate hikes at each of the next three FOMC meetings (March, May, and June), with very low odds of any rate cuts happening before the end of the year. Rising rates in February have erased most of the gains enjoyed by bond investors during January, leaving fixed income close to flat on the year.

Equities were not spared the selling pressure either. The S&P 500 was down for the 3rd week in a row, while the more rate-sensitive Nasdaq underperformed on weakness in longer-duration technology stocks.

Other economic data released last week showed a resilient US economy. Initial jobless claims remain below 200k/week, S&P Global’s Composite PMI rebounded into expansion territory (as did several regional Fed surveys), new home sales rose for the 2nd straight month, and the University of Michigan’s consumer sentiment index rose slightly in the final February print, with a notable gain in the future expectations component.

Chart of the Week – Core PPI and CPI (m/m change)Albion’s “Four Pillars”Economy & Earnings The US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in a total of four 25bp hikes in 2023, with a “terminal” Fed Funds policy rate slightly above 5% for this cycle.

Inflation After reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Headline inflation eased over the summer on falling energy prices, and core inflation followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is one factor keeping reported services inflation elevated, at least for now.

The post Weekly Market Recap – February 24, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – February 17, 2023 [PDF]DownloadWeekly RecapIt was a mixed bag for financial markets last week after fresh US inflation data for January came in somewhat higher than expected. Core CPI rose very slightly on a m/m basis, the second such sequential increase, while the m/m change in Core PPI rose for the 4th consecutive time. See the Chart of the Week for a time series.

The moderate uptick in real time inflation data coupled with the extremely strong January NFP report had market participants recalibrating their Fed expectations. After the February 1st rate hike of 25bp, futures markets suggested that only one more such hike would like occur at the March meeting, after which the Fed was expected to pause. Fast forward just two weeks, and futures now suggest that three more 25bp hikes are likely, one in each of March, May, and June. As a result of the shift in expectations for the Fed, bond investors saw rising yields and lower prices for the second week in a row, particularly towards the front end of the curve.

Equities were mixed last week. The Nasdaq outperformed, a rare occurrence with rising rates. Meanwhile, falling oil prices pulled down the energy sector, keeping the Dow flat and pushing the S&P slightly into the red. International markets were mixed as well, with weakness in Chinese stocks pulling E/M benchmarks lower.

Other economic data released last week showed stabilization in housing starts and building permits, and perhaps some cautious optimism (or at least less pessimism) on the part of homebuilders. Unemployment claims remain low, most gauges of manufacturing activity remain weak, and strong retail sales from January suggest the US consumer remains resilient despite inflation.

Chart of the Week – Core PPI and CPI (m/m change)Albion’s “Four Pillars”Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in a total of four 25bp hikes in 2023, with a “terminal” Fed Funds policy rate slightly above 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation moderated in the second half of the year. Headline inflation eased over the summer on falling energy prices, and core inflation followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is one factor keeping reported services inflation elevated, at least for now.

The post Weekly Market Recap – February 17, 2023 appeared first on Albion Financial Group.

View Details

Conference Call Panelists: John Bird, Jason Ware, Liz Bernhard, and Michael KesslerREGISTER NOW for our first conference call of 2023 scheduled for May 16, 2023 at 9AM.

November 2023 Conference Call from Albion Financial GroupRegister for May 2023 Conference CallThe post Repost: November 2022 Conference Call appeared first on Albion Financial Group.

View Details

Weekly Market Recap – February 10, 2023 [PDF]DownloadWeekly Recap:Financial markets had a challenging week after the previous Friday’s blowout Nonfarm Payroll report (+517k) caused investors to recalibrate their expectations for addition rate hikes this year. Going into the report on the morning of February 3rd, futures markets were pricing in just one additional 25bp hike at the March meeting. Afterwards, investors immediately priced in another 25bp hike at the May meeting, as well as roughly 50/50 odds of one more over the summer.

Bond yields rose across the curve in response, making it a challenging week for fixed income. Credit spreads were largely stable, resulting in similar performance between Treasuries and US corporates.

Equity markets responded in predicable fashion. The prospect of additional rate hikes in combination with somewhat lackluster Q4 earnings (in the aggregate, at least) sent stock prices lower over the course of last week, with more rate-sensitive growth sectors feeling the greatest selling pressure.

