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[Market Recap] Cup of Joe: December Market Update

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.

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    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.

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  • 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.

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  • 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.

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    Joe Gallemore, CIMA®, Partner

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