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Obermeyer Wood News - Spring 2023 Thumbnail

Obermeyer Wood News - Spring 2023

MARKETPOINT: Finding Balance in Choppy Seas

Investors are finding a balance. Long gone are the days of excessive exuberance marked by the rise of “meme stocks,” or stocks with relatively low earnings that were popularized by social media. Investors have also moved away from the desperate calls that there will be a corporate earnings meltdown and economic reckoning. Today the stock market is trading at reasonable valuations. The price-to-earnings ratio of the S&P 500 is 17.8x, which is in range of its long-term average of 16.8x.[1] Not quite a bargain, but acceptable for most investors. Certain sectors are more reasonably priced than others, like energy and communications. Some companies are underperforming due to economic concerns, like bank stocks. Yet overall the market is an appropriate mix of caution and opportunity. Famed investor Howard Marks describes the tendency of investor psychology to oscillate wildly between “flawless” and “hopeless” when assessing the markets. Right now, we are somewhere in the middle. No one is leveraging their home to buy stocks, and no one is hiding their money under the mattress.

Investors have even found this balance this year despite some significant headlines. Equities had a positive first quarter even with unnerving news about the collapse of Silicon Valley Bank and Signature Bank, the second- and third-largest bank failures in history. The responses from Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell were swift, as they stepped in to protect depositors and shore up the banking system to prevent further spillover. While the crisis seems contained, there will likely be long-term impacts, including more consolidation in the industry and additional regulations. The largest players will gain market share from smaller regional banks and heighten the need for more oversight in a too-big-to-fail banking sector.

Risks, Opportunities, and Trends 

Interest Rates, Inflation, and Fed Policy
In the last twelve months, the Fed has raised the federal funds rate at the fastest pace since the inflation crisis in the early 1980s, from 0% last March to 4.75% today.[2] As rates have increased, the market has reacted negatively with a great repricing of assets. Stock prices are largely determined by earnings and the rate investors use to discount them over time. A higher discount rate, which is influenced by the federal funds rate, means that future earnings are worth less today than they would be in an environment with lower rates. Therefore, all eyes are on the Fed. Hopeful investors are looking for reasons for the Fed to stop increasing rates and reduce the pressure on stock prices. The Fed has stated that it will stop increasing rates when they observe reduced pricing pressures and disappointing economic news that is indicative of a cooling economy. We continue to be in a cycle where bad news about the economy equals good news for the markets.

Existing-home prices in the U.S. fell for the first time in 11 years in February[3], and the banking crisis demonstrates that interest rates are beginning to achieve the Fed’s unspoken goal to “break” something. The central bank’s preferred measure of inflation, the Personal Expenditures Consumption (PCE) index, showed encouraging, downward progress in the latest release of February data.[4] We are seeing things cooling off in several areas of the economy. Tech companies are laying off workers and cutting operating costs[5], the price of luxury goods such as Rolex watches is falling by double-digit percentages[6], and wholesale egg prices are forecast to fall by over 25% in 2023[7]. Investors should be reassured that the likelihood of rate hikes appears to have decreased, and that some market stabilization is likely to occur due to a clearer Fed path. On the risk side, we still don’t know all of the downstream impacts the aggressive rate-hike cycle will cause, and as the banking sector turmoil made evident, the blunt instrument of interest-rate policy can be clumsy.

Stocks, Bonds, and Asset Allocation
Facing a still uncertain short-term economic environment, investors should be prepared for the focus on quality and valuations to continue. With interest rates elevated, companies carrying a lot of debt will face challenges paying or refinancing their obligations, and investors will want to own companies with stronger balance sheets and more cash available to ride out an uncertain economic outlook. Many of these stocks have seen healthy price increases so far this year. Additionally, we expect to see a noticeable shift in asset allocation among investors as a result of tighter monetary policy that has fixed-income and cash-equivalent securities earning more than they have in nearly 15 years. The opportunity to earn 4-5% in short-term Treasuries is compelling for many.  

