I have once heard it said “We see the past and understand it through the eyes of the present.” If the person who said this was a famous stock picker, I think it would have gone like this, “We view the market, and understand it, only after it is too late.”
At the time of this writing the Nasdaq 100 index has gained 19.3%, the S&P 500 has gained 11.8% and the Dow Jones Industrial Average has brought in 6.5% year to date. If you’ve missed out on this performance, you are not alone. Closing out 2022 the top money managers in the world all forecasted the market to be flat or negative by the end of 2023. Citing rising interest rates, inflation, war in Ukraine, the trade war with China, rerouting of supply chains, the largest bank failures since 2008, debt limit negotiations, and of course the dismal market performance in 2022. Many CNBC commentors questioned the Fed’s plan, warning of an imminent recession. Some pointed to the decline in M2 money supply which hasn’t been this bad since the great depression. What worse headwinds could there be against the economy… (aside from global economic shutdowns and a pandemic). I suppose these headwinds are a little more like crosswinds, compared to 2021 and 2022. In January, markets took off like a SpaceX rocket heading to mars. The S&P 500 gained over 7.3% by month end, investors were elated to think about the new year and the potential for rate cuts or rate pauses. However, February gave way to more ominous threats. As March approached murmurs of banking troubles began to circulate the markets. Then the largest bank to fail since 2008 was shut down by the Federal Reserve then a second bank First Republic, and a third Signature Bank. It looked like the market boat was sunk as they approached new lows for the year. Investors had sailed smooth seas right into a coral reef, the boat was taking on water, and then suddenly the hemorrhaging stopped. The Markets steadied out.
The fed announced that all deposits would be secured by the Federal Reserve and the Treasury. Companies like Roku and Etsy would be able to make payroll. Bond payments wouldn’t default. The systemic collapse wouldn’t happen as so many seemed to look for. From March 12th to June 11th Markets soared, but something smelled a little funny.
That’s because only about 10 stocks did all the work until from the March lows to June 25. Without these stocks the S&P 500 index would’ve have been negative for the year. As articles and CNBC guests disclosed this worrying information a pretty large shift began taking place. Some of the companies with the largest gains flatlined, some others began declining, and about 100 other stocks in the index began to see some increased allocations. Looking at the chart above shows how markets shook out some of the largest companies from the end of June through July.
So what has happened since then?
June had the first rate pause since rate hikes began in 2022.
Inflation has come down to 3% from the high of 9% in 2022
M2 money supply increased for the second month in a row after seeing its biggest decline in over a century.
The Fed has announced a 25 basis point hike in July to the highest since 2001
“So what will happen? Will markets keep climbing? Will they crack? When will we find out?"
The only thing that seems reliable enough to trade on is the idea that we won’t know until it’s too late. A lot of the major headwinds we started the year with, are not blowing as hard, yet the crosswinds can still blow a boat off course. In my personal opinion if you are trying to singlehandedly beat the best paid, highest credentialed, most experienced money managers utilizing millions of dollars in technological advancement and a team of analyst monitoring stocks, bonds, and derivatives that are so complex you need a phd to understand, good luck. But if you want to know how a financial advisor can help read on…
“So what should I do with my money?”
The first thing you should do is define what your money is for. I’ve used the phrase “wealth is worthless without purpose,” and that is true in the good times and the bad. If you invest without knowing why, your default MO will be to “make more money.” Greed is rarely rewarded playing the markets. You won’t get to where you’re going if your compass flips back and forth between the fear of missing out and the fear of losing money. But you don’t need me to tell you, even Captain Jack Sparrow knows the truth in that.
So what will happen in the markets?
The truth is no one knows, and if they say they do they’re a liar. We can look at the news and prognosticate, but the markets are as dynamic as the sea with powerful forces contradicting one another all the time. Lately some good news has come out. Inflation in decline, M2 money supply gradually recovering from its crash, earnings reports are coming back with surprises to the upside. It turns out debt payments have actually decreased in 2023 for the consumer as they use more cash and less credit. All this is good news, but it could be leading an overexcited market. As interest rates almost symbolically reach levels not seen since 2001, and fears around the AI stock bubble surface. The markets have already done so well for the first half can they keep it up? You don’t have work through it alone.
Blacor Investments has provided Private Investment Advice since 1959. Our experience stems from three generations of investment professionals spanning 9 recessions and market growth cycles. We are honored to serve our clients and build financial legacies that reflect their true values.
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Securities offered through International Assets Advisory, LLC (“IAA”) – Member FINRA/SIPC. Advisory services offered through International Assets Investment Management, LLC (“IAIM”) –SEC RIA.
Blacor Investments is unaffiliated with IAA and IAIM. The information provided is based on carefully selected sources, believed to be reliable, but whose accuracy or completeness cannot be guaranteed. All information and expressions of opinions are subject to change without notice and are those of Blacor Investments.
Past performance may not be indicative of future results.