January was a good month for the markets, a really good month! The S&P 500 had its 2nd best January in 25 years and the NASDAQ has officially entered a new Bull market, now up 20% from it’s lows in October. Preliminary GDP for the 4th Qtr came in at +2.9%, inflation continued lower to 6.5%, and unemployment numbers are still hovering around 3.5%. Nobody knows what these numbers will be in 6 months from now, but as of today, the ever-allusive “Soft-Landing” could be…possibly…just maybe not entirely impossible? Only time will tell of course, but the point is the economy is still positive (albeit slowing), unemployment is still low, and inflation is coming down faster than most people thought 9 months ago. For now, we’ll take it.
There’s an old saying, “You got to take the good with the bad”. We all had enough of the bad markets last year so, while it was nice to have a great January, I’m not sure it’s time to celebrate the end of the Bear just yet. The S&P 500 is still stuck in a range it just can’t seem to break. While some technical indicators are improving, it simply hasn’t broken the downtrend…yet. And I don’t think many would argue that anything has fundamentally changed to cause such a strong rally. There’s suddenly been a dramatic divergence: growth stocks have trounced value, the defensive names that worked last year are flat or even down this year, tech and the more aggressive names have taken off, leaving quality in the rearview for now. (Case in point: the NASDAQ is up over triple the DJIA so far in 2023). This is yet another reminder that the markets can turn fast, often when you don’t expect it, and you simply can’t time this stuff.
While it is true those are the same names that were hit the hardest last year and were due for a rebound, we just think it may still be a bit early to hit the gas just yet and caution to not get ahead of our skis here. We are still maintaining our focus on quality with a bit more defensive tilt. We have increased our fixed income over the past several months now that there’s actually income in the fixed income. Lastly, we are finally beginning to increase our international exposure as the worst may be behind the overseas markets. (Note: China is the wild card of course and, while time may prove us wrong, frankly just isn’t a risk we want to own right now.)
I found this month’s Useless Fact from a book I’m reading (Outliers: The Story of Success by Malcolm Gladwell) and it comes from an old interview question Microsoft would ask its applicants:
Q: Why are manhole covers round?
A: Because round covers can’t fall through the hole. (Square or rectangle covers would fall in).
I wonder how many of you will go test this with your Tupperware lids right now? (It’s ok…I did it too.)
As always, thank you for being a client,
Sean & John
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