1. 2023 has generally been a good year for equities, but be mindful of index concentration
As of 11/30, for 2023 just about all stock indexes are in the black. The S&P 500 is up a handsome +20%, but that’s not the case for most of the other equity asset classes.
We spoke a lot this year about the major US large cap indexes becoming more concentrated in the largest names. Performance for the S&P 500 and Russell 1000 indexes has been dominated by the Magnificent 7. As of 11/30, the Mag 7 stocks are collectively up over +65%. The remaining stocks in the S&P 500 are up around 9%. S&P Midcap 400 is +7.1% and S&P Small cap 600 is +2.9%. Point is, there has been a WIDE disparity in performance outside of those 7 largest stocks.
2. Great time to be diversified
I’ve been listening to a lot of investment strategist calls, which include outlooks for 2024, and a common theme I’ve observed is that there seems to be many buying opportunities in both stocks and bonds.
In stocks, outside of the largest US companies, many pockets are trading at or below their historical averages.
In bonds, the current high interest rates can provide some nice income as a baseline return. And the prospect of future rate cuts is attractive for owning bonds as well because when rates go down, prices go up.
So though a prudently balanced portfolio has faced challenges in recent years, the current outlook for diversification looks promising.
3. Takeaways from our Investment Committee
In the 4th quarter, as the risk of a recession in the US remained substantial, we trimmed exposure to the more sensitive assets classes and maintained the hedge on US large cap stocks.
At our most recent meeting we discussed adjusting investments in the bond portion of accounts to take advantage of when interest rates are eventually lowered.
Also we’ve had thoughtful discussions on how our portfolios are built to weather a potential recession and/or market corrections, and additionally what to do next after those risks dissipate.