In the aftermath of the previous Friday’s NFP report, incoming economic data was fairly sparse last week. Initial jobless claims remained below 200k for the 4th straight week. Meanwhile, the University of Michigan’s Consumer Sentiment gauge rose to 66.4 in the preliminary February print (from 64.9 in January), with the gains driven by improvements in the current conditions component. Long term (5-10y) consumer inflation expectations remain well anchored at 2.9%.

Chart of the Week – US Nonfarm Payrolls Added (m/m net change)Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in a total of three 25bp hikes in 2023, with a “terminal” Fed Funds policy rate of roughly 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is one factor keeping reported services inflation elevated, at least for now.

The post Weekly Market Recap – February 10, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – January, 27 2023 [PDF]DownloadWeekly Recap:US equities had another strong week, particularly the Nasdaq which has benefitted from a sharp rebound in mega-cap technology stocks. After posting a 4.3% return last week, the Nasdaq is already up more than 11% so far in 2023. From a sector standpoint, 2023 returns have been clustered by style: growth sectors (tech, consumer discretionary, and comms) have outperformed, while traditional defensives (utilities, staples, and healthcare) have been used as a source of funds and have underperformed as investors have looked to add risk.

Bond markets were relatively quiet last week. The Treasury yield curve pivoted slightly, with short rates rising a few basis points while yields in the belly and long end fell by a similar amount. Credit spreads continued their slow grind tighter, pushing corporate bond prices higher. IG spreads have now tightened by roughly 40bp since peaking above 150bp in October of last year (see the Chart of the Week for a time series).

Economic data released last week reinforced existing trends: slowing manufacturing activity, moderating inflation, strong labor markets, and a resilient consumer.

• S&P’s US Mfg (46.8) and Svcs (46.6) PMIs remain in contraction territory
• Fed surveys (Philly, KC, Richmond, and Chicago) also remain in contraction
• Headline (+0.1% m/m) and core (+0.3% m/m) PCE deflators were modest
• Initial jobless claims fell to 186k, the lowest level since April of 2022
• U of M consumer sentiment (64.9) was revised slightly higher for January
• U of M inflation expectations were revised lower (1y = 3.9%; 5-10y = 2.9%)

Chart of the Week – US Investment Grade Credit Spreads (Index Average)Albion’s “Four Pillars”:Economy & EarningsThe US economy enjoyed a strong second half of 2022, but corporate operating margins have been gradually falling as labor and input cost pressures bite. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 18x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is one factor keeping reported services inflation elevated, at least for now.

The post Weekly Market Recap – January 27, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – January 20, 2023 [PDF]DownloadWeekly Recap:Risk assets were mixed in the holiday-shortened week as a raft of softening economic data renewed concerns about a US recession:

• Retail Sales fell 1.1% in December, below consensus estimates
• US Industrial Production fell 0.7% in December, also below consensus
• US Capacity Utilization dropped to 78.8%, the lowest level in 12 months
• Empire Manufacturing (-32.9) fell to its lowest level since May of 2020
• US housing starts (-1.4%) and residential building permits (-1.6%) fell in December
• The NAHB Housing Market Index (35) remains deeply in contraction territory

Amid these signs of a slowing economy, inflation pressures continue to ease despite an extremely strong labor market. Producer Price Inflation (PPI) was -0.5% m/m in December and fell to +6.2% y/y, while Core PPI (ex food & energy) was just +0.1% m/m and dropped to +5.5% y/y. Meanwhile, initial jobless claims (a leading labor market indicator) fell to 190k, the first sub-200k print since September.

Bonds were mostly better bid on the soft economic data, with Treasury yields falling in the front end and belly, while IG credit spreads were stable. High yield spreads widened on the uptick in risk aversion.

Stocks were mixed: large cap tech continued its early-2023 run of outperformance thanks to falling discount rates, while cyclicals (ex energy) and small caps were mostly lower. International stocks outperformed the US yet again, continuing another early-2023 trend. Chinese equities posted their 4th straight week of gains even as a Covid wave has infected 80% of the population by some reports, leaving the MSCI China Index up 13.85% YTD.

Chart of the Week – Producer Price Inflation (y/y change)Albion’s “Four Pillars”:Economy & EarningsUS GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is one factor keeping reported services inflation elevated, at least for now

The post Weekly Market Recap – January 20, 2023 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – January, 13, 2023 [PDF]DownloadWeekly RecapSteadily moderating inflation data helped push rates lower across the curve last week, which in turn drove P/E multiple expansion in stocks. CPI data for December was in line with consensus expectations across the board:

• Headline CPI declined 0.1% sequentially and fell to 6.5% y/y
• Core (ex food & energy) CPI was +0.3% m/m and fell to 5.7% y/y

Rates moved lower as the curve became slightly more inverted, pushing Treasury and other bond prices higher. After an extremely challenging 2022, fixed income is off to a strong start in 2023, with yields remaining attractive even as solid price gains have been realized in the first two weeks of the year.

