Market Insight May 15, 2023

Here is the Market Insight for the week of May 15, 2023:

Inflation Data Brings Hope

What is it?

In the past few months the market environment has been characterized by pessimistic news. However, recent data gave hope to optimistic investors. 

“US economic data pointed to a slowdown in inflation (Producer Price Index below expectations).”*

Why does it matter?

If the Fed’s main concern was restoring price stability, then lower inflation data is a good sign. This shows that they have started to tame the beast that is inflation. The market seems optimistic that the Fed will not keep rates at this level much longer. Many investors believe the economy is heading for a deeper recession. But markets have held up, and some expect the Fed or government could step in if conditions get worse. Until conditions change we will not be invested much in stocks and ETFs. Equities with lower risk have been favored by investors lately. 

The World’s Reserve Currency

What is it?

The reserve currency is used to determine the value of products and services for different currencies globally. 

“A reserve currency needs to be market-based, free-floating and, most importantly, stable. There have been two major reserve currencies in modern times: the British pound until World War II, and the American dollar for the past 75 years.”**

Why does it matter?

Other countries including: China, Russia, India, may attempt to replace the U.S. Dollar as the world’s reserve currency.** Russia was handcuffed by sanctions placed on them by the U.S. once the invasion of Ukraine began.** China has already begun using the Yuan for cross-border transactions in some cases.** 

Some countries are even questioning the stability of the U.S. Dollar value. That speculation may be warranted as the possibility of the U.S. defaulting on its debt becomes more prevalent. Unless that happens, it is unlikely that another currency will emerge as a better option. 

While the situation is not likely to happen soon, it is good to look ahead when investing for the long term. BRICS nations (Brazil, Russia, India, China, and South Africa) are reportedly in the process of creating a new medium for payments.*** That new currency is planned to be linked to commodity prices and not other currencies.*** Certain investments would benefit from a de-dollarization which could gain traction if international countries push for that change to happen. 

Other articles we found interesting this week:

Inflation: Consumer prices in April rise at slowest annual rate in 2 years

Stocks mixed as investors weigh inflation data, regional bank turmoil

Elon Musk says he has found new Twitter CEO

Current 401(k) portfolio

Our last 401(k) portfolio reallocation: 5/19/2022. 

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.

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Sources:

*Matías Salord. “Dollar strengthens on mixed markets, commodities under pressure”. 5/11/23. FX Street. https://www.fxstreet.com/news/forex-today-dollar-strengthens-on-mixed-markets-commodities-under-pressure-202305112111

**Filip De Mott. “De-dollarization has started, but the odds that China’s yuan will take over are ‘profoundly unlikely to essentially impossible’”. 4/13/2023. Business Insider. https://www.businessinsider.in/stock-market/news/de-dollarization-has-started-but-the-odds-that-chinas-yuan-will-take-over-are-profoundly-unlikely-to-essentially-impossible/articleshow/99444777.cms

***Vanya Gautam. “Why India & Other BRICS Nations Want To Create A New Currency For Trade Payments”. 4/4/2023. India Times. https://www.indiatimes.com/worth/news/india-working-with-other-brics-nations-on-new-currency-598088.html#:~:text=BRICS%20includes%20Brazil%2C%20Russia%2C%20India,defend%20the%20dollar%20or%20euro%22

IMPORTANT DISCLOSURES: 

Educational use Only. The market update published by Breakaway Financial Group LLC (“Breakaway”) is intended to be educational in nature and is not intended to be a recommendation for any specific investment product, strategy, plan feature or other purposes. Accordingly, it should not be construed by any consumer and/or prospective client as solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation. 

Advertising and Marketing. Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of an investor’s own situation. No person associated with Breakaway is a licensed attorney or tax professional and the information contained herein should not be considered tax or legal advice. 

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Craig Stahlecker

Craig Stahlecker

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IMPORTANT DISCLOSURES:
The information provided is intended to be educational in nature and is not intended to be a recommendation for any specific business or tax strategy, plan feature or other purposes. Accordingly, it should not be construed by any consumer and/or prospective client as solicitation of services.

Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all. Prior to making any business or tax planning decisions, an individual should seek individualized advice from a personal financial, tax, legal, or business consultant professional that takes into account all of the particular facts and circumstances of an individual’s own situation. No person associated with Breakaway Financial Group LLC is a licensed attorney, and the information contained herein should not be considered legal advice.