“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.
“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.
“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
“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.
“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.
“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.
“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?
“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.
“Prepare for the unknown by studying how other in the past have coped with the unforeseeable and the unpredictable.” – General George. S Patton
2022 has been a very difficult year for investors. Gone are the easy returns of the last decade, and doubt is creeping in about what the next decade may hold. The world feels fairly terrible at this point in time. Political discourse in the United States is feverish, the country feels divided and broken, and Black Swans seem to be lurking in every corner of the market. The list of what-ifs feels daunting and overwhelming. It may help to step back and review the current state of markets against a historical backdrop. Remember, the United States of America has made it through difficult periods in the past, and we warn against the most dangerous phrase, “this time it’s different.”
The stages of a bear market often mirror the grieving process. Denial at first, followed by anger, bargaining, depression [current stage] and finally, acceptance. For investors, frequently instead of acceptance there is an overwhelming desire to capitulate. The world feels darkest before the dawn, but it is terrifying in the dark. Controlling our fear of the future, the unknown, and the losses piling up can be difficult. None of us have a crystal ball, but we do our best to make predictions about the future based on sound historical data and patterns. We warned back in March we thought we would have a recession and a bear market, and now that we are bearing the brunt of a bear market, the million-dollar question is when do we hit bottom?
