New 401k Allocation Number
What is it?
We are changing the 401k Allocation from 3 to 4 as the stock market in general is getting weaker and failing to make higher highs.
Why does it matter?
As the markets continue to be affected by the multiple issues the world and the global economy are facing, from the rising inflation to the war in Ukraine. We believe that we should continue to protect the portfolio when we can to possibly lower the risk of a large loss.
Our goal is to aggressively get back in risk assets once the markets get back into an uptrend.
Ray Dalio: ‘We’re going to have a period of stagflation’
What is it?
“Stagflation can be defined as a period of slow economic growth, increased joblessness and rising inflation.”*
Slow economic growth may be met with more pessimism than normal since we have experienced favorable market conditions in the last year or two. By that, I mean people will want to continue with big year-over-year growth instead of reverting back to historic averages.
Increased joblessness could become a trend that may have been alluded to by Fed chair Jerome Powell. “If anything, he said the labor market is too strong. Powell noted that the U.S. currently has about 1.7 jobs available for every unemployed person. ‘That’s a very, very tight labor market—to an unhealthy level,’ he said. It’s a situation in which consumer demand is higher than the labor and production supply. And when that happens, prices go up.’”**
Prices going up leads us to the third aspect of stagflation, rising inflation. Prices are anticipated to go up a little bit each year, but nothing like the inflation we have seen lately. “The Consumer Price Index (CPI) rose by 7.9% in February, marking the fastest pace of annual inflation in 40 years amid a push higher in rent, food, and used car prices.”* While we anticipate inflation will fall from these levels, we are not blind to the fact that inflation has continued higher for longer than many people expected already.
Why does it matter?
“’I think that most likely what we’re going to have is a period of stagflation. And then you have to understand how to build a portfolio that’s balanced for that kind of an environment,’ the Bridgewater Associates founder and co-chief investment officer said.”*
Slowed growth, less employment, and rising inflation could be a tough environment for the Fed to navigate.
“As for Dalio he is unsure if the Fed will be able to pull off a successful economic soft landing. ‘So the Fed is going to be in a very difficult place a year from now as inflation still remains high and it starts to pinch on both the markets and the economy’”*
Ray Dalio is one of the global leaders for investing, and we believe that sharing his insight can help readers understand where the economy may be going. As this evolves we will show you how the portfolios we manage are changing in response to new information.
Elon Musk becomes top shareholder of Twitter
What is it?
“Tesla Inc boss Elon Musk disclosed a 9.2% stake in Twitter Inc, worth nearly $3 billion, making him the micro-blogging site’s largest shareholder and triggering a rise of more than 27% in the company’s shares.”***
“Musk’s move, revealed in a regulatory filing, comes on the heels of his tweet that he was giving ‘serious thought’ to building a new social media platform, while questioning Twitter’s commitment to free speech.”***
Why does it matter?
This is a big move by Musk with vast implications. He may develop into a larger, more active role with Twitter vouching for free speech on social media.
“Of late, however, the world’s richest person has been critical of the social media platform and its policies, and recently ran a Twitter poll asking users if they believed the platform adheres to the principle of free speech, to which over 70% voted ‘no.’”***
Musk has an active following on Twitter, and can be known to ruffle some feathers online. It will be interesting to see how Musk manages the different areas of business that he is involved in. He seems to have a revolutionary way of thinking about things and solving problems. These changes based around his values, may have a place in forming the future we live in.
Other articles we found interesting this week:
Biden’s billionaire tax has ‘no path to passage,’ analyst says
Current 401(k) portfolio
Our last portfolio reallocation: 4/11/2022.
Want more information?
The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
Click here for more details about our investment management
Sources:
*Brian Sozzi. “Ray Dalio: ‘We’re going to have a period of stagflation’”. 4/4/2022. Yahoo Finance. https://finance.yahoo.com/news/ray-dalio-were-going-to-have-is-a-period-of-stagflation-135935874.html
**Megan Leonhardt. “Jerome Powell isn’t too worried about a recession but sees an ‘unhealthy’ trend in the labor market”. 3/16/2022. Fortune. https://fortune.com/2022/03/16/labor-market-unhealthy-tight-jerome-powell-rate-hikes-recession/
***Nivedita Balu. “Musk takes 9% stake in Twitter to become top shareholder, starts poll on edit button”. 4/5/2022. Reuters. https://www.reuters.com/technology/musk-discloses-92-stake-twitter-2022-04-04/
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