February was an uneventful month for the markets but that’s ok because there was plenty of excitement elsewhere. It’s not every year that we get 75-degree NC weather in mid-February, or one of the more exciting Super Bowls in recent memory, and we can’t forget the Chinese spy balloons, UFO’s & other things we shot out of the sky. But one of the most interesting things to me was the sudden fascination with Artificial Intelligence (AI) and Chatbots. ChatGPT, Google & Microsoft all made headlines during the month. If you haven’t read it, I highly recommend the recent article in the NY Times where the reporter has a long conversation with Microsoft’s new ChatBot from Bing. Get your popcorn ready because you’ll either find it fascinating or terrifying. (At times both?)
February marked the continuation of the 2023 market climb for all of 2 days before peaking on Feb. 2nd and then continued a slow decline for the rest of the month, erasing much of the gains from the recent rally. In fact, as you can see from the chart below, the DJIA even tipped into the negative while bonds just barely eked out a positive number thus far for the year. Tech was the only sector that wasn’t negative for the month; while Energy (-7.61%), Utilities (-6.36%), & REIT’s (-6.23%) fared the worst.
Really there wasn’t anything significant to speak of this past month. The economic data coming in was mostly positive: 69% of the companies in the S&P 500 beat earnings expectations for the 4th quarter, but that’s a bit off from the 77% average. A couple key numbers disappointed, reminding us that inflation may not drop in a straight line but may have some hiccups along the way and prove stickier in some areas (services) than others (goods). That was enough to open the door possibly for more Fed rate-increases than the market was hoping to see. We’re still in the camp that we are nearing the end of the rate-hike cycle but where it finally ends (will it be 2, 3 or 5 more increases?) literally no one knows right now. Just the thought of more rate increases on the way has pushed bond yields to rally significantly with the 10yr Treasury nearly tipping 4%. As you can see the rate table below, even short-term CDs increased across the spectrum.
We are cautiously optimistic for the markets going forward for long term investors. While we obviously don’t know what the markets will do this year, we think of much of the “known” bad news may be baked-in at this point. We say “known” because it’s usually the events that you aren’t even aware of that affect the markets more than the ones you think you know. (i.e., I think it’s safe to say no one was predicting COVID in March 2020 or Russia invading Ukraine in Feb. 2022, etc.) With cash and fixed income both now having attractive yields in the 4-6% range, at least you can earn something on those portions of your money as you let the markets work through the noise to find some footing.
We’ll close with this final thought: This current bear market is now in its 14 month. It’s not fun; it stings to look at your statements in a bear market. The longer it continues, the more it causes investors to question their strategy and, more importantly, their patience. It’s easy to get caught up in the news, what new catastrophe they’re selling this week, and the mindset that the markets are broken and won’t ever “work” again. However, for serious investors with at least a 3–5 year time horizon, I’ll pose this question:
What do you think the S&P 500 has returned for the past 3 years?
I’d wager most would say it’s been flat or possibly even a negative return. Am I right? I wouldn’t blame you for feeling that way. Even after 14 months of this bear market and considering all 4 major indexes still in negative territory, the S&P 500 has averaged +9.88% for the past 3 years! (+9.54% for the past 5 yrs, +12.6% for the past 10) It’s just another reminder that the markets have always gone up more than they go down in the long run.
Lastly, final 1099’s are out. If you haven’t gotten yours by the time you read this, please reach out and we’ll get yours to you.
St. Patrick’s Day is coming up (also my birthday!) so here’s your Useless Fact of the Month:
Since 1961, Chicago has been famous for dyeing its river green for St. Patrick’s Day. But the original reason they dyed it green to begin with was an attempt to trace where pollution had been entering the river. (They suspected someone was dumping sewage in the river). I don’t know if they ever tracked down the culprit, but they liked the result so much that the chairmen of the annual St. Patrick’s Day parade decided to do it every year for the parade. They used 100 lbs. of a chemical agent, and it was a brilliant green…for a week! After several years of trial & error they got it down to only 25 lbs. into the river to give it a bright green color that last about 5 hours.
As always, thank you for being a client,
Sean & John
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