Steve's Newsletter

Steve’s July 2023 Newsletter

During the first half of 2023 investors ignored the negatives and drove the stock markets higher while holding high the banner of my namesake from Mad Magazine, Alfred E. Neuman with a big “What, Me Worry!”

Despite continuing but slowing inflation, the most talked about looming recession in decades, two interest rate hikes, Russia’s and China’s growing belligerence, a banking crisis, a European war, slowing corporate profits, concerns about the debt ceiling, the economy and markets remained relatively but narrowly strong.

One concern is that the Dow was up only 3.8% YTD while the technology heavy Nasdaq gained a whopping 31.7%. The gains were driven largely by the hype about AI (artificial intelligence) and the possible end of interest rate hikes in the future. The markets need to broaden out from the 10 or so tech companies that make up almost all of the AI driven market euphoria!

At the beginning of 2023 just about every market pundit was bemoaning the negative market outlook. If there is anything that the last six months has taught us (again) is that the key to investing and a comfortable retirement is matching your long-term financial goals and personal risk tolerance with a diversified cross section of investments while ignoring the twists and turns of the daily changing financial narrative.

We all love story telling and predictions! Its human nature to feel more comfortable with the hope that specific financial predictions will give us comfort and stability in our lives. I believe that financial storytelling and predictions most often lead to subpar financial returns. Think of financial predictions as a “Rubik’s Cube”. A change in one square can have a thousand outcomes. It is almost impossible to predict all the intertwined financial scenarios!

As always, I remain focused on the underlying data, not the headlines, and to react accordingly to take advantage of strategic potential opportunities, not day to day or week to week shifts.

At the midpoint in 2023, I don’t believe that we can project the gains of the first six months onto the second half of the year. However, at the same time the markets should continue to react positively to the imminent end to the Federal Reserve’s rate hiking cycle.

It is also possible that we’ve not felt the full effects of previous interest rate tightening yet. This paints a possibly more bearish perspective heading towards year end, if rates are likely to be higher for longer.

Here is one positive financial factoid that is interesting: Except for 1929 (the beginning of the Great Depression), the S&P 500 has had positive returns every single year when it has gained 10% or more in the first half of the year.

Have a Great Summer!

Regards,

Steve Newman