Equities followed suit as falling risk-free rates enabled P/E multiple expansion. Longer-duration growth stocks were the biggest beneficiaries, driving significant outperformance by the Nasdaq. Defensive sectors lagged as utilities, staples, and healthcare stocks were used as a source of funds for portfolio re-risking.

Other economic news was mixed last week. The NFIB’s Small Business Optimism Index fell to 89.8, very close to the 9-year lows reached last summer. Labor markets continue to show signs of renewed strength as initial jobless claims fell to 205k, the lowest print since September. And finally, the University of Michigan’s Consumer Sentiment gauge rose for the second straight month in preliminary January data, with improvements in both the current conditions and expectations components. Near-term (1y) inflation expectations fell 40bp to +4.0%, while longer-term (5-10y) inflation expectations remain solidly anchored at +3.0%.

Chart of the Week – Headline and Core CPI (y/y change)Albion’s “Four Pillars”Economy & EarningsUS GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of 2022’s P/E multiple compression was driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates rose across the curve in 2022 in response to a dramatic pivot in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is one factor keeping reported services inflation elevated, at least for now.

The post Weekly Market Recap – January 13, 2023 appeared first on Albion Financial Group.

View Details

2022 Market Recap [PDF]Download2022 Year-End RecapInflation: Post-pandemic inflation was the story for the global economy in
2022, as a combination of snarled supply chains and labor shortages were
exacerbated by Russia’s invasion of Ukraine, which sent energy prices
skyrocketing. Inflation reached a 40-year high in the US in the late spring,
but moderated somewhat in the second half thanks to falling energy prices,
fewer supply problems, and a slowly-but-steadily normalizing labor market.

Monetary Policy: If inflation was the fuel for the 2022 bear market, monetary policy was the match that lit the flame. At the start of the year, the Fed still had overnight interest rates pinned at zero, and Fed Fund Futures markets were pricing in just three 25bp rate hikes in 2022. Fast forward 12 months, and the Fed has enacted the equivalent of seventeen 25bp hikes, including four consecutive 75bp increases, pushing its policy rate floor to 4.25%. Central banks around the world have followed suit in the fight against global inflation, including the Bank of England, the ECB, and even the Bank of Japan. Looking ahead to 2023, markets are expecting a much more balanced monetary posture, with two small rate hikes expected from the Fed early in the year, and the potential for cuts on the horizon towards the end.

Economy: The US economy normalized somewhat in 2022, with growth
decelerating after a torrid +5.9% pace in 2021. GDP growth was mildly
negative in the first two quarters this year, but the US has avoided recession thus far, thanks largely to a resilient consumer. Over the course of the year, most gauges of manufacturing activity weakened, and housing decelerated sharply thanks to soaring mortgage rates. Looking forward, Albion’s expectation is that the Fed’s monetary tightening will ultimately cause the economy to enter recession at some point in 2023.

Bond Market: Driven by the Fed’s sharp pivot to inflation-fighting, US fixed income endured one of its worst years in history. Treasury yields rose by 200- 350bp as the curve became almost completely inverted, and IG credit spreads widened by more than 30bp. No sector of the bond market was spared the decline in prices, although the restoration of yield to decade-plus highs helps to brighten the outlook for fixed income investors going forward.

Stock Market: After reaching an all-time high on the first trading day of
2022, the S&P 500 spent most of the year in a bear market. Equity returns
were primarily driven by duration exposure, with long-dated growth sectors (especially technology) hit the hardest while dividend-rich sectors fared better. Energy was an upside outlier all year thanks to the dramatic rise in oil and gas prices following Russia’s invasion of Ukraine. International stocks finished lower as well, with China giving investors a particularly turbulent ride in 2022 thanks to Beijing’s ever-evolving Covid and economic policies.

2022 S&P 500 Total Return by SectorAlbion’s “Four Pillars”Economy & EarningsUS GDP rebounded to +2.6% in Q3 after falling
1H22, and corporate operating margins remain solid at ~12% on the S&P 500 Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

The post 2022 Market Recap appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 23, 2022 [PDF]DownloadWeekly Recap:Rates took center stage once again last week, rising around the world after the Bank of Japan surprised markets by increasing the allowable trading range on 10-year Japanese government bonds by 25bp. Investors interpreted the move as a first step towards what could become a gradual normalization of Japanese monetary policy after many years of ultra accommodative rates and yield curve control.

