Quarterly Market Review April 2023
Earning Better Interest on Your Bank Savings
March 1, 2023
Advice to a Young Man in Texas
May 1, 2023
By Brett Freese
What an interesting start to 2023 – The Fed continued interest rate hikes, a few banks failed, and US Large Cap growth stocks outperformed the rest of the market.
Over the last few decades for the S&P 500 the worst 3 month return was -29.42% (9/1/2008 to 11/30/2008) the best 3 month return was +25.70 (3/2/2009 to 5/31/2009). The best period was less than 100 days after the worst and I remember it was very, very uncomfortable to be invested in early 2009
Important note about bear markets: In my 30+ years of investing it has been my experience that bear markets usually feel at their worst near the end.
Market Highlights:
- The major stock and bond indices were all up this past quarter (see “Market Scorecard” below).
- Commodities were mostly down this past quarter, however, Gold was up approximately 8.5% price per ounce, where the broad basket of commodities was down 4.35% for the last 90 days. Oil was down 6.89% for the quarter and down 24.60% over the last 12 months.
- Bitcoin is down 38% over the last 12 months, but up 72% for the quarter.
Economic Notes: Starting with challenging news and ending with some good news.
- All eyes have been on the Federal Reserve (Fed) for the past 15 or so months. The Fed is still very important, but the banking system stability, corporate earnings, and even some political positioning have become more important over the last few weeks.
- Interesting Note on the Federal Reserve: In November of 2021(15 months ago) the most hawkish member was calling for a ½ of a percent raise in interest rates for the whole year of 2022. Look at where we are now! If the organization that has more information than any other in the world cannot predict or plan the economy accurately, then you and I can’t expect from ourselves to be more informed than them. All the more reason to stick to the long-term plan and strategy.
- China, as a major world power, continues to struggle to manage a dictator-imposed communism on itself and the rest of the world. They are learning fast that being one of world leading powers in the world is more complex than they thought.
- The Federal Reserve moved the Federal Funds rate target range to 4.75 – 5.00%, There is now an expectation by the markets for maybe one more hike at the next meeting and then lower interest rates later in the year. Note: The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment. I now believe that Federal Reserve is going too far with the rate hikes and should pause.
- Additionally, the Fed’s positions and policy are clearly straining the US and World banking system. Credit Suisse has had management issues for a long time, Silicon Valley Bank greatly underestimated the risks of long-duration treasury bonds, and Signature Bank had over exposure to crypto currency, but the historical speed of interest rate hikes has greatly added to the challenges of banks and insurance companies.
- Inflation in rents, salary and some others areas are still very high, but there are some signs in inflation breaking by looking at lower housing prices, lumber, oil and other areas. Employment is weakening, but is still at record highs.
- The unprecedented spending in Washington will have long lasting effects on the borrowing cost of the US Government especially with interest rates going up.
- Good News:
- This pullback in every major asset class (as painful as it is right now) sets us up for more healthy strategic asset diversification performance in the future. We need and should begin to see asset classes like US Treasuries and US Large Cap Stocks decouple from each other.
- Bear Markets and recessions are normative. The challenge is that we don’t know when one will happen until months after it already happened.
- “Something Breaking” like a few banks have over the past month, is usually a hard but helpful point-in-time that constricts risk taking and inflation.
- The US Large Corporations still are producing strong revenue and profits, equity capital (cash on the balance sheet), and leverage (debt) is below a two+ decade average.
- From challenging times come most of the new innovations, greater efficiencies, stronger teamwork, and fantastic investment opportunities, and many of those opportunities come as news, data, asset prices, and feelings get worse.
Historical Stock Market Declines:
Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.
A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years
Please know that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.
Market Scorecard for the last 13 weeks ending 03/30/2023:
US Equities:
+ 5.96% S&P 500 (Index of the largest US publicly traded companies)
+ 0.79% Russell 2000 (Index of 2000 Small-cap US publicly traded companies)
Global Equities:
+ 7.36% Foreign Large – Morningstar Category
+ 5.40% Global Small/Mid Stock – Morningstar Category
US Bonds:
+ 2.87% Corporate Bond – Morningstar Category
+ 1.46% Short Government – Morningstar Category
+ 2.22% Muni National Bond Index – Morningstar Category
Other:
+ 2.49% Global Bond – Morningstar Category
+ 8.51% Gold Price
+ 72.46% Bitcoin
– 4.35% Commodities Broad Basket – Morningstar Category
Current Annual Money Market Rates ending 3/30/2023:
4.68% Schwab Value Money Market
4.15% Schwab Treasury Money Market
Market Indicators:
Inflation:
6.04% as of 03/14/23 (Down 1.71% from 7.75% on 12/2/22 and Down 2.54% from 8.58% in June 2022)
Unemployment:
3.6% as of 03/10/23 (Down 0.1% from 3.7% in December 2022)
Fed Funds Target Rate:
4.75 – 5.00% as of 03/27/23 (Up from 12/28/22 of 4.25 -4.5%)
Suggested Next Steps:
- Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. The ups and downs of investments many times seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
- Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
- Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor(s).
