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Holding Steady

Holding Steady

April 04, 2024

Dear Clients & Friends,

The first quarter is in the books, and it was an excellent one for the stock market.  The S&P 500 Index rode a resilient U.S. economy, easing inflation, rising corporate profits, and the anticipation of summertime rate cuts from the Federal Reserve to solid gains in March, the fifth straight up month in a row, and the best first quarter since 2019.

With stocks having done so well lately, there’s a natural tendency for investors to want to sell their stocks before the market pulls back—which it defintiely will at some point.  However, unless your investing time horizon or financial goals have changed—selling stocks just because the market is up is not a good reason to sell.  Afterall, what if the market continues to march higher after you sold.  Remember, the best time to sell is when you NEED the money -- and the best time to buy is when you HAVE the money.  Period.  Everything else is just market timing.

Now, looking ahead over the next few months, we need to consider that the latest data suggests the economy is growing steadily and inflation pressures continue to ease.  Investment in artificial intelligence — still in the early innings — is giving corporate profits a boost and looks more like the early-internet period of the mid-1990s than the speculative bubble in 1999–2000.  Double-digit gains in corporate profits this year, which seemed like a long shot at the start of the year, are now very possible.  These are all strong signals for more possible gains ahead, but please don’t confuse this statement as any type of prediction.  We are not in the business of making short-term predictions, but rather building high-quality, low-cost, well-diversified equity portfolios to help our clients meet their long-term financial goals.

We trust the market will deliver solid returns over time and history is on our side.   We continue to believe staying the course and holding steady with a portfolio of quality investments is the right approach.  Since 1950, the S&P 500 has risen 93% of the time in the 12 months following a five-month winning streak, with an average gain of over 12%.  And down years are rare after strong first quarters.  While history doesn’t repeat itself, it does rhyme.  So, while stocks are due for a pullback, as the choppy start to April suggests, it’s nearly impossible to sidestep a 5–10% market decline.  It’s tough to make a case for a sizeable drop — one that you would want to seriously avoid — because of healthy market fundamentals.

The common refrain from the bears that the stock market’s gains are too concentrated has not held up lately.  Technology stocks showed signs of fatigue in March, while cyclical value stocks that benefit from the improved economy picked up the slack. This rotation helped the energy, financials, and industrials sectors outperform in March while the average stock beat the index.  The market is definitely broadening out to other sectors besides just Technology, which is another positive sign of a healthy market fundamentals.

Turning to bonds, yields remain fairly attractive following the latest rise in rates.  A gradually slowing economy and easing inflation should limit additional selling pressure in the bond market, especially if the Fed cuts rates this summer as expected. Last week’s successful Treasury note auctions were encouraging. Corporate bond yield spreads, which tend to sniff out trouble before stocks, are about as calm as they get compared to Treasuries.

Solid fundamentals and historical evidence suggest investors should hold steady with their existing asset allocation and overall investment strategy, though some minor tilts to improve risk/reward tradeoffs may be a good idea if your portfolio has drifted away from your initial asset allocation targets.  But, the threats seem manageable at this time, though we continue to watch inflation, rates, and geopolitics very closely. 

As always, thank you for being our client.  Please don’t hesitate to reach out to our team with any questions.

-Nick


Important Information

Nick Enzweiler is a registered representative with, and securities offered through LPL Financial.  Member FINRA/SIPC.  Investment advice offered through Mariner Independent Advisor Network, a registered investment advisor.  Mercer Partners Wealth Management and Mariner Independent Advisor Network are separate entities from LPL Financial. 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of April 3, 2024.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

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