The Year the Recession Never Happened:
It was widely accepted as done. Most money managers had already shifted their portfolios basedon it. We were even expecting it (although based on adifferent metric). Bloomberg Economics said, back in October of 2022, that therewas a 100% chance of a recession within the following 12 months. TheEconomist printed an article titled “Why a global recession is inevitable in 2023.”
The problem was the recession didn’t happen.
The US economy grew despite allthepessimism.
Even with extremely high running inflation numbers, people kept spending, and the equity markets kept roaring ahead. As of today, the compounded USinflation number from January 2020 is a whopping 22.33% (source: TruflationCPI dashboard).
Even with all the above, the SharpePoint Portfolios performed well, with the more aggressive portfolio significantly outperforming. We stayed true to ourmantra of not being where we shouldn’t/don’t want to be first.
2024:
We may have used up some of the2024 gains in December 2023. It’s a bit unusualto see such a run up at that point, and it appears that the heavy weight ofthe rate cut expectations really put upward pressure on the stock market.
The labor marketappears to be cooling down, especially whenthe revisions keepcoming out much, much lower than initially released. And we keep readingabout announced layoffs – Meta, Amazon, Microsoft, Activision-Blizzard, Salesforce.com, Spotify, UPS, Citigroup, and Deutsche Bank to name afew. In fact,the average numberof times “Layoffs” were mentioned in earnings calls (twice) was the highest since Q2 2020.
We do have a lot of headwinds, but the start and size of the Fed rate cuts are items to watch closely. The Fed reduces rates for one of two reasons: 1. Theybeat inflationand a “soft landing” has been achieved. 2. A recession forces their hand, and they must reduce rates accordingly to ease the money supply.
Which one? We will see.
But we at SharpePoint are committed to not committing to anysingle strategy. We will remain nimble, and, as we have already begun doing, we will trendmore neutral to defensive. Westarted reducing a bit of the Money Market position – it was the#1 single largest holding we had and started nibbling onlonger treasury bonds. In this specific case, why the rates move down wasn’t theconcern; it’s that we believe they will be moving down at some point thisyear. The best way to take advantage of that is to position the bond maturities in the long end of the curve. (Think of the bank crisis at the beginning of2023. They should have been selling long, and going ultra short, as the rates were moving up. This is the time for the opposite.)
Interest Rates:
Late last year, the Federal Funds Futures (yes, people “bet” on rate directions) was indicatingup to seven rate decreases in 2024. By the end of 2023, thedecrease in January evaporated, and we saw thatcome and go last week as recently predicted. Asof this writing, there are 5 anticipated rate decreases in2024. But they aren’t predicted to start lowering until May. This would indicate the Fed Fundsrate would bein a range of 4% – 4.25% at the last hike onDecember 18th. FYI – the median Fed committee member call is for 3 cuts.
Rates are still high, and they will be for some time. You may have heard theterm “Higher for Longer”, and that is what we are expecting.
As always, if you have any questions, concerns, or comments, please reach out to us!
~ Your SharpePoint Team
*Important Disclosures*
Investment advice offered through SharpePoint, LLC , a Registered Investment Advisor.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.
Investing involves risk including loss of principal.
Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.