We hope you enjoyed the holiday season with the ones that matter most. Everyone at Vance Wealth is excited for this New Year, and we are motivated to begin making progress on our personal and firm goals. While past performance is not indicative of future results, we like to reflect on the past year to help us determine the best path forward. To be a successful long-term investor, we know you must remain disciplined over long periods of time. But, at Vance Wealth, one of our core values is committed to continuous growth. We are committed to continuing to evaluate the markets, our investment strategies, and current trends to ensure we make prudent investment decisions for our clients as the investment landscape evolves.

 

The most talked about recession in history has yet to materialize. Many economists have continued to push out the expected timeline in classic fashion. One thing is for sure: they will eventually be right. In 2023, the broad markets took us for a ride with many ups and downs and twists and turns. The S&P 500 ended the year +24.23%, the NASDAQ was +43%, and the Dow Jones only returned +13%. The year ended on a nine-week run of gains, up 15.85% (last seen in January 1994, up 10.26%). The S&P 500 closed at 4,769, up 24.23% for the year and 0.56% off its Jan. 3, 2022, closing high of 4,796, up 40.86% from the pre-COVID-19 high (Feb. 19, 2020) of 3,386.¹ The final two months of 2023 have been dubbed “The Everything Rally,” because well, everything seemed to go up.

 

 

contextualizing

A balanced portfolio (60/40), as illustrated above, performed well because not only were equities gaining value, but bonds rebounded with a historic rally, the 7th best 2-month period since 1926 and the best two-month stretch since the 80’s. This is coming off bonds losing money in 6 consecutive months (May-Oct) for the first time in history and getting through a 3-year period of the worst return for fixed income investments ever (2020 – 2022)². A lot happened in a short period of time, but most investors should be pleasantly surprised as they open their year-end statement. A natural side effect of this is that those taking Required Minimum Distributions (RMDs) are likely to see their RMD amount jump significantly from the previous year. You should plan for this additional income, but there are ways to help offset this potential increase.

 

Leading the charge were the so-called Magnificent 7 – Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Meta, and Tesla. They soared between +50% and +240% in 2023, making them among the best performers and biggest contributors to the overall market gain. Because of their heavy weightings in the S&P 500, the seven were responsible for nearly two-thirds of the benchmark index’s 24% gain last year. With these kind of performance figures, market valuations begin to get stretched and some may be considered “expensive” or “over-valued.” This is why we recommend a disciplined and diversified asset allocation strategy. You may have seen this chart before, but we like reminding investors how a diversified portfolio can work even when it feels like it is losing compared to the index³:

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Nick Murray, a well-respected figure in the financial industry, said “I don’t worry about which way the next 20% move in the market will be because I know exactly which way the next 100% move will be. And I can’t run the risk of missing that move.” In our minds, this is the foundation of being a good long-term investor. While we do not use this as an indicator of investment decisions, it is always fascinating to check in on “Consumer Sentiment” as the chart below illustrates⁴:

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The average consumer sentiment is 85; above this level investors are very confident about the current state of the market and below this level, there is a lot of pessimism. Most recently, in June 2022, there was a “sentiment trough” at 50 but the subsequent return for S&P 500 through 12/31/2023 was +17.6%. The averages are fascinating at sentiment peaks vs. sentiment troughs. Going back to 1971, there are 9 of each with the average 12-month return for the S&P 500 being +3.5% after a sentiment peak (when investors are the MOST confident) and conversely +24.1% after a sentiment trough. As of December 31st, the current index was 69.7 so still below the average and well below any previous peaks.

 

For current clients, we are employing the following considerations but wanted to summarize they key points for what others should be looking for in 2024:

  • Rebalance portfolio back to target allocations
  • Maintain balance between growth/value, Large companies/Small & Mid companies, US vs. International
  • Expect volatility
    • Market Valuations are stretched for some
    • Recessionary risks > In our minds, more sector to sector focused vs. across the board
    • Geopolitical risk > Don’t forget, we have an election in November!
  • Fixed Income Investments
    • Reduce Money Market, T-Bill & Short-Term Bonds
    • Increase Duration. . .Begin the shift to longer term bonds
    • Focus on High Quality

 

If you would like to discuss your long-term financial plan in greater detail or would value a review of your current investments, please get in touch with our office to schedule time with one of our Wealth Advisors. If you are not currently a client and value a second opinion, we are here to help. Now is a better time than ever to look at your current investments and financial plan to make sure they are properly positioned for the unexpected.

Please get in touch with our office to schedule time with one of our Wealth Advisors.

Disclosures: The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Past performance does not guarantee future results. The information provided is for educational and illustrative purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Vance Wealth, Inc. (“Vance Wealth”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Vance Wealth and its representatives are properly licensed or exempt from licensure. The S&P 500 is an unmanaged index of 500 widely held stocks. Investors cannot invest directly in an index.

Sources:

S&P Dow Jones Indices – U.S. Equities Market Attributes December 2023, Jan. 3, 2024
BlackRock – Student of the Market, January 2024. “November and December was a historic stretch for bonds”
BlackRock – Student of the Market, January 2024. “”Diversification doesn’t always feel good”
JP Morgan – Guide to the Markets, FactSet, Standard & Poor’s, University of Michigan study