In the US, the Treasury market responded instantly (even at 10:00 pm Eastern time!) as yields rose by 10-12bp across the curve due to shifting global relative value. By the end of the week, belly and long end rates in the US were up by roughly 25-30bp depending on the curve point. Meanwhile, Fed Funds Futures markets priced in a 30% chance of a 3rd rate hike next year (at least 2 were already expected).

The coordinated move higher in rates had a predictable effect on US equities, as sectors and benchmarks traded in line with their duration exposure. Growth stocks significantly underperformed, pushing the Nasdaq lower, while shorter duration dividend stocks (particularly in the energy sector) drove gains in the Dow. The S&P fell in the middle, as it often does in rate-driven markets, posting a small loss on the week.

Economic data was abundant, and mixed. On the positive side, the Conference Board’s Consumer Confidence gauge (108.3) staged a sharp rebound to reach an 8-month high, and initial jobless claims (216k) continued their recent run of strength. However, housing metrics remain weak, including the NAHB Housing Market Index which fell to 31 (barely above pandemic lows), existing home sales (-7.7% m/m), and new residential building permits (-11.2% m/m). In addition, the Conference Board’s Leading Economic Index (LEI) declined for the 9th consecutive month, reaching -4.5% on a y/y basis. Historically such levels have been associated with the imminent onset of recession (Chart of the Week).

Chart of the Week – Conference Board US Leading Economic Index (y/y change)Albion’s “Four Pillars”Economy & EarningsUS GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

The post Weekly Market Recap – December 23, 2022 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 16, 2022 [PDF]DownloadWeekly RecapLast week’s main event was the December FOMC meeting. As expected, the Fed raised overnight interest rates by 50bp, bringing the final tally for 2022 to 425bp of increases since “lift-off” in March. But despite better-than-expected CPI data that was released earlier in the week, Jerome Powell’s inflation-fighting rhetoric was as hawkish as ever, dampening equity investors’ hopes of a more dovish Fed in 2023.

The Fed’s impact on equity trading was very obvious last week. From Monday’s open through 2:00 pm on Wednesday (the time of the Fed’s rate decision and press release), the S&P 500 rose nearly 3% thanks to the aforementioned moderation in the inflation trend. But from the conclusion of the FOMC meeting through Friday’s close, the index fell nearly 5%, to finish down 2% overall on the week. Most other domestic and international equity benchmarks experienced similar declines.

Meanwhile, the bond market’s response suggested that investors are becoming less concerned about inflation, and more concerned about a Fed-induced recession. Fed Fund Futures markets continue to undershoot the Fed’s own interest rate projections (see the updated Dot Plot below), and Treasury yields fell across the curve following the FOMC meeting, pushing bond prices higher.

Apart from the Fed and inflation, most of last week’s incoming data suggested a slowing economy. Retail sales fell 0.6% sequentially in November, while Industrial Production and Capacity Utilization both fell by 20bp. Meanwhile, the Empire Manufacturing (-11.2) and Philly Fed (-13.8) surveys both sunk deeper into contraction territory in the December prints, as did S&P’s US Manufacturing (46.2), Services (44.4), and Composite (44.6) PMIs.

Chart of the Week – The FOMC “Dot Plot”Albion’s “Four Pillars”Economy & EarningsUS GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

The post Weekly Market Recap – December 16, 2022 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 9, 2022 [PDF]DownloadWeekly RecapRisk assets struggled last week as concerns about global economic growth intensified. Oil fell nearly $9/barrel to its lowest level since December of last year. Meanwhile, a higher than expected Producer Price Inflation (PPI) print for November pushed short rates higher. While PPI remains well off its highs on a y/y basis (see the Chart of the Week), the sequential reacceleration in core (ex food & energy) PPI to +0.4% m/m was noteworthy, particularly in the context of recent comments by various FOMC members about the inflation fight being far from over.

Rising short-term yields deepened the Treasury curve inversion and sent bond prices lower for the first time in more than month. Nevertheless, futures markets remain firmly coalesced around a +50bp rate hike this week, with the February 1st meeting considered to be “in play” for another +50bp hike, or a further deceleration to only +25bp. Credit spreads remained stable on the week, pushing small price declines through to US corporate bonds.

