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Watch our investment commentary movie to get a more complete summary of the last year!
Skip ahead to:
- 2023 stocks, bonds returns (5 min)
- 5, 7 and 10 companies you might want to know (7 min)
- Opportunities we see in value, small and international companies (11 min)
- Federal Reserve and inflation, what that means for equities (15 min)
- iMGP research team predicts a mild recession (min 22)
- Athena research team: market barometer (min 28)
In 2023, the gains of the S&P 500 were concentrated largely in the magnificent 7 companies: Alphaet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Many of the 493 companies in the S&P 500 underperformed the benchmark, and this is good news for investors for 2024.
Why is this good news? Because a diversified investor, who owns many companies, has a better chance for upside surprises than an investor who owns only last year’s big winners. The biggest companies have the largest chance to miss—they have a lot of downside pressure on them. The largest five companies are now larger than many countries—and that is likely unsustainable.
In ski competitions, where the Frank family has some experience, they have a helpful analogy. First place, second place, or third place? It is the person at the top who feels stress, because they have the pressure to repeat next time. The person in second place is disappointed because he did not get first. The third place finisher is just happy to be on the podium!
US equities are in first place after 2023, especially the magnificent 7. The odds of them repeating this feat seem small, but a humble, diversified investor does not need to know. We will own a little of this, a little of that. We will rebalance out of the big winners so that we do not take on too much risk this year. And we will invest a little into other types of companies, in other areas of the world where we see greater opportunity. So equities look good.
Additionally, bonds are starting 2024 in good shape. Usually, the five year period delivers a return that is approximately the same as the bond yields at the beginning of that period. At the beginning of 2024, bonds are starting with the highest yield they have had in years. So bonds look good.
Interest rates are likely to decline, say our researchers. If this happens, traditionally it is good for both bonds and equities. For more on how this works:
– Equities
The big downside that the research team at iMGP sees for 2024 is that they expect a short, mild recession in 2024. The reasons include the yield curve and the Federal Reserve shrinking the money supply. The Fed is most likely to lower rates if the economy is slipping into, or has already fallen into, recession.
One of our clients asked, at the end of the presentation, what the effect of a recession might be on one of our typical investors. That answer is unknowable in advance, of course, because there are too many variables to predict. By and large, however, a recession hurts more the younger people who are working, who might lose their jobs, than it does older folks who have money to live off—especially retirees, already living off their money. A market decline, even temporary, is more stressful than a recession for a person who follows the market for their livelihood.
Fortunately, you have a team at A&I Wealth Management to take the burden off your shoulders. This movie includes a lot of technical detail, and it is only a report of the hard work done by our investment policy committee and the research teams at iMGP and Athena Invest who help us make prudent, long-term investment decisions in alignment with our client’s goals.
Please call, email, or chat with us at any time!
