• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar
  • Skip to footer

Before Header

Philadelphia Wealth & Asset Management Firm

wealth management

  • Why TBA?
    • Why Tower Bridge Advisors?
    • FAQs
  • Who We Serve
    • Individuals & Families
    • Financial Advisors
    • Institutions & Consultants
  • People
    • James M. Meyer, CFA® – CEO
    • Robert T. Whalen – Principal
    • Nicholas R. Filippo – VP, Sales & Marketing
    • Jeffrey Kachel – CFO, Principal & CTO
    • Chad M. Imgrund – Sr. Research Analyst
    • Christopher E. Gildea – Senior Portfolio Manager, Co-Chief Investment Officer
    • Daniel P. Rodan – Sr. Portfolio Mgr.
    • Christopher M. Crooks, CFA®, CFP® – Senior Portfolio Manager, Co-Chief Investment Officer
    • Michael J. Adams – Sr. Portfolio Manager
    • Shawn M. Gallagher, CFA® – Sr. Portfolio Mgr.
  • Wealth Management
    • How to Select the Best Wealth Management Firms
  • Process
    • Financial Planning
    • Process – Equities
    • Process – Fixed Income
  • Client Service
  • News
    • Market Commentary
  • Video
    • Economic Updates
  • Contact
    • Become A TBA Advisor
    • Ask a Financial Question
  • We are looking to add advisors to our team. Click here to learn more!
  • We are looking to add advisors to our team. Click here to learn more!
  • Click to Call: 610.260.2200
  • Send A Message
  • Why TBA?
    • Why Tower Bridge Advisors?
    • FAQs
  • Services
    • Individuals & Families
    • Financial Advisors
    • Institutions & Consultants
  • People
    • James M. Meyer, CFA – Principal & CIO
    • Raymond F. Reed, CFA – Principal
    • Robert T. Whalen – Principal
    • Nicholas R. Filippo – VP, Sales & Marketing
    • Jeffrey Kachel – CFO, Principal & CTO
    • Chad M. Imgrund – Sr. Research Analyst
    • Christopher E. Gildea – Sr. Portfolio Mgr.
    • Daniel P. Rodan – Sr. Portfolio Mgr.
  • Wealth Management
  • Our Process
    • Financial Planning
    • Process: Equities
    • Process – Fixed Income
  • Client Service
  • News
    • News & Resources
    • Market Commentary
  • Videos
    • Economic Updates
  • Contact
    • Become a TBA Advisor
    • Ask a Financial Question
wealth management

April 26, 2023 – Markets are being buffeted by crosscurrents. The banking crisis has come back into focus amid turmoil at First Republic. Earnings reports move individual stocks both ways. Bond market strength portends a weakening economy and slower inflation. Yet pockets of economic strength endure, mostly in the travel and leisure sectors. The net for equity investors is a standoff, one likely to endure for some time amid persistent rotation of leadership.

//  by Tower Bridge Advisors

It was a wild day yesterday with several strong moves relative to earnings, a wild ride for First Republic Bank, the regional bank most people see as the stress point within the banking system, and a sharp rally in bonds. The major averages were all lower. After the close, solid earnings from Microsoft# reduced some of the fear. Futures point to a more muted market this morning.

Let’s start with First Republic. On Monday, its stock rose in anticipation of an earnings outlook that would clearly set the path for survival and ultimate recovery, but its report after the close of business Monday showed that deposits in the first quarter fell dramatically even as they began to stabilize by quarter’s end. When rumors started to emerge that First Republic was looking at the possibility of selling a large package of underwater assets at above market prices in exchange for equity warrants, investors fled. Volume yesterday exceeded the total number of shares outstanding. I am in no position to opine whether First Republic can survive or not. What I can say is that no major bank is likely to be a savior and the crisis comes a week before the FOMC meeting that will consider another Fed Funds rate hike. Before this week, the overwhelming consensus was one more hike was in order. First quarter GDP, coming later this week, will show continued growth. Inflation remains sticky. Leisure travel is still robust.

There are contradictory signs as well. Trucking activity has weakened considerably over the past six weeks. That was demonstrated to the market via United Parcel’s# weak earnings report yesterday. Existing home sales continue to slide and of course, there are obvious stress points within the banking system. Contagion might be dismissed by some but clearly can’t be ruled out. Should First Republic not survive, focus will move to the bank deemed next most likely to fail. Then there is the bond market. In early March, the yield on 10-year Treasuries rose above 4%. Now it is 3.4%. 2-year Treasury yields exceeded 5%. They are now 3.9%. Clearly, that is inconsistent when the Fed speaks that rates need to march higher and stay there for a long time. Markets strongly suggest that both the economy and inflation are weakening. Granted, backward looking data shows ongoing strength. Nothing better exemplifies that than the 3.5% unemployment rate.

