Chairman’s Letter – June 2024

In my last letter, I asked, “Where was the recession?” It has not shown up, and I do not think it will for several quarters, if then. Very surprisingly, I think the Fed has handled this in a way that will result in a soft landing (slowing inflation but not creating a recession). If this scenario continues to play out, we need to give the Fed a lot of credit.

I am always aware of the possible lag effect of increasing interest rates, but I think the last set of rate increases is over. I do not think future rate increases are in the Fed’s playbook; in fact, I think rates will begin to come down. There may be only one rate decrease this year. I suspect it will not be any greater than half a percent and will probably only be a quarter of a percent.

So, what is going on? Well, inflation is slowing incrementally. Other positives: consumer spending has held steady, and the labor market is doing well; we had a surprisingly good earnings season, and the possibilities of AI (Artificial Intelligence) are driving the stock prices of those companies continually higher. The impact of AI is certainly being felt in the market even though it appears many companies’ stock values are already pricing future revenues, but the effect in the market is real.

Recently, T Rowe Price indicated they were going all in on AI. This means not just investing in the Artificial Intelligence companies but in all those that support the services that AI can bring to both the individual and commercial consumer. That was a strong statement coming from a very large investment firm, a firm that I respect.

In my last letter I said to expect a lot of volatility in the market, and I maintain that same stance; we haven’t reached that point yet, primarily because of strong consumer spending and the labor market strength. However, we are about to embark on what I believe will be the nasty part of the presidential election. One of the byproducts of a nasty campaign will be an increase in uncertainty, and as I have said many times, uncertainty is one of the greatest detriments to stock market performance.

Another thing to watch—valuations; certainly segments like tech stocks and large cap growth stocks are overvalued by traditional measurements. They can revert to the mean in a couple of different ways; first, a correction in the market in those specific sectors or individual companies in those sectors move up to support their valuations. It is not easy to determine whether the market is overvalued but I am fully confident in saying it is not undervalued. I continue to invest in dips in the market and look at opportunities that may be arising from the emergence of Artificial Intelligence.

The question we are all getting today: “How much impact will AI have on the future?” Will this be as big as the internet? I am not sure it will have the impact that the creation and emergence that the internet had, but I think it will certainly have an impact on both the economy and equity prices.

I also think it is a very good time to invest in fixed income. The Fed has said they planned to have at least one rate decrease in 2024. It is always important to remember that the Fed is forecasting inflation, but they also want to avoid recessions, which creates a much more difficult economic problem for them to solve. You may remember the adage, if interest rates come down, fixed income prices increase.

For right now, hang onto your hat; I think we are approaching the most negative presidential election in history. Of course, I love elections; but for those of you who are turned off by this negativity, I would suggest you find some great movies to watch on streaming media over the next few months.

I would like to end this letter with a special tribute to our recently deceased company president, Becky Bell. My relationship with Becky spans nearly forty years as I hired her right out of college and then rehired her seven years ago as President of Carter Financial. Over the last seven years, rarely did a day go by that we did not visit. If I was in the office, we would generally meet up to three times a day to discuss company business. When I traveled, I would always call in at the end of the day to get an update. During those visits, I not only got to know Becky professionally but also personally.

I heard hundreds of stories over the years about her children, Bailey and Dylan and her husband, Brad. In addition, in 2007, I introduced the idea of providing a financial planning degree at Texas A&M, and I’ve been working tirelessly on that initiative since then. Becky, being an Aggie, and hiring students from the program, knew the faculty and staff very well. Through the years, she and Dr Nathan Harness who leads the program had become very good friends. She was my biggest cheerleader in trying to help the program grow and excel.

Becky was simply one of those wonderful people in life who was intelligent, compassionate, caring, intuitive, competent, and very loyal. She was also one of the most pleasant people to be around that I have met during my lifetime. It was truly a joy working with Becky.

I and everyone at A&M and CFM will miss you, Becky. You will make heaven a more vibrant place.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Bill E Carter and not necessarily those of Raymond James. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. An investment in a money market fund is neither insured nor guaranteed by the FDIC or any other government agency.  

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