MARKET RECAPS, FUTURE TRENDS AND QUARTERLY INSIGHTS

Rapid Recalibration
Q2 2025 Market Outlook

“Even the finest sword plunged into salt water will eventually rust.”- Sun Tzu

We entered the year cautiously bullish and flagged a policy error as a big potential risk to derail the market bull run – and boy, did that play out in Q1. While tax cuts, spending, or any sense of what the budget will look like is stuck in Congress, the market has been subjected to a large-scale game of chicken over tariff and trade which has raised the anxiety level significantly. Potential shifting alliances may pivot the US away from Europe and more towards Asia and Russia which could disrupt trade further if Europe pivots away from US trade in retaliation. The quick market sentiment change has caused the Magnificent 7 to pull an Icarus, flying too high and falling sharply down to earth. As we are preparing to enter Q2, all we can advise is to be comfortable being uncomfortable this year.

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Piloting Through Noise
Q1 2025 Market Update

“Fighter pilots have ice in their veins. They don’t have emotions. They think, anticipate. They know that fear and other concerns cloud your mind from what’s going on and what you should be involved in.’”- Buzz Aldrin

As we wrap up another year of excellent returns, investor angst continued to rise even as markets powered higher, with the S&P 500 logging back-to-back 20%+ returns for the first time since 1997-1998. With 58 new highs reached in 2024, there remains investor anxiety about the sustainability of the rally. One must be thinking of Icarus and flying too high and too close to the sun, but we caution that this is still a normal bull and has plenty of gas to run higher. Bull markets do not typically end due to high valuations or old age, and while this one will eventually end, we feel it might still be 18-24 months before it begins to roll over. BUT, and for the first time we are adding the qualifier, there are certainly risks of a policy error in 2025, either fiscal or monetary, which is a tried-and-true way to kill off a bull market. So, we remain bullish, and our base case is the rally continues, however we would be remiss not to be ready for lurking risks. The key is to remain focused on what matters in the face of increasing noise.

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Bracing For Turbulence
Q4 2024 Market Update

“An election is coming. Universal peace is declared, and the foxes have a sincere interest in prolonging the lives of the poultry.”- George Eliot

Q3 is always a rocky one and it lived up to its name by producing more volatility than we have seen all year. As we turn the page to the final quarter of the year, questions abound about if the market can keep up the bull run or if it’s been fatally wounded by a slowing economy and weakening labor market. The looming elections are causing anxiety levels to reach full panic mode for many investors; however, we temper that fear as elections matter much less to markets than they do to us personally. We argue the bull market is still alive and well, and we survived the weakest quarter of the year setting up for a year-end rally post-election.

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“Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.”- Warren Buffett

There is a wise adage, if you hear hoofbeats think horses not zebras. Meaning, consider common explanations rather than search for highly improbable ones. All signals point towards the bull market continuing, but we are stuck in an unfortunate period where it feels terrible to be a human existing in the United States right now. It can be hard for investors to see the positives that are driving the rally, and we find many people still extremely skeptical of the bull market or waiting for the other shoe to drop. As we hit the halfway point in the year it has been a solid, but unequal rally. To steal from Jay-Z, I’ve got 99 problems, but the market’s not one. We are also about to hit the apex of a hotly contested presidential election and the noise level is going to rise from a dull roar to earsplitting. Each candidate promising if you elect them, it’s all rainbows and puppy dogs, but if you don’t, we face economic ruin.

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“Damn the torpedoes – full speed ahead!’” – David Glasgow Farragut

Spring brings change to the air with occasionally violent and volatile shifts in weather as winter fades and summer waits around the corner. March comes in like a lion and leaves like a lamb the folklore intones, and markets often take heed. A more accurate rule of thumb for this market would be 2023 came in like a bear and left like a bull. Q1 has been a strong continuation of the year-end rally of 2023, and the Bulls are firmly in control. Yet much of the world seems like it’s waiting for another shoe to drop and for what feels like an
inevitable car crash. We would argue all this worrying may be for naught as history is strongly on the side of the Bull market continuing. We believe that this almost vertical ascension from the October 27th, 2023 low is not as abnormal as investors fear, although we do anticipate a bit more volatility in Q2 and the rest of the year.

