PFA Updates

Mar 07, 2024

Hello friends,

Well, 2023 ended with three out of four quarters being positive in the market, a resilient economy and a Santa Claus rally that showed up and has continued into the early part of 2024. Everyone is talking about the AI/Tech companies that have been driving the market over the last year. That’s what is weird to us…the market you are hearing about in the news is being driven by essentially ten stocks. Check out these stats:

• It’s a market of “haves and have nots.” If you look at the S&P 500 index, the top ten stocks have risen 11.40% in 2024. The other 490 stocks in the index have risen 1.89% in 2024. [1]
• For 2023, the Russell 2000, US Treasury bonds, and international stocks were flat to negative. These same indexes remain negative in 2024 when large cap, and especially large cap technology indexes are seeing strong growth. [2]

So, the struggle is that a typical well diversified portfolio, essentially 60% in stocks and 40% in fixed income, is positive in the last 12 months; however, it lags in comparison to the large cap indexes you are hearing about in the news. [3] Our Investment Committee is happy to report that our model portfolios are tracking well with their comparative benchmarks, even though we hold less stock and more high yield money market funds than normal. We are slowly increasing our stock positions as we see opportunities. There is no guarantee, but since this is a presidential election year, our intent is to be fully invested back into our models by mid-year, because “the S&P 500 index was up from the end of June through year end in 16 of the last 18 elections – with an average gain of 10% over that six month period. [4] We need to see broader participation of more stocks and more bonds moving in a positive manner to feel more comfortable about the current market and economy.

Positive Comments about the Economy and Markets

“there have been 24 elections since the S&P 500 index began. In these election years 83% provided positive performance” [5]

“let’s be honest, this is a good economy” quote by Jerome Powell, Fed Chair. [6] “the US labor market added 353k jobs last month as economic growth remains strong and American confidence in the economy rose” [7]

“plenty of economists believe that the risk of a recession is low” [8]

“the disinflationary process is sloppy and can include some disappointing data points, but the reality is that the march towards the Fed’s 2% inflation target continues”. [9] “we are and have been in a rolling recession and we’re not going to have a true recession. Essentially, pockets of the economy or individual sectors have gone through or will go through their own recession, but will be offset by other sectors that are doing well. It never feels that bad and that’s where the economy has shown its resilience to keep moving forward.” [10]

Concerns we still have about the Economy and Markets

“the Conference Board’s Leading Economic Index (LEI) declined for its 23rd consecutive month, though at a slower pace, its second longest decline on record” [11]

“the Fed may not cut rates as aggressively as expected. And if it does, it might not be for the benign reasons most investors expect. Given our inflation outlook, we’re concerned that if this much monetary easing occurs, it’s because recession risks have increased.’ [12]

“we are seeing no improvement in stock Earnings Per Share estimates” [13]

“the recent bullish momentum that was propelling US stocks to record territory is fading, and seasonal weakness in March could push major indexes into one of their worst stretches this year” [14]

Favorite Quote of the Month

“If you believe that conditions in the world will continue to get better for most people and that innovative businesses will continue to thrive, then you should expect markets to trend upward over long periods.” [15]

Keep the faith friends. Let us know if you have any questions about your investments or financial plan. Be safe and be healthy.

Sincerely,

The PFA Investment Committee

[1] Earningsscout.com

[2] Franklintempleton.com

[3] bigcharts.com

[4] chaikin.com

[5] ftportfolios.com

[6] nytimes.com

[7] nytimes.com

[8] cnbc.com

[9] Invesco.com

[10] Schwab.com

[11] investech.com

[12] Fidelity.com

[13] earningsscout.com

[14] marketwatch.com

[15] Invesco.com