Employment data series are notoriously lagging indicators. Companies don’t lay off workers before sales slump; they respond afterwards. All the tech layoffs we have been reading about are in response to an enduring deceleration of revenue growth, but there is one labor indicator that isn’t lagging. It’s continuing unemployment claims. These represent the numbers of Americans collecting unemployment checks who can’t find a job. In September, that number was under 1.3 million. Today, it is well over 1.8 million and rising. For the past 50+ years, every time claims have hooked up in similar fashion, a recession was imminent.

The bond market agrees. The stock market doesn’t. Earnings estimates reflect a slowing economy but not a recession. Most of the weakness this earnings season to date has come from one-off situations, but there are stress points appearing. I mentioned UPS earlier. Energy stocks, the leaders last year, are giving ground amid weak prices and soft demand. China’s reopening alone isn’t going to compensate. OPEC+ has responded by lowering production. While consumers are still spending, the mix is starting to shift more toward essentials and less to discretionary items. Electronics are a notably weak category.

It remains a mixed picture on the pricing front as well. Home prices have stabilized in many markets. There are fewer buyers and fewer sellers. but the balance has led to price stability. Consumer staples leaders like Procter & Gamble# and Pepsico report both higher sales volumes and little resistance to price increases. Inflation doesn’t die quickly.

All of this leaves everyone in a quandary. Federal Reserve officials must weigh enduring inflationary pressures against stress in the banking system and accelerating pockets of economic weakness. Earnings season once again shows companies beating forecasts while tempering future outlooks. The standoff is likely to be reflected in the stock market until there is further resolution. Can First Republic survive? When will the Fed rate hiking cycle end? Is there going to be a recession in the back half of this year? Until there is better clarity, stocks are likely to remain within the same trading range they have been in for most of this past year. The leadership to date has come from the big tech companies. It is unlikely they can repeat Q1 performance without a reacceleration of revenue growth. Staples stocks, like the aforementioned Pepsi and P&G have already rallied as investors reshape portfolios for tougher times ahead. Healthcare has been a mixed bag. The drug companies have done well but many others are still feeling the downside of deceleration of Covid related activity like testing. Economically sensitive parts of the market, like rails, and manufacturing are unlikely to lead until there are signs of an economic trough. No one wants to touch the banks in the middle of a storm.

Over a decade of easy money gave investors a free ride as asset prices swelled amid a sea of free money. The Fed has reversed course and the possibility that it can remain tight for too long isn’t trivial. All historic indicators now say recession is around the corner. I believe, from 30,000 feet above, investors accept that, but when it hits home directly, as it did for UPS yesterday, there could be additional pain. However, let me put that in context. Despite a drop of about 10% yesterday in conjunction with earnings, UPS’s stock is still up about a percentage point year-to-date. In other words, the false optimism was smacked by harsh reality yesterday resulting in a stalemate. Perhaps that is a great example of what lies ahead. When too much optimism creeps in, there is a correction. When markets get too pessimistic, bargain hunting returns. It’s been a standoff for a year, one likely to continue for several more months.

Today, Melania Trump is 53. Carol Burnett reaches 90.

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: «April 2023 Webinar - Banks, the Economy and Valuation April 2023 Economic Update – The Banks, The Economy and Valuation
Next Post: May 12, 2023 – While mega caps keep gaining steam, the average stock is now down for the year. Eight of the last nine trading sessions have been negative for the Dow Jones Industrial Average. The Fed may be done raising rates, but an all-clear signal is far off in the distance. Transitions are hard! »

Primary Sidebar

Market Commentary

Sign Me Up!