There is plenty of historical precedence of this type of market run. Market bottoms are often not believed, not trusted, and constantly seconded-guessed. We too were skeptical in October and November last year, but rather grudgingly (at first) had to acknowledge the turn and reposition. Since the October lows, we have seen:
– 100 total trading days. Almost 2:1 up to down day ratio with:
o 36 down days since 10/27/23 though 3/22/24
o 64 up days since 10/27/23 through 3/22/24
– 0nly 4 down days > -1%, NONE with a daily drawdown >-2%
– Longest streak (273 days through 3/22) without a -2%+ drawdown, longest since 1918

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“To those waiting with bated breath for that favorite media catchphrase, the U-turn, I have only this to say, ‘You turn if you want, the lady’s not for turning.’”- Margaret Thatcher

It’s very en vogue to quote Taylor Swift in your 2024 outlook. Frankly, 2023 could be dubbed the year of Taylor Swift with her record-breaking concert tour, rerecording albums for her control, and the hard to miss the frenzy over Taylor and Travis at NFL games.

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“To reach a port we must set sail- sail, not tie at anchor- sail, not drift.”– Franklin D. Roosevelt

Before the invention of GPS and Google maps, explorers often navigated by the stars. But how did sailors cross oceans when it was cloudy or severe weather? The Vikings are credited with developing and using sunstones to determine the direction of the sun on cloudy days, and then the rudimentary compass was invented allowing navigation by Earth’s magnetic fields.

Learn More from 2023 Q4 Market Update

“Success in creating AI would be the biggest event in human history. Unfortunately, it might also be the last, unless we learn how to avoid the risks.” – Stephen Hawking

DISCLAIMER: This report was 100% written by me (a human) and not ChatGPT as many of our peers have begun utilizing. The only ChatGPT or any AI platform derived content was a sample ChatGPT query to showcase what their technology looks like. So, embrace any typos and human errors in this report, they may be going the way of the horse and buggy soon.

 What’s the deal with AI? No, I am not talking about cattle breeding and Artificial Insemination, I am talking about Artificial Intelligence. It’s a term being thrown around a lot by companies, but it’s important to understand exactly what AI is and how this tool will transform a company’s earnings. Everyone, including fast food and retail, is talking about how they will integrate AI into their businesses and help drive higher revenues. It is likely many will fail to execute at a meaningful level, but for now, it’s the buzziest term on Wall Street.

Learn More from 2023 Q3 Market Update

“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem. – J. Paul Getty

Robert Frost was a fortuitous man, as he only had 2 diverging paths in the woods to choose from. If only we were so lucky. Right now, it feels like the dispersion of potential market outcomes is growing at a rapid and expanding pace. Recent banking events have stressed the markets, specifically the financial and energy sectors. Yet, equities have remained resilient in the face of 2 bank failures and Credit Suisse doing Credit Suisse things. Even though participants have access to the same data at the same time (earnings releases, economic data updates, breaking news etc.) markets have multiple ways one can analyze data and forecast the future. Hindsight is always 20-20 but every manager has a preferred way of looking at information and weighing the probability of return in the future. Investors are currently confronted with extremely muddled data and no clear signals to follow. How do you read the road signs when the signs are all pointing in different directions?

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“All will be well. We have, I believe, within us the life-strength and guiding light by which the tormented world around us may find the harbor of safety, after a storm-beaten voyage.” Winston Churchill, 9 November 1954

2022 has been a year most of us would like to forget. Markets brought losses, anxiety, pain and suffering to investors. The horizon currently looks very cloudy, and it feels as if it is hard to find anything to be excited about. The world, in a nutshell, feels grim. War, discord, growing wealth gap, sticky inflation, rising rates, and the specter of a recession with rising unemployment loom over the World. Both bond and stock markets were decisively negative for investors this year, with the broad bond averages looking to log their worst returns in 50+ years. While we recognize these headwinds and feel we are not out of the woods yet, we are not perma-bears for 2023. There will be green shoots and possibilities, and the best investment opportunities come in bear markets, not in bull markets. Buy low, sell high. Easier said than done for most. In 2023 we feel the worst will happen in Q1-Q2, then markets find their footing and we rally out to flat or slightly positive for equities on the year.

Learn More from 2023 Q1 Market Update