Quarterly Statement Letter 23Q4

In the 4th quarter, we saw a commendable performance from both the stock and bond markets, with returns ranging from 8-12% for stocks and 5-6% for bonds. This was a strong finish to the year and a reflection of the resilience in the markets. 

An interesting note for this year was the significant impact a handful of large companies, which have been termed the "Magnificent Seven," had on the overall market results. Their contribution was substantial and somewhat atypical, which underscores the unpredictable nature of investing. 

Short-term interest rates, which reached their peak in 2023, have started to recede. Historically, this indicates that intermediate-term bonds may start to see improved performance, despite their starting yields being lower. 

We have also noted a decrease in inflation rates, with the Consumer Price Index settling at 3.3% on a year-over-year basis. This is a positive sign, indicating a reduction in the overall cost of living increases that we monitor closely. 

Consumer finances are looking robust on average, with household assets growing more rapidly than liabilities and debt service ratios lower than average, meaning that consumers on average are better equipped now to pay their bills. This is a direct benefit from the lower interest rate environment we have experienced over the past decade, resulting in a low cost of borrowing. 

While election cycles often bring speculation about market impacts, we have observed that there is a low correlation between elections and market performance. Further, the market has historically provided positive returns in 83% of presidential election years and 73% of all years, regardless of an election, or outcome. 

Attempting to time the market can be costly from a missed opportunity perspective. Missing even a few key days can be significant. For example, being absent from the stock market during its ten best days over the last twenty years would have reduced annual returns from 9.7% to 5.5%. That is a large, and compounding difference.  

Rather than attempting to time the markets, our focus remains on segregating investment portfolios based on time periods specific to your financial life. This requires matching short-term income needs with short-term, high-quality investments while dedicating other investments to longer term growth opportunities that can benefit from strong stock market years like 2023.