I was sitting in an airport in Florida Sunday, waiting to return home when I saw my nephew Ben walk into the terminal. He joined me and we spent an unexpected and delightful hour or so before our flight talking.
In addition to always being a lot of fun to talk with, Ben has a PhD in computational and systems biology and has been part of teams working to cure and prevent a wide range of diseases.
Ben talked about how we are still working through the breakthroughs enabled by the sequencing of the human genome in 2003. And he added that recent breakthroughs in artificial intelligence (AI) and machine learning (ML), the pace of development in identifying, curing, and preventing so many diseases that have long been thought incurable – think cancers, arthritis, and other autoimmune diseases, etc. – as well as repairing or replacing damaged organs is accelerating at an almost unimaginable pace.
This continues to raise the prospect of longer, healthier, and more productive lifespans. It is often said in the research community that the first person to live to 150 is probably already alive.
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And all of this has enormous implications for, among other things, natural resources, population and climate change, food security, housing, employment, retirement, and investing. (How many of us are building retirement nest eggs that will cover us until we’re 90, let alone 150?)
The U.S. Economy Now
Our economy is progressing very well by many measures. We ended 2022 with the GDP growth rebounding to about 3% after taking two slightly negative quarters to start the year.
The rebounding of the supply chain in most industries has certainly helped. Other than in a few parts of the economy, notably the tech sector, we continue to add jobs (517,000 in January) and the unemployment rate remains quite low overall.
Interest rates have risen as the Fed has sought to slow inflation. Those efforts have so far been fairly effective, driving the inflation rate from 9% last July to less than 6.5% now.
Mortgage rates are still below the 30-year average but have doubled from their historic lows in 2021. This has contributed to some slowing in the housing market although as someone who had a mortgage rate in excess of 14%, I think the concerns about the current level are overblown, and besides, mortgages can always be refinanced in the future.
So far, while sticking to its intent of reducing inflation, the Fed seems to have managed to push up the borrowing rate without overly spooking the market. I am not in the predicting the future business, but the holy grail of a “soft landing” seems possible.
Investors have a growing level of confidence. According to the American Association of Individual Investors, in January, bearish sentiment fell from 42.0% to 36.7% and bullish sentiment grew from 20.5% to 28.4%. These are still not as favorable as historic averages, but they’re getting close. Bearish sentiment has fallen from a peak of 60.9% last October, so that is a pretty substantial change.
Not all economic trends are equally influential on consumer sentiment, however. We’ve already talked about mortgage rates being up. That and housing costs are something of which consumers are highly aware. Higher grocery prices also contribute, although another big driver of consumer sentiment – gas prices – has moved considerably in the positive direction since they peaked in Q2 last year.
Barring an unexpected development, and assuming the folks in Washington are able to keep their act together to not cause the U.S. to default on its debt, I expect confidence in the U.S. economy to continue to grow, helping the stock market to re-establish a base and start moving upward.
That doesn’t mean it’s going to be easy. It never is. Investing always has the possibility of loss.
In the meantime, as I noted last month, there will continue to be pockets of growth and gains regardless. Finding them is what the researchers here at Cabot do and that’s kept us in the business of investing insights and recommendations for more than 50 years.
Cabot analysts are busy now identifying the stocks that will produce the above-average gains that historically follow periods of below-average sentiment. And, going back to my conversation with my nephew Ben, I won’t be surprised to see some biotech and pharma stocks among them in the future.
Overall, I’m feeling cautiously optimistic for investors in 2023. And I hope our educational content, market insights, and stock picks will be part of it.
Sincerely,
Ed Coburn
President & Publisher
Cabot Wealth Network
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