Market Insights

A Quarter in Review: Fourth Quarter 2023

A Quarter in Review: Fourth Quarter 2023

Last year at this time, we wrote about how you can choose what to focus on when reflecting on calendar year performance. 2022 had been a horrible showing with stocks falling into a bear market (driven by the “magnificent seven” stocks, down an average of -45.2%). Bonds were not far behind, reaching an intra-year low of -17% and ending the year down -13%¹. Those headlines dominated the narrative, with many proclaiming the “death” of the balanced portfolio (often referred to as the “60/40” due to target weightings in stocks/bonds).

A Quarter in Review: Third Quarter 2023

A Quarter in Review: Third Quarter 2023

We can’t help the strong mix of negative emotions the headlines create from many different perspectives. As humans, we feel empathy and grief given the very real suffering caused by the wars in Ukraine and now Israel and Gaza. As citizens, regardless of which side of the aisle our political views sit, we feel sad to see the House of Representatives without a leader for the first time in history. And as investors, if we only read the headlines and the underlying articles in our major news outlets, we feel panicked because it seems as if there’s never a good time to invest given all the uncertainty.

A Quarter in Review: Second Quarter 2023

A Quarter in Review: Second Quarter 2023

As we review the first half of 2023, simply speaking, it’s hard not to be pleased by stock and bond market returns. Taking a few additonal moments to consider the sentiment entering the year after negative returns in 2022, including the expectations of both economic and corporate earnings recessions, (not to mention the unanticipated regional banking crisis and debt ceiling negotiations!), we can easily move from anxious to pleased to relieved. Generally, economic and corporate earnings data have been better than expected – let’s dig deeper into the details to identify the key takeaways.

Our Perspective on The Recent Juggernaut of Artificial Intelligence Headlines

Our Perspective on The Recent Juggernaut of Artificial Intelligence Headlines

June 1, 2023 – ChatGPT, the artificial intelligence (AI) platform from OpenAI heavily funded in partnership with Microsoft, was unleashed on the technology scene late last year and reignited the debate about the future of AI. This includes, of course, its impact on society, business, and politics. There are pros and cons, and it’s still very early to assign a high probability to the broad impact. More specifically with regards to the way we invest, we don’t view it as a particular threat or game-changer. Rather, it could result in markets incorporating information into prices more efficiently, which would be a positive for our investment approach.

A Quarter in Review: First Quarter 2023

A Quarter in Review: First Quarter 2023

“Happiness equals reality minus expectations” is a saying that applies to life, financial planning, and investing. Travel and dining experiences are great life examples. When we have low expectations, it doesn’t take an amazing adventure or Michelin star meal to make us happy. If our expectations are high, the hurdle to happiness is higher. Financial markets are no different. By nature, markets anticipate future events and assign them a price today (discounting). The gap between reality and expectations creates short-term market volatility, just as it did for both stocks and bonds in 2022.

Our Perspective on The Recent Banking Sector Crisis

Our Perspective on The Recent Banking Sector Crisis

March 13, 2023 – Just as we were getting ready for another weekend of rain and snow in the Bay Area, a financial storm was brewing in markets with the liquidation of Silvergate Capital (crypto industry lender) on Wednesday, and then, more surprisingly, the FDIC takeover of Silicon Valley Bank (SVB) Friday morning and Signature Bank over the weekend. This morning we awoke to President Biden giving a press conference urging calm and confidence in our banking system.

The Debt Ceiling Insanity

The Debt Ceiling Insanity

February 3, 2023 – We all learned in high school civics that Congress has the “power of the purse” in our democratic republic. Congress, and Congress alone, passes annual spending plans and other bills that obligate the government to spend money. Just a month ago, President Biden signed a 1.7 billion dollar spending plan that passed both houses of Congress just days earlier. Included in the bill was disaster aid and emergency assistance to Ukraine and NATO, while the bulk of the money went to nondefense discretionary programs (Social Security and Medicare as examples) and to defense spending. 

A Quarter in Review: Fourth Quarter 2022

A Quarter in Review: Fourth Quarter 2022

Inflation moderated through year-end, as did the magnitude of interest rate hikes. Fed Funds’ target range now stands at 4.25-4.5%. The FOMC’s hawkish tone and expected peak range still remain slightly at odds with market participants, with the market expecting a lower peak and relatively quick shift to rate cuts to stave off weakness in overall economic growth. Some SF Fed projections show the “effective” Fed Funds rate over 6% currently when trying to estimate the impact of the Fed’s balance sheet runoff in interest rate terms of economic tightening in conjunction with the Fed Funds rate hikes. Other major central banks began slowing the pace of rate hikes, or even pausing, to the let the impacts play out and try to balance the risk of over tightening. Though moderating, inflation remains elevated across most of the globe, China being the exception. This year, inflation and interest rate levels remain a key focus, yet there are bound to be unexpected risks that will shift the narrative. 

A Quarter in Review: Second Quarter 2022

A Quarter in Review: Second Quarter 2022

High inflation, rising interest rates, and geopolitical risks continued to weigh on the outlook for global economic growth. Central bankers and market participants are trying to assess how much financial conditions will have to be tightened to reign in inflation and whether that will lead to a mild slowdown in growth that we’ve already begun to see or push us into a recession. These times of economic resetting are a natural, though unpleasant, part of the economic cycle. By reigning in excesses, we set ourselves up for a more sustainable future growth path. A very tight labor market with two jobs available for every unemployed worker, ample consumer savings, and capital expenditures by businesses are helping the economy from losing too much steam too fast. 

A Quarter in Review: First Quarter 2022

A Quarter in Review: First Quarter 2022

Economic growth slowed in the first quarter, with real GDP estimates around 2%, coming off a very impressive 7% growth rate in Q4 2021 and a full year of growth in 2021 like we have not seen in decades. A very tight labor market pushed unemployment lower and wages higher. As the impact of COVID eased in the U.S., more people, especially women, began returning to the workforce. This is a positive sign for economic productivity going forward.

A Quarter in Review: Fourth Quarter 2021

A Quarter in Review: Fourth Quarter 2021

2021 was a positive year by many economic measures and this showed up in strong GDP growth. Despite the persistence of the pandemic and higher inflation in 2021, the economy showed strength in spending habits and healthy consumer balance sheets, housing prices, job growth, wage increases, manufacturing and services activity, government investment, and corporate profits. The unemployment rate dropped to 3.9% by year end, just half a percent higher than it was pre-pandemic when the economy was humming along.

A Quarter in Review: Third Quarter 2021

A Quarter in Review: Third Quarter 2021

Global economic growth has been strong with economists forecasting ~6% growth in 2021. In the U.S., GDP growth is expected to be around 5% for the third quarter (it was 6.3% in Q1 and 6.7% in Q2). While the rate of growth is expected to slow this quarter relative to earlier in the year, we remain in a much stronger growth environment than we’ve experienced in the past several years; about double to put it in perspective. Along with this growth, long-term interest rates rose, likely helped by the expected Fed asset purchase tapering later this year and continued inflation concerns.

A Quarter in Review: Second Quarter 2021

A Quarter in Review: Second Quarter 2021

It was a strong quarter for global growth and global markets. Advances were driven by expanding vaccinations, relaxation of shutdown measures and the flood of economic activity from reopening coupled with pent-up demand and continued accommodative fiscal and monetary policy. GDP growth is expanding rapidly, both domestically and overseas. Global corporate earnings and forward estimates generally remained upbeat amid improving economic data. In the U.S., the unemployment rate remained a concern, edging higher and remaining well above its pre-pandemic level. Conditions should therefore remain accommodative.