Retirement Read Time: 4 min

Five for Friday - May 31, 2024

Optimism, Home Prices, Global Markets, Fed Balance Sheet, and Copyright Law

1. Optimism

In a recent Conference Board survey, 48% of investors said they expected stock prices to be higher one year from now. While that may not seem like much (especially since stocks are historically up ~75% of one-year periods), it is actually the third highest reading in the last three decades. And interestingly, while most readings of investor sentiment data see optimism as a negative, this one is a bit different; 12-month returns have actually been better when more investors are bullish than not. Ultimately, you need new bulls to fuel a bull market, and there’s still plenty of cash in money market funds to act as tinder. But as the legendary investor John Templeton quipped, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” I don’t see many signs of euphoria yet, but investors are certainly starting to buy in on this rally (and the themes behind it), and that’s a new stage of this rally.

2. Homes

Home prices hit another all-time high in March. Per the S&P CoreLogic Case-Shiller US Home Price Index, prices were up 6.5% from a year ago and nearly 50% from Feb. 2020. While this presents both affordability issues for new buyers and inflation issues for the Fed, a less discussed outcome is the positive impact that rising home prices have on consumer spending (via the wealth effect, which posits that people spend more as their wealth rises – even if their income doesn’t). In fact, acclaimed economist Robert Shiller’s research on the topic finds that while rising stock prices don’t spur additional consumer spending, higher home prices definitively do. Roughly 40% of homeowners own their property outright and Americans have close to $32 trillion in home equity (per the St. Louis Fed). Income inequality, housing affordability, and rent inflation are major problems in the U.S., but it is a big tailwind for the economy that homeowners are so flush.

3. Global

Our partners at Strategas recently increased their recommended allocation to developed market (ex-US) stocks, citing soon-to-ease central bank policy as well as percolating economic activity and the potential for a boost from Chinese fiscal stimulus (particularly in countries like Japan and Australia). And interestingly, the MSCI EAFE (Europe, Australasia, and the Far East) is actually outperforming the S&P 500 so far this year in local currency terms. Most U.S. investors already under-own international stocks, even though we don’t have to look far to find a full decade when international outperformed U.S. (2000-2009, according to FactSet). Diversification works, even if it doesn’t always feel good.

4. Fed

A common concern in recent years has been the growing size of the Federal Reserve’s balance sheet. In response to the 2008 Crisis, the Fed bought bonds to push longer-term interest rates down and held those bonds on their balance sheet (repeating this with a gusto during the Covid-19 recession). As a result, their assets went from ~$900 billion in 2008 to ~$9 trillion by 2022. This resulted in plenty of consternation among the investor community (Fed policy is a popular target for vocal market bears), with one key concern being what would happen to stocks when the Fed began unwinding their stimulative policy. What many don’t know is that the Fed has been shrinking their balance sheet for a few years now – from $9.0 trillion down to ~$7.3 trillion (lowest since 2020). It’s an open question what the “new normal” for Fed asset levels actually looks like, but since they began shrinking their balance sheet on Apr. 13, 2022, the S&P 500 is up 24%. The Fed’s actions are undoubtedly contributing to the higher-for-longer interest rate environment we find ourselves in, but as a potential catalyst for a market crash, bears are certainly left wanting for more.

5. On this day

234 years ago, the Copyright Act of 1790 was signed into law. It was the first federal copyright act to be instituted in the U.S, and while it has evolved significantly since, it set the foundation for the protection of creativity and innovation in our country. Per the International Intellectual Property Alliance, in 2021 core copyright industries added $1.8 trillion dollars of value to U.S. GDP (~8% of the entire U.S. economy) and employed 9.6 million American workers.


This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.

This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should not consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.

For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor and/or your tax or legal advisor.

Fixed income yield and equity multiples do not correlate and while they can be used as a general comparison, the investments carry material differences in how they are structured and how they are valued. Both carry unique risks that the other may not.

Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index.

Copyright 2024 Robert W. Baird & Co. Incorporated.

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