Latest News

  • May 30, 2025 – Amidst a volatile market, significant economic risks such as high interest rates and trade policy are creating a tense environment where stock market gains may be capped. Key sectors, like housing, are already showing signs of strain from elevated rates, while the bond market remains turbulent. Therefore, a diversified and defensive investment strategy is recommended, emphasizing fundamental analysis and valuation discipline for stocks while holding high-quality bonds to navigate the expected volatility.
  • May 27, 2025 – The House has passed Trump’s big beautiful bill and moved it on to the Senate. It’s a budget buster that offers something for all but will expand deficits meaningfully. It’s a bit of a mess that can be fixed if the Senate has the backbone to fix it. Wall Street will be watching, especially bond investors.
  • May 22, 2025 – Memorial Day Weekend is typically the unofficial start of summer for many. However, this year has been anything but typical. Corporate earnings have been holding up based on recent company reports and outlooks. Tariffs have dented a few earnings reports, but the consumer continues to spend. Credit spreads are not indicating a recession yet, although interest rates have been on the rise as Congress works on a spending resolution bill. Markets gave back some of their recent gains yesterday but are still only about 5% from their all-time highs. Not quite bear market territory. Anyone traveling this weekend to a national park should remember to bring their bear spray.
  • May 19, 2025 – Stocks have clawed back all their post-Liberation Day losses as the perceived impact of tariffs have lessened. But now comes the hard part. Whatever tariffs are imposed will have economic consequences that we are only just starting to see. The big tax bill as originally proposed is a budget buster. 10-year Treasury yields are now back above 4.5%. With hindsight equity investors overreacted after Liberation Day. The subsequent rally may have gone too far as well.
  • May 15, 2025 – Following a big rebound, the S&P 500 is flat YTD but trades at a high valuation of 23x forward earnings. Consumer spending faces headwinds from rising student loan defaults and a cooling housing market. While recession fears have eased, the economy is slowing and inflation trends remain uncertain.
  • May 12, 2025 – China and the United States have agreed to reduce tariff rates on each other by 115% leaving our tariff rate on Chinese goods at 30%. Since shortly after the shock of Liberation Day that sent equity investors into panic mode, there has been a gradual retreat from an overbearing tariff framework outlined that day. Today’s suspension of tariffs, pending further negotiations may not be a final step. But it comes right out of the Trump playbook that shoots for the moon first and then settles into a much more compromised reality later. While tariff negotiations continue not only with China but the rest of the world, investors can now focus on the next leg of the Trump agenda, tax cuts.
  • May 8, 2025 – The Federal Reserve on Wednesday held its key interest rate unchanged in a range between 4.25%-4.5% as it awaits better clarity on trade policy and the direction of the economy. While uncertainty about the economic outlook has increased further, the Fed is taking a wait and see stance toward future monetary policy. Meanwhile, the S&P 500 Index has just about fully recovered its losses following the April 2nd “Liberation Day” when major tariffs were announced on U.S. trading partners. The bounce in risk assets is welcome, but we are still looking for white smoke signals showing that progress on inflation and tariffs is being made.
  • May 5, 2025 – Investors overreacted to Trump’s early tariff overreach but may have gotten a bit too complacent that everything is now back on a growth path. While there are few signs of pending recession, the impact of tariffs already imposed are just starting to be felt. So far, no trade deals have been announced although the White House claims at least a few are imminent. The devil is always in the details. Congress will start to focus on taxes. Conservatives may balk but there is little indication to suggest they won’t acquiesce to White House pressure once again.
  • May 1, 2025 – U.S. GDP unexpectedly contracted by 0.3% in the first quarter, the first decline since 2022, largely due to a surge in imports ahead of anticipated tariffs. Despite this GDP contraction, major tech companies like Alphabet, Microsoft, and Meta reported quarterly earnings, indicating continued strength in areas like advertising and cloud computing. However, concerns remain about the broader economic outlook due to uncertainty surrounding tariffs, potentially leading to higher prices, weaker employment, and a challenging environment for the Federal Reserve regarding inflation and interest rate policy.
  • April 28, 2025 – Markets rallied as the Trump Administration suggested tariffs might be reduced against China and that ongoing negotiations with almost 100 countries are progressing, although no deals have yet to be announced. But even with tariff reductions, the headwind will still likely be the greatest in a century. So far, the impact is hard to measure as few tariffed goods have reached our shores. Early Q1 earnings reports show little impact through March, although managements have been loath to predict their ultimate impact. Stocks are likely to stay within a trading range until there is greater clarity regarding the impact of tariffs.

Footer

Wealth Management Services

  • Individuals & Families
  • Financial Advisors
  • Institutions & Consultants

Important Links

  • ADV Part 2 & CRS
  • Privacy Policy

Tower Bridge Advisors, a Philadelphia Wealth and Asset Management firm, is registered with the SEC as a Registered Investment Advisor.

Portfolio Review

Is your portfolio constructed to meet your current and future needs? Contact us today to set up a complimentary portfolio review, using our sophisticated portfolio analysis system.

Contact

Copyright © 2023 Tower Bridge Advisors

Philadelphia Wealth & Asset Management, Registered Investment Advisors

300 Barr Harbor Drive
Suite 705
West Conshohocken, PA 19428

Phone: 610.260.2200
Toll Free: 866.959.2200

  • Why Tower Bridge Advisors?
  • Investment Services
  • Our Team
  • Wealth Management
  • Investment Process
  • Client Service
  • News
  • Market Commentary
  • Economic Update Videos
  • Contact