Domestic equity markets endured a week of rough performance, with most benchmarks down somewhere in the 3% to 5% range. Small caps underperformed. International stocks were better, particular E/M which was boosted by another week of strong performance from Chinese equities. Since bottoming out at the end of October, the MSCI China index is up nearly 40% in just six weeks on growing optimism that Beijing’s Zero Covid policy is being replaced by less draconian containment strategies.

Chart of the Week – PPI Final Demand (y/y change)Albion’s “Four PillarsEconomy & EarningsUS GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2 additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

The post Weekly Market Recap – December 9, 2022 appeared first on Albion Financial Group.

View Details

Weekly Market Recap – December 2, 2022 [PDF]DownloadWeekly RecapStocks and bonds rallied in unison last week, thanks largely to comments from Fed Chair Jerome Powell on Wednesday afternoon. Speaking at the Brookings Institute, Powell confirmed that the Fed might slow the pace of rate hikes as soon as the December FOMC meeting. Investors interpreted that to mean that the days of 75bp hikes were over. Futures markets quickly crystalized around a 50bp hike in December, and lowered the expected number of 25bp rate hikes in 1Q23 from 3 to 2.

The impact on bond prices was significant, bringing welcome relief to battered investment grade bondholders. The Treasury yield curve experienced a parallel shift lower by 18-19bp over the course of the week, and credit spreads compressed slightly, extending the tightening trend that began in mid-October. Yields on IG corporates have fallen by roughly 100bp in that time.

Equities got a boost from Powell’s comments as well, particularly rate-sensitive growth stocks in the tech, consumer, and communications sectors. Dividend payers lagged the rally, particularly financials and energy as rates and oil prices dropped, respectively. Meanwhile, Chinese equities continued to move higher on hopes that public unrest would accelerate the removal of Beijing’s “Zero Covid” policy.

Economic news was abundant last week. Housing metrics (prices, sales) were weak, manufacturing gauges point to a contraction in activity, and consumer confidence waned a bit. On the flip side, despite rising unemployment claims and a reduction in open jobs, the monthly nonfarm payroll report came in above expectations at +263k (see the Chart of the Week), while unemployment held steady at 3.7%.

Chart of the Week – US Nonfarm PayrollsAlbion’s “Four Pillars”Economy & EarningsUS GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

ValuationThe S&P 500’s forward P/E of 17.5x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest RatesRates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2 additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

InflationAfter reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

The post Weekly Market Recap – December 2, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Stocks and bonds rose in unison during the holiday-shortened week as market participants collectively expressed skepticism regarding recent hawkish comments from various Fed governors. Rates fell across the curve and Fed Fund Futures remained firmly anchored to a 50bp hike in December, despite Susan Collins’ assertion that 75bp was still on the table. […]

The post Weekly Market Recap – November 25, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Last week featured a number of hawkish pronouncements from Fed governors, in what felt like a coordinated attempt to offset investor optimism that recent inflation data might alter the trajectory of monetary policy. Boston Fed CEO Susan Collins stated on CNBC that a 75bp hike in December is still on the table (futures […]

The post Weekly Market Recap – November 18, 2022 appeared first on Albion Financial Group.

View Details

Click on the link below to watch the video and transcript of Albion’s November 15, 2022 Conference Call. Or listen to the isolated audio from the call below:

The post Conference Call Recording – November 15, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Stocks and bonds alike staged a strong rally after October CPI data came in below expectations by 20bp across the board: Headline CPI was +0.4% m/m and fell to +7.7% y/y Core (ex food & energy) CPI was +0.3% m/m and +6.3% y/y The sequential drop in core CPI was the primary focus […]

The post Weekly Market Recap – November 11, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Last week’s main event was the November FOMC meeting, which concluded with the 75bp rate hike that everyone knew was coming. What was less obvious in advance was whether the Fed would communicate an intent to slow the pace of future rate hikes, potentially as soon as next month’s meeting. On that front, […]

The post Weekly Market Recap – November 4, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap US equities moved sharply higher for a second straight week as investors increasingly became confident that the upcoming November FOMC meeting could represent the last of the 75bp rate hikes. The only sector in the S&P 500 to finish lower was Communications, which was dragged down by a 23.7% decline in META after […]

