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At the start of 2023, we saw dire headlines about the economy and the markets despite positive economic data. Ultimately, the results this year followed the data, not the headlines. Yes, there were (and are) many concerns and risks. As long as the data stays solid, however, so should the results. And that’s worth keeping in mind looking ahead to 2024, too. Although we see some economic slowing, fundamentals remain sound—and that should support the markets.

The S&P 500 Stock Index, our preferred market gauge, is at 4134 today & is up 7.72% YTD. This gain is mainly from the big tech names Microsoft, Apple, Meta, Google etc. which were all down big in 2022. The laggards for 2023 are financials (think liquidity-driven deposit outflows for regional banks) energy, health care & utilities all of which outperformed in 2022.

Q-1 2023 was a volatile quarter with many, many days of 1% or more movement in both stocks and bonds. The regional banking crisis in mid-March, however, changed market sentiment (once the Fed, Treasury and FDIC stepped in) which led to a very healthy rally into the quarter end. Q-1 returns are as follows: SP 500 +7.4%, Dow Jones +0.77%, R1000 Growth +14.3%, R1000 Value +0.83%, EAFE +8.47% & EM +3.96%. The Bar Cap Aggregate Bond Index was up 2.96%, Muni Bond Index +2.76% and High Yield Bonds + 3.57%. Most of these indices were up slightly or flat before the regional banking crisis. So, what changed?

Starting last Friday and extending over the weekend, we saw two very large bank failures: Silicon Valley Bank (SVB) and Signature Bank. Those followed the collapse last week of Silvergate, the “crypto bank.” These are some of the largest bank failures in U.S. history, and they all happened in the past several days. What is going on here—and could we be headed for the next Great Financial Crisis?

The Bureau of Labor Statistics (BLS) issued an extremely robust jobs report Friday 2/3 with an overall increase of 517,000 new jobs created for the month of January. Travel leisure, healthcare and government sectors led the gains with construction and manufacturing also adding a sizable number of new hires

We have been speaking and writing about investing in companies that increase their dividend payments for many years now. Dividend payments as you know are paid in cash and can either be reinvested, accumulated as cash in your account or paid out to you as part of your periodic distributions/withdrawals. They are quite valuable during bear markets like the one we are in now.

What we look for are…..

Consensus seems to be building for a tough 2023 first half (1H23) as the economy slows and corporate earnings continue to come under pressure. PE multiples will continue to contract as long as interest rates are rising.

On Wednesday, Federal Reserve Chairman Jerome Powell announced a .75% raise in the Fed Funds rate (which was fully expected and already priced into the markets) but then stated “ it’s very premature to be thinking about PAUSING future rate hikes”. The latter part was NOT anticipated and the market sold off 500 Dow points very quickly.

Howard Marks Co-Chairman of Oaktree Capital Group recently stated, "blanket advice to buy or sell isn't very useful just as investors should be wary of sweeping generalizations about whether its time to buy or sell". This advice is excellent, so we will not attempt to make any dramatic calls on what the market will do in the short term.

As summer comes to a close we enter the seasonally weak fall period for stocks. This coupled with Fed Chair Powell’s indication of additional monetary tightening we should expect higher rates, an eventual rise in unemployment, slower or negative job growth, GDP weakening and slowing corporate earnings.