Many pundits, economists, and Fed watchers are recommending investors lengthen the duration of their bond portfolios to take advantage of the expected rate decline. We disagree. We may miss out on a bit of performance if rates do indeed drop from here, but we’re skeptical that rates will come down much, if at all, in both the near and longer term.
Portfolio Review – Q1 2024 Newsletter
US large- cap stocks once again led all asset classes as the S&P 500 gained 10.6%, continuing their trend of outperforming small-cap stocks and international stocks, both of which experienced more modest gains.
Bonds pulled back slightly after their 6.8% gain in the fourth quarter of last year as longer-term interest rates rose moderately from the start of the year, contributing to a -0.8% loss this quarter. The consensus now is that the Fed will not cut interest rates asaggressively as previously believed a couple months ago, and that the first rate cut likely won’t occur until the latter half of 2024. The Fed confirmed…
Portfolio Review – Q4 2023 Newsletter
Portfolio Review – Q3 2023 Newsletter
After three consecutive quarters of positive returns, stocks were unable to keep the streak alive and edged slightly lower in the third quarter. Most of the negative performance occurred in September, which was the worst month for the stock market this year. Bond returns were also negative this quarter, while liquid alternatives provided a welcoming boost to returns.
Returns in the first half of the year were dominated by a handful of well-known, mega-cap technology stocks, which contributed to large-cap stocks’ vast outperformance over small-cap and international stocks. This trend reversed somewhat in the third quarter as returns were generally similar across asset classes. Emerging Markets had the best performance among stocks for the quarter with a loss of “only” 2.9%, while small-cap stocks fared the worst with a decline of 4.9%.
Portfolio Review – Q2 2023 Newsletter
Stock market returns for the second quarter bear a striking resemblance to what occurred in the first quarter: US, international, and emerging market stocks were all positive, large-cap stocks outperformed their small-cap counterparts, developed international markets outpaced emerging markets, and most factor funds lagged behind the overall stock market. Technology, communications, and consumer discretionary sectors continued to lead the way by returning over 10% for the quarter and over 30% for the year-to-date period.
Portfolio Review – Q1 2023 Newsletter
Stock and bond markets enjoyed some relief to close out 2022 after dismal returns for most of the year. The S&P 500 gained 7.6% for the fourth quarter while the Bloomberg U.S. Aggregate Bond Index rose 1.9%. Despite the rebound, 2022 was one of the worst years for both bonds and the traditional 60% stock/40% bond portfolio in recent history.
Portfolio Review – Q4 2022 Newsletter
Stock and bond markets enjoyed some relief to close out 2022 after dismal returns for most of the year. The S&P 500 gained 7.6% for the fourth quarter while the Bloomberg U.S. Aggregate Bond Index rose 1.9%. Despite the rebound, 2022 was one of the worst years for both bonds and the traditional 60% stock/40% bond portfolio in recent history.
Diversification Still Works
Over the past almost 15 years, diversification was a fool’s errand. Simply buying the largest, techiest, US-based stocks would have yielded the largest rewards. Why bother with small-cap stocks, international diversification, or Warren Buffett’s precious value stocks (what does that old coot know anyway)? FAANG stocks were all that were necessary to earn market-beating returns.
The Bear Market Case – 2022
The field of economics is often referred to as the dismal science. Today’s environment certainly helps us understand that moniker. Inflation is running amok, interest rates are moving aggressively higher, stock and bond markets are both down considerably, and we may already be in a recession. It is not hard to paint a picture of more downside ahead. All eyes have been on the Fed lately to cure these problems.
The Bull Market Case – 2022
Today, market sentiment is about as bad as it gets. The black line in the chart below shows how individuals and institutional investors feel about the prospects for the stock market. It is almost as low as it was in 2008. That is not terribly surprising given how both stocks and bonds have performed so far this year. However, sentiment tends to be a contrary indicator.