The post Weekly Market Recap – October 28 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Domestic financial markets adopted a strong risk-on tone last week, with the Treasury curve steepening while US equities rallied. Investors appeared to take some comfort from Q3 earnings being less bad than feared thus far, and also in comments from Fed governors that reinforced what futures markets were already predicting, namely a relatively […]

The post Weekly Market Recap – October 21, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Stocks moved sharply higher at the start of Q4, with the S&P 500 posting a 4% gain in just two days to kick off the month of October, although the rally fizzled after Friday’s NFP report (more on that below). Cyclical sectors posted solid gains on the week despite the Friday swoon, while […]

The post Weekly Market Recap – October 7, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Rates rose anew and stock prices fell globally in the wake of Wednesday’s FOMC meeting. The updated Summary of Economic Projections showed weaker growth and higher unemployment in 2023 relative to the previous SEP release from three months ago, consistent with the notion that economic pain will be necessary in order to get […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Recap Markets got off to a strong start last week, with equities posting modest gains on Monday while rates were relatively calm. All of that changed at 8:00 am EDT on Tuesday morning when the August CPI print hit the tape. Although headline CPI declined on a y/y basis thanks largely to falling energy […]

The post Weekly Market Recap – September 16, 2022 appeared first on Albion Financial Group.

View Details

Weekly Recap Equity markets found their footing last week despite the ongoing rise in interest rates. All sectors in the S&P 500 finished higher, with gains spread across cyclicals, defensives, and growth stocks alike. The energy sector lagged the rally as oil prices briefly dipped below pre-Ukraine invasion levels. International stocks also lagged, particularly Chinese […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Recap US equities finished lower for a 3rd straight week as a rebound in consumer confidence and signs of renewed strength in labor markets appeared to give the Fed more latitude for aggressive tightening of monetary policy. All sectors in the S&P 500 were down, with traditional defensives (utilities, health care, and staples) posting […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Recap US equity markets were lower for a 2nd straight week, particularly on Friday after Jerome Powell unambiguously reiterated the Fed’s commitment to bringing inflation under control in his speech at the Jackson Hole Fed Symposium. Technology and other growth stocks faced the strongest selling pressure, as has typically been the case this year […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Recap After four consecutive weeks of gains, US equities finished lower last week as most incoming economic data continued to soften. Traditional defensives like utilities and consumer staples proved the most resilient, while cyclicals (ex energy) and growth stocks underperformed. Small caps were weak, as were international equities. Front-end rates were generally stable, with […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

September 16, 2022@ 6:30 PM Natural History Museum of Utah301 Wakara Way, Salt Lake City, UT 84108

The post Albion Financial Group’s 40th Anniversary appeared first on Albion Financial Group.

View Details

Equities were mixed last week, with technology and other growth stocks moving higher despite rising rates, while most cyclical and defensive sectors were little changed in aggregate. The exception was energy, which was pummeled by rapidly falling oil prices as WTI shed nearly $10/barrel on the week. Thanks to the rally in growth stocks the […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Recap: Stocks drifted lower for most of last week on higher-than-expected inflation data and disappointing bank earnings, only to rally sharply on Friday following encouraging prints from several important econometric data points. Consumer (CPI) and Producer (PPI) inflation data both painted a similar picture of the ongoing divergence between headline and core inflation. Headline […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Market Recap Recession fears came to the fore last week, causing Treasuries to rally while equity prices fell. Technology and other growth stocks faced the strongest selling pressure, while traditional defensives like utilities, healthcare, and staples registered small gains on safe haven buying. Energy stocks rallied on modest gains in oil prices. Treasury yields fell […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Market Recap Stocks rebounded sharply last week after arguably becoming oversold following back to back weeks of 5+% price declines. The rally was broad-based with nearly all sectors in the S&P 500 finishing higher on the week, the lone exception being energy stocks. The best performers were a mixture of tech/growth and defensives, with cyclicals […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

‘Fortune favors the brave’. Matt Damon re-acquainted America with this phrase several months ago in an ad he narrated for a crypto website. When bitcoin and other cryptocurrencies were posting all time highs. [see video at https://youtu.be/9hBC5TVdYT8] When the market is going up each day, it is fun to watch your accounts and see how smart you are. Your […]

The post Does Fortune Favor the Brave? appeared first on Albion Financial Group.

