Client Newsletter Q4 2023
Dear Friends,
Happy 2024! As we begin a new year, let’s reflect on where we stood in January of 2023. Initially, expectations for the year were less than ideal with concerns over inflation, supply chain disruptions, energy prices, geopolitics and more. Despite these challenges, the market surprised us with a decent performance, ending on a positive note. It defied popular expectations prevalent at the start of the year. Here’s to another journey around the sun!
Thanks to a select group of mega cap tech giants, often referred to as the “Magnificent Seven” (Apple, Amazon, Google, Microsoft, Meta, Netflix, and Tesla), the market soared. These companies played a pivotal role in driving the market’s growth, with consumers’ increasing demand for their digital services and interest in Artificial Intelligence. While these companies soared, other sectors trudged along. Financials and energy were weighed down by inflation and higher interest rates. Even seemingly safe havens like Coke, Pepsi and other consumer staples had muted returns. It will be interesting to see if the mega cap reign will continue or shift towards broader sector participation in the market.
It might be tempting to compare your portfolio’s return to the S&P 500, but we want to remind you that these mega cap tech names account for 27% of the index, a far higher share than most have in their portfolios. It’s great when they have banner years like 2023, but when they crash like they did in 2022, we were happy to have outperformed the index. Diversification is key to long-term growth. As we often emphasize in our letters and conversations, we don’t chase fads or hot trends. Imagine if we bought GameStop, Peloton or Beyond Meat - all are down around 90% from their highs.
So, what comes next? Predicting the market is like trying to guess Chicago’s winter weather forecast – unpredictable and full of surprises! An interesting pattern worth noting is how the market behaves during election years. Historically, they have shown a consistent rhythm, often starting off slowly and gradually gaining momentum. Incumbents will go to great lengths to maintain economic stability. In fact, the market has tended to perform even better in the election year following a positive previous year.
Considering the global economic landscape, we’re keeping an eye on geopolitical factors like Israel/Hamas, Russia/Ukraine, Red Sea/Suez Canal transit, and Taiwan/China/North Korea. Despite uncertainties, there’s some optimism as inflation rates ease and markets stay resilient. If this continues, the Federal Reserve may explore rate cuts in the coming months based on positive inflation and employment indicators. We’ll keep you posted on any key developments affecting your investments.
Remember market fluctuations are an inevitable part of the investment journey. Our commitment is to guide you through these cycles with unwavering support and personalized advice. We are confident that our disciplined approach and focus on your individual needs will continue to serve you well.
Warmly,
Investment Advisory services offered through Moonstone Asset Management, Inc. a registered investment adviser
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.