- The first quarter of 2023 saw superlative performance before the momentum was disrupted by three successive US CPI reports showing inflation well beyond the 2% target. Markets globally retreated sharply as prospects for Fed rate reductions diminished.


- YTD returns on domestic equities range now from near flat in small and mid-cap stocks to 6.04% in the S&P 500. Bond returns have started to fall as yields across all maturities trend higher due to the cautionary inflation outlook.


- The CPI trend stalled in the first three months of 2024, but it remained consistently above 3%. Housing costs and wage inflation are the primary drivers. Low housing affordability boosts demand for rentals, while a tight labor market drives wage growth.


- The attainability of the Fed’s 2% inflation target is questionable due to aging demographics and immigration restrictions, but productivity growth from technology advancements may help offset inflationary effects. Recently, US productivity has spiked due to AI, robotics, digitalization, and quantum computing.


- The aging population affects asset allocation and long-term portfolio potential, increasing the dependency ratio due to retiring baby boomers. A larger ratio of non-workers to active workers translated to funding challenges for Medicare, Social Security, and the Federal budget. To keep these Medicare and Social Security trust funds solvent, the US government will have to either (1) raise taxes, (2) cut benefits, or (3) expand borrowing.

We’ve previously highlighted the growing level of US indebtedness; suffice to say, federal deficits continue at high levels relative to the overall US GDP.

- While we anticipate inflation stabilizing, possibly exceeding the Fed's 2% target, our projections for asset class returns are notably lower compared to the "cheap money" era from 2009 to 2022. 



We expect intermediate and longer maturity rates to hover around current levels (4.5% on the US Ten Year Treasury, 4.6% on the US Thirty Year Treasury) through much of the upcoming cycle, very much in line with long-term averages if we strip the inflationary shocks of the 1970s and early 1980s. 


Thus, compared to the past 10-12 years, we see less tailwind from cheap borrowing costs. Similarly, the prospect of higher taxes and/or rate shocks to the upside because of accelerating Federal debt paints a more sobering picture for most risk assets going forward.

Trajan Wealth Insights & Recommendations:
- We continue to advocate an elevated level of diversification across asset classes and develop specific asset allocation perimeters that cater to individual risk-tolerance thresholds.

- Given our outlook for more moderate returns going forward and the prospect of higher taxes, clients may want to save and invest a greater proportion of their disposable income.

- For eligible clients, we recommend calculated allocations to private assets—private equity, private commercial real estate, infrastructure, and private credit—to capture illiquidity premiums and potential manager “alpha” that comes from skill, access, and club-deal networks.

About Trajan Wealth
Trajan Wealth, LLC was founded in 2012 by CEO Jeff Junior. Before his 20+ years in the financial services profession, Jeff served in the United States Marine Corps. He continues to serve his clients and employees with the utmost service, respect, and attention to detail.

By using low-cost, diversified portfolios under its fiduciary standard and working closely with its investment advisors and estate attorneys within one office, the company provides long-term support for client's retirement needs and estate plans, including wealth accumulation and tax planning strategies. The firm has locations across Arizona, Colorado, Florida, Georgia, Texas, Utah, and soon Illinois.

For more information or to schedule a complimentary consultation, visit https://trajanwealth.com or call 1-800-838-3079.

Disclaimer:
*Advisory services offered through Trajan® Wealth L.L.C., an SEC registered investment advisor. Legal services are offered through ​Trajan® Estate, L.L.C. ​in Arizona and Utah, and independent law firms in other states. Private Equity investments: May require accreditation.