View Details

Weekly Recap Markets were down sharply again last week as the Fed ratcheted up its efforts to tame inflation. The FOMC started by raising overnight interest rates by 75bp, a move that had already been priced into fixed income markets following the release of higher-than-expected CPI data the week before. But as is typically the […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Recap Markets fell sharply last week, particularly after consumer price inflation (CPI) data came in above consensus across the board: Headline CPI was +1.0% sequentially in May (consensus was +0.6%) Headline CPI reached +8.6% y/y (consensus +8.3%) Core (ex food and energy) CPI was +0.6% sequentially in May (consensus +0.5%) Core (ex food and […]

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Market Recap Most markets were soft last week as an uptick in inflation concerns pushed bond yields higher and equity prices lower. Rates moved higher following Tuesday’s JOLTS report that showed 11.4 million open jobs in the US. Friday’s monthly jobs report from the BLS was also a factor, showing +390k new nonfarm payrolls versus […]

View Details

Weekly Recap Last week featured a very strong rebound in US equities, particularly after the release of the May FOMC meeting minutes on Wednesday and encouraging PCE data on Friday. Prior to Wednesday’s 2:00 pm release of the FOMC minutes, the S&P 500 had risen roughly 1.4% on the week. It then rose another 5.1% […]

View Details

Last week was another challenging period for US equities as investors repriced the risk of a near-to-medium term US recession. Incoming macroeconomic data was mixed, but generally supported the notion that recession risk is rising: Empire Manufacturing turned sharply negative in May (-11.6) NAHB Housing Market Index fell to 69, the lowest since June 2020 […]

View Details

Whether or not you attended our conference call earlier this week, here is your chance to watch a recording of our panelists’ discussion. They cover a broad range of topics including stock & bond valuation, oil & gas prices, recession & inflation concerns, Roth conversion strategies, blockchain technology and more. Thank you to those who attended […]

View Details

Last week was a challenging one for stocks as incoming macro data pointed to continued inflationary pressures and an erosion of consumer confidence. CPI data was released on Wednesday and showed core inflation accelerating to +0.6% sequentially in April, after it had slowed to just +0.3% m/m in March. On a y/y basis, headline CPI […]

View Details

Stocks and bonds moved lower last week in choppy trading after the Fed enacted the first 50bp rate hike in more than 20 years (May of 2000 was the last one). The market’s initial reaction was positive, as investors expressed relief that a 75bp hike appeared to be off the table for the June meeting, […]

View Details

Risk assets struggled last week in the face of numerous challenges, including high inflation, slowing economic growth, and the war in Ukraine. Inflation remains front and center on most investors’ minds, with personal incomes for US consumers rising 0.5% in March (+6.2% annualized) while February’s figure was revised higher to +0.7% (+8.7% annualized), both above […]

View Details

View Details

It was another tough week for stocks as bond yields continued to rise. Growth stocks bore the brunt of the selling pressure, sending the Nasdaq down 2.6% in a holiday-shortened week. Cyclical sectors fared better thanks to solid economic data, with materials (+0.7%), industrials (+0.4%), and energy (+0.3%) all finishing in positive territory. Small caps […]

View Details

“…With the invasion of Ukraine, the disruption of the distribution of natural resources and food supply caused by that, and other supply chain factors. How should we look at the stock market, investing, and saving during this time?“ Find out by listening to Albion Partner, Doug Wells‘s interview with Albion Partner and CIO Jason Ware. […]

View Details

It was another tough week for stocks and bonds, prompted by hawkish commentary on Monday from FOMC member Lael Brainard regarding the potential pace of Fed balance sheet reduction. That was followed up on Wednesday by the release of the FOMC meeting minutes from March, which exacerbated investor concerns. The result was an abrupt reversal […]

View Details

We are pleased to introduce the newest member of the Operations Team at Albion Financial Group. Meet Trey Vandiver, an information technology veteran and a gifted problem solver. For more, see Trey’s biography.

View Details

A rotation trade played out last week, with defensives rallying, tech steady, and cyclicals lower as the yield curve pivoted into an inversion. Small caps outperformed, as did most international benchmarks on gains in Europe and China. Treasuries were in focus as the 2s10s yield curve saw the culmination of a 12-month flattening trend that […]

View Details

Stocks finished higher for the second straight week despite surging bond yields. The energy sector led the way with a 7.4% return on the back of a sharp rebound in oil prices, while all other sectors besides healthcare posted positive returns on the week. Small caps lagged the rally and finished slightly lower. International stocks […]

View Details

Stocks staged a strong rebound last week that was only briefly interrupted (for about an hour) by the start of the Fed’s rate hiking cycle. Most US benchmarks were up at least 5%, while an even sharper rally in growth stocks pushed the Nasdaq higher by more than 8%. Only the energy sector failed to […]

View Details

Weekly Market Recap – March 11, 2022Download Most US stocks were lower again last week as the Russian war in Ukraine ground on. Once again, energy was the only sector in the S&P 500 to finish higher on the week. Interestingly, European stocks fared somewhat better in the latter half of last week, rebounding significantly after reaching YTD lows on Tuesday. Emerging market benchmarks were dragged lower by weakness in Chinese equities, which closed at 4+ year lows on Friday.

