Report Card Season

Can you believe it’s already May? We’re nearly halfway through 2023, and it feels like we just left behind the challenges of 2022. Personally, I love May and everything that comes with Spring, except for my allergies. However, as a parent with two school-aged children, May also brings another significant event: report card season. With the school year ending in early June, May is often crunch time for them. They study for year-end exams, complete final projects, and make up for any missed assignments in an effort to earn those crucial last-minute extra points. I always remind them that their grades can change dramatically if they miss a few key opportunities at the end of the term.

Report card season isn’t just for kids, though. As we approach the midpoint of 2023, let’s take a look at America’s economic report card. After the disappointing 2022, many of the issues we were concerned about have stabilized, although they are still present. Now, let’s examine some of these issues.


Inflation was the biggest concern last year, leading to the Federal Reserve’s significant rate hikes. So far this year, we have observed a cooling down of inflation, although it remains relatively high. The costs of goods and commodities like cars, homes, wood, and oil have slightly decreased, but some services, such as dining out and traveling, still maintain stubbornly high prices. Stepping back, it’s hard to argue that the inflation picture isn’t improving. Even this week’s Consumer Price Index (CPI) showed a rise of “just” 4.9%, the lowest level in two years and significantly lower than the 9% we experienced last June. Although 4.98% is an improvement over 9%, I still wish the progress was faster.


Surprisingly, employment has remained strong. Last year, there were concerns about tech layoffs, which posed a significant threat. Although some tech-dominant cities like San Francisco have been disproportionately affected, nationally, the job market is still robust, with an unemployment rate below 5%. Moreover, workers continue to see substantial wage growth, especially for those in the lower income brackets. The strong job market has also resulted in more Americans returning to work, with four out of every five people in their prime working ages now employed. (Note: The definition of prime-aged workers, according to the Bureau of Labor Statistics, is between 25 and 54. I disagree with this definition, considering I am closer to 54 than I’d like to admit). The strong job market has had a significant impact on our next topic.

Consumer Spending & the Economy

Most of the broad economic indicators suggest a healthy America. Nearly all the data points economists analyze to determine the possibility of a recession do not indicate an imminent one. Manufacturing is still strong, and employment and wages are healthy (as mentioned above). Higher interest rates have started to affect business spending but consumer spending, which accounts for around 65-70% of the economy, remains remarkably strong. The last quarter’s GDP reading showed the economy grew by 1.1% above inflation. Quite impressive, although lower than the 2.6% in Q4 2022. I expect this decline to continue due to the higher rates. Businesses and consumers are just starting to feel the effects, and the question now is how significant the impact will be.

Now, what?

From the look of it, almost all of the hard economic data points we look at show a strong economy. Most economists agree we aren’t in a recession now. But if the economy is so strong, then why all the pessimism? Surveys say Americans are as pessimistic now as during the COVID and Great Financial Crisis. Where economists diverge in their thinking is their forecasts. Some think a recession is nowhere near the horizon, while others believe we will have a recession in the next six months, before year-end. And that’s the problem. Wall Street economists have been forecasting that a recession is six months away for the last eighteen months. This creates anxiety with investors who start hoarding cash waiting for a recession for their next opportunity. Now all of a sudden we’re in May and stocks are up 7% and bonds are up nearly 4%. This waiting game is driving everyone nuts! The anticipation of this upcoming recession may be worse than the recession itself.

This also begs the question, so what? Even if I could tell you with 100% certainty when a recession starts and when it ends, what good is that information? How would that affect your portfolio and life? Are you retired, or are you still working? What does your spending and income look like? That is why Apriem continues to build portfolios around a solid financial plan that can withstand the shocks of a recession. We can’t build a financial plan that requires us to navigate around a recession; we can only go through it together.

Market Update

The equities market struggled to find a direction in the first half of the week as investors awaited April’s Consumer Price Index (CPI) reading. This report is significant as Wall Street contemplates the Federal Reserve’s reaction to a new inflation figure. Wednesday morning, it was reported that the CPI Index inched lower to 4.9% from 5.0% in March – the lowest annual rate since April 2021. While not a huge win, investors were pleased to see inflation’s downward direction. The Federal Funds rate, which was increased to a range of 5 – 5.25% just last week now sits above the latest annual inflation figure. The question now sits with every investor is whether the Federal Reserve will pause, cut, or continue hiking. For the week, the S&P 500, Dow Jones Industrial Average, and Nasdaq are all up 1.75%, 0.61%, and 3.05%, respectively, as of today’s close.

Benjamin Lau, CFA
Chief Investment Officer & Principal

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