Debt Ceiling on the Horizon
Congressional leaders and the White House are gearing up for likely contentious negotiations to raise the debt ceiling by late June or early July to keep the country from defaulting on its debts. The Treasury Department has been using short-term solutions to avoid default after announcing the country had hit the congressionally mandated borrowing ceiling of $31.4 trillion in January. While leaders from both political parties have been adamant that they won’t let the country default, it may come down to a last-minute deal over spending cuts. As a result, markets will be watching closely since past negotiations taken to the eleventh hour have caused some market volatility. 

Taking Action While Being Patient

Considering these risks and opportunities, we are focusing on keeping a calm, intentional, and balanced approach to investing and managing clients’ wealth.  In terms of portfolio construction, we are taking into account the uncertain banking environment as well as a potential recession. When viewed through the lens of a normal and healthy business cycle, we accept that slowdowns are inevitable. We work through these periods by holding high-quality investments and keeping a longer time frame in mind for the equity or stock portion of the portfolios. Ideally, we want clients to have ample liquidity (e.g., from other income sources, cash or fixed income) so that stocks don’t need to be sold during down periods.

Despite the negative sentiment around the economy, we do not believe that this will be a repeat of 2008 for the banking sector, nor do we believe that 2023 will be a repeat of 2022 for the equity and fixed-income markets. We also take comfort in the fact that as of right now, many parts of the underlying economy are still quite strong. The unemployment rate is within 0.1% of a 50-year low,[8] and thus far, consumers have maintained impressive strength in savings and creditworthiness[9] despite aggressive interest-rate hikes.

We remain focused on positioning our clients to build their wealth over the years and decades to come. We believe in the resilience of the American economy, and we can point to previous cycles that felt even scarier at the time. In each instance, the storm has passed and made way for continued growth and prosperity. We have no reason to believe this time is any different. Please reach out to our team if you have any questions or concerns about your portfolio or financial situation; we care deeply about your keeping and growing your hard-earned wealth, and we are available for you and your family.


While protecting our clients’ wealth and personal data is always top of mind, our February virtual workshop with cybersecurity expert John Sileo reinforced how crucial it is for us and our clients to stay vigilant.

Since the financial industry is such an enticing target for fraudsters, our team is trained to stay vigilant for potential attacks. Our software and tech systems are provided by closely vetted partners with expertise in cybersecurity, and we review the strength of our cybersecurity on a regular basis and in partnership with our custodians.

With the risk of fraud running so high and knowing that an attack can come from many different places, we wanted to share some best practices that our clients can use to protect their data, identity, and finances.

Be on the lookout for phishing attempts. Phishing scams most often arrive via email and text message and include malicious links designed to steal personal data. The rapid evolution of technology like ChatGPT has also made them more sophisticated and less obvious. Don't click on links or open attachments in emails or texts if you have any question about the validity or identity of the sender.

Use a password manager and other technology.  Using a password manager, such as 1Password, is one of the best ways to keep your online data safe, according to Sileo and The Wirecutter. Make sure your master password is “long and strong” – you can use a program like Diceware Password Generator to generate one for you. A password manager is just the first step to securing access to your online accounts. Multi-factor authentication is an important extra safeguard for your accounts and logins. Two-factor authentication apps, such as Duo Mobile, and physical security keys, such as YubiKeys, are more secure options than codes sent by text message or email.

Be wary of sharing personal data online. According to Sileo, social engineering is responsible for more than 90 percent of attacks on homes and businesses. Don’t disclose personal or sensitive information on social media or participate in online surveys and quizzes designed to capture data.

Keep your software up to date. Make sure you're using the latest versions of your operating system and software. Check the settings on your cellphone to ensure you’ve enabled automatic updates, since those often include time-sensitive security patches.

Be careful of doing business or sharing sensitive information over email. Don’t share details like full account numbers in unencrypted emails. Our staff’s email signatures include a link clients can use to upload those kinds of details securely. Be especially wary of using instructions for money movement sent by email without verifying them independently. Because property-related wire fraud is a common target, our staff independently verifies wire instructions with both clients and title companies.