The selloff in bonds continued as investors lost hope that a silver lining of the war in Ukraine might be a less hawkish Fed. 2y Treasury yields rose 27bp, 10y yield gained 26bp to a fresh pandemic high of 1.99%, and 30y yields rose 19bp. After expectations for 2022 rate hikes fell in the days following the invasion, Fed Funds Futures markets are now pricing in a total of seven 25bp hikes by year end. See the Chart of the Week for a time series of 2022 rate hike expectations.

Last week brought some welcome relief in commodity prices, particularly oil which eased lower despite a US ban on Russian oil imports.

In economic news, the University of Michigan consumer sentiment gauge weakened in preliminary March data, with 1y forward inflation expectations rising to +5.4% while longer term (5-10y) expectations remains anchored at +3.0%.

Meanwhile, CPI data showed strong price gains in February:

• Headline CPI rose 0.8% sequentially to reach +7.9% y/y

• Core CPI (ex food and energy) rose 0.5% sequentially to +6.4% y/y

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly-Market-Recap-FINAL-20220304Download Stocks were lower last week as the Russian war in Ukraine intensified. European stocks were hit especially hard, sending MSCI’s EAFE developed market international index down 6.5% on the week. In the US, investors scrambled to increase their exposure to energy stocks and defensive sectors, while selling tech and most cyclicals besides energy.

Bond markets reflected the sharp increase in risk aversion, with Treasury yields falling across the curve while credit spreads widened. The belly of the curve saw the most dramatic move, with 10y yields falling 23bp on the week, 2y yields finishing lower by 9bp, and 30y yields falling 11bp. Meanwhile, investment grade credit spreads moved wider by 9bp to reach 122bp, while high yields spreads were 23bp wider on the week, finishing at 376bp. See the Chart of the Day for a time series of credit spreads.

Commodity prices moved sharply higher last week. WTI finished above $115/barrel for the first time since September of 2008 (oil spiked briefly in the immediate aftermath of “Lehman weekend”), while the S&P GSCI Non-Energy Commodity Index closed at a new all-time high on Friday.
In economic news, nonfarm payrolls (+678k) significantly exceeded consensus expectations, while the unemployment rate fell to 3.8%. In a sign that inflation pressures may be abating slightly (at least prior to any economic fallout from the war in Ukraine), average hourly earnings were flat sequentially in February and fell to +5.1% y/y.

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

Weekly Market Recap, February 11th, 2022 Download US large caps moved lower last week in the wake of higher-than-expected inflation data, with tech and other growth sectors underperforming while cyclicals (especially energy) held up better. Small and midcap benchmarks managed to finish the week in the green, as did international stocks.

Rates continued to move higher last week, particularly in the front end of the curve as 2y yields rose 19bp while 10y and 30y yields were up just 3bp. Investors recalibrated their bets regarding the forward path of Fed policy, with the chance of a 50bp hike at the upcoming March FOMC meeting rising from ~30% pre-CPI print to roughly 60% afterwards. By the end of the week, investors were pricing in between six and seven 25bp hikes by year-end.

Commodity prices edged higher last week, with oil surging on Friday as the
situation in Ukraine began to look increasingly tenuous. West Texas Intermediate finished the week at $93.10/barrel, its highest level since September of 2014.

Economic data was mixed last week. CPI rose +0.6% sequentially which was above consensus expectations, as core CPI reached +6.0% y/y while headline CPI printed at +7.5%. Initial jobless claims fell for the 3rd consecutive week as the omicron-driven uptick continued to fade. And finally, the University of Michigan Consumer Sentiment index came in much lower than expected in the preliminary February reading, as the current conditions component fell nearly 5 points while future expectations were down nearly 7 points. Encouragingly though, long term (5-10y) inflation expectations were unchanged from January at +3.1%.

The post Weekly Market Recap appeared first on Albion Financial Group.

View Details

View Details

View Details

View Details

View Details

View Details

View Details

View Details

View Details

View Details