As we navigate through the ever-evolving financial landscape, this commentary is meant to provide an overview of issues impacting financial markets today with updated comments on the investment outlook.

Major Issues of the Day

Global Economic Recovery and Expansion
While the developed world has largely put the COVID-19 pandemic behind them, ripples caused by this shock continue to impact global economies. Though supply shortages have been resolved, geopolitical tensions and trade disputes are headwinds for the recovery and expansion process.

Inflationary Pressures
Supply chain disruptions, rising commodity prices, and increased fiscal stimulus contributed to upward price pressures in recent years. In response, central banks, led by our Fed, adjusted monetary policies accordingly. While U.S. inflation measures have not yet reached Fed target levels (2%), our sense is that inflation pressures have lessened and are trending in the proper direction.

Bank Runs and Current Status
Mismanagement at several banks caused a fair amount of anxiety resulting in a mini-run on the banks as depositors sought to protect their funds. Though we expect small bank failures to occasionally arise in the future, the vast majority of banks have solid financials and proper risk management controls.

Fears have rightfully subsided as the strength of our banking system became more widely known. However, developments in the commercial (office) real estate sector are causing downward valuation pressures. If this trend continues, banks will then add to reserve accounts resulting in credit contraction which negatively influences economic growth.

Monetary Policy and Interest Rates
Given that inflation pressures are lessening, and bank credit is declining, we expect the Fed to pause its tightening process and analyze incoming inflation data points in the months ahead (barring any major shocks to the economy).

Technological Disruption
Rapid advancements in technology continue to impact all industries and much of our modern lives. The advent of generative artificial intelligence has the potential to make major changes that raise the standard of living for billions of people around the globe.

Investment Outlook – Cautious and Opportunistic

As we assess the investment landscape, we maintain a cautious yet opportunistic stance. While uncertainties persist and there is no shortage of negative news and actions, there are offsetting factors that warrant optimism such as the following:

Despite potential volatility and higher interest rates providing more competition for investor funds, equity markets present compelling opportunities for long-term investors. Near-term equity returns will hinge on the economy.

At present, data does not imply a contraction, outside of interest rate sensitive sectors. The first quarter provided better than expected corporate earnings, and the long-awaited pause in monetary policy. Monetary policy is restrictive as of today, and whether the Fed can achieve its objectives without inflicting harm to the economy is an open question.

Fixed Income
In 2022 and 2023 the Fed raised interest rates at the most rapid rate in Fed history. While it has been a painful adjustment, rising interest rates from near zero have brought the economy closer to normalized interest rates. At current levels investors can earn respectable yields on funds that seek income and safety.

Closing Thoughts

Investor and consumer sentiment surveys show a preponderance of negative feelings regarding the economic and financial market prospects in the months ahead. History attests to the fact that taking the opposite side of extreme sentiment readings has served investors well. With this as context, our short-term view is that markets are not yet pricing in the potential for any positive surprises, such as our leaders in D.C. coming to a resolution on the debt ceiling issue prior to X-Day, or some type of face-saving settlement between Ukraine and Russia that puts their arms on hold and the war behind us.

As we move forward with this investment landscape, we remain cautious yet optimistic, seeking to capitalize on opportunities while prudently managing risks. We will continue to closely monitor global economic developments, market trends, and emerging risks to make informed investment decisions on your behalf.

Please remember that investment strategies should align with your individual goals, risk tolerance, and time horizon, and changes in these areas should be communicated accordingly. If you have any questions or would like to discuss your portfolio in more detail, please do not hesitate to contact us. Thank you for your continued trust and partnership.

DISCLOSURES – This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be dependable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment advice and does not give investment recommendations. Any opinion included in this report constitutes the judgment of Lincoln Capital Corporation as of the date of this report and are subject to change without notice. Additional information, including management fees and expenses, is provided on Lincoln Capital Corporation’s Form ADV Part 2. As with any investment strategy, there is potential for profit as well as the possibility of loss. Lincoln Capital Corporation does not guarantee any minimum level of investment performance or the success of any portfolio or investment strategy. All investments involve risk (the amount of which may vary significantly) and investment recommendations will not always be profitable. The investment return and principal value of an investment will fluctuate so that an investor’s portfolio may be worth more or less than its original cost at any given time. The underlying holdings of any presented portfolio are not federally or FDIC-insured and are not deposits or obligations of, or guaranteed by, any financial institution. Past performance is not a guarantee of future results. Lincoln Capital Corporation prepare presentation, 401.454.3040, Copyright © 2024, by Lincoln Capital Corporation.