2023 Q4 ECONOMIC AND MARKET OVERVIEW
Markets surged in Q4 as the Fed pivoted interest rate policy by indicating the end of the rate hike campaign. This sparked a sharp rally in both stocks and bonds. Notably, small caps, as measured by the Russell 2000 Index, led the charge increasing by 14.0% in Q4. The S&P 500 added 11.7%. Bonds, as measured by the Barclays Aggregate Index, rose 6.8%. Read the full report.
2023 Q3 ECONOMIC AND MARKET OVERVIEW
September lived up to its reputation of being one of the most challenging months for investors from a seasonal perspective with the S&P 500 falling by -4.8%. The third quarter was negative for all asset classes except for commodities, which rallied modestly on the back of oil supply cuts from Saudi Arabia. Most asset classes are largely unchanged year-to-date as shown in the chart below. The 7 largest stocks in the market capitalization weighted S&P 500 comprise a very high, unusual 35% concentration of the index and have an average Price to Earnings ratio (P/E) of around 50x. This compares to the Small Cap P/E of around 11x (see page 3 Small Cap Valuation Graph). S&P 500 index concentration obscures what is happening beneath the surface as evidenced by the equally weighted S&P 500 being flat on the year. While timing is difficult, we continue to anticipate a "buy the laggards" trade that will meaningfully benefit our strategic allocation to small and mid-cap value-focused equities. A peak in interest rates is a catalyst for this inflection to occur. Read the full report.