If your personal information, accounts, or email are ever compromised, please let us know as soon as possible. We’re also always happy to be a resource and share educational materials. If you missed Sileo’s workshop, “Cybersecurity in a Zero-Trust World,” you can watch the recording on our website through late April. Please email team@obermeyerwood.com for the password you will need to access the video.


The power and still-to-be-understood nature of new AI tools such as ChatGPT has had our team thinking, and reading, more and more about the subject and its future implications. The Age of AI: And Our Human Future, by Henry Kissinger, Eric Schmidt, and Daniel Huttenlocher, is a worthy read examining the impact of artificial intelligence (AI) on society and the future of humanity. 

The book begins by tracing the history of AI, from its early development in the 1950s to its current state of rapid advancement. The authors delve into how AI is transforming society, including its impact on employment, privacy, and national security, and its future potential to revolutionize virtually every aspect of human life, from economics and governance to healthcare and education. They also explore AI’s ethical and moral implications, such as the potential for bias and discrimination in algorithms.

Despite AI’s many challenges and risks, the authors remain optimistic about its potential. However, they argue that it is up to policymakers, business leaders, and society as a whole to ensure that AI is used carefully and for the greater good.

Overall, The Age of AI: And Our Human Future provides a thought-provoking and insightful analysis of one of humanity’s most important current issues, written by influential leaders who share their perspectives from diverse backgrounds. If you are interested in reading The Age of AI, please let us know and we will send you a copy.



NEW TEAM MEMBER: Patrick Yarborough, CFA
We are delighted to welcome Patrick Yarborough, CFA, to the Obermeyer Wood team. As Client Advisor, he will manage client relationships and aid the firm’s financial planning efforts from our Denver office.

Patrick is a CFA charter holder and has held several securities licenses. He worked for UBS for almost 10 years before joining Obermeyer Wood, specializing in the equity markets, working with businesses to raise capital and with large institutional investors in the firm’s sales and trading unit. He holds a Bachelor of Arts degree in Political and International Relations and a Master of Science degree in Management, both from Wake Forest University.

President and Co-Founder Wally Obermeyer, and Executive Vice President Ali Phillips represented our firm again this year in Barron’s list of the nation’s Top 1200 Financial Advisors. They were ranked No. 4 and 13, respectively, in Colorado.

Phillips was also highlighted in Barron’s “Advisor Q&A” series. Phillips discussed her journey from Wall Street to the Rocky Mountains, her views on the state of the markets, and how we are investing in our team to serve our clients’ evolving needs now and in the future.

For the seventh straight year, Obermeyer Wood was recognized on the Forbes/SHOOK Research list of Top Women Wealth Advisors. Phillips and Senior Vice President Dana Nightingale were ranked No. 35 and 76 in the nation, respectively. Obermeyer Wood was also the only independent Registered Investment Advisory firm in Colorado to have two advisors among the top 100.

These recognitions are a credit to our entire team’s commitment to helping our clients protect and grow their wealth through thoughtful investment portfolio construction, detailed financial planning, and holistic wealth management. Please visit our website for details and links to complete coverage.

[1] Bloomberg Data

[2] https://www.reuters.com/business/finance/did-svb-break-fed-officials-mull-risks-more-rate-increases-2023-03-20/

[3] https://www.marketwatch.com/story/home-prices-fell-in-february-for-first-time-in-11-years-2fd30a07

[4] [4] https://www.bea.gov/news/2023/personal-income-and-outlays-february-2023

[5] https://www.cnbc.com/2023/04/03/google-to-cut-down-on-employee-laptops-services-and-staplers-to-save.html

[6] https://www.bloomberg.com/news/articles/2023-02-22/watchfinder-cuts-pre-owned-prices-by-15-as-rolex-and-patek-fall

[7] https://www.reuters.com/markets/commodities/egg-prices-will-fall-nearly-30-this-year-us-farm-agency-says-2023-02-23/

[8] https://www.bls.gov/news.release/pdf/empsit.pdf

[9] https://www.federalreserve.gov/releases/z1/20230309/html/introductory_text.htm