2023 has come to a close… and what a year it was. For many, it will go down as one of the more challenging. For others, they will have banked some very attractive gains. In short, the S&P 500 recovered from its worst year in over a decade – finishing the year 24.2% higher. As for myself, my portfolio returned 19.63%. I made some errors this year (which I will discuss) but also had a couple of wins. Net-net – it was a solid year given the unchartered waters we were navigating.
Many Lessons in One Great Chart
This post looks at one of the most compelling / informative long term charts I’ve come across. For example, it shows relative PE ratios, interest rates, bond yields, bull and bear markets along with performance. For me, not only does it reinforce the power of time with asset speculation – it also highlights the opportune windows when to add risk (and when not to). The latter is far more important.
A Rational Response or Pavlov’s Dog?
Market consensus is for a soft-landing with at least three rate cuts next year. The market does not expect a recession.This may prove correct (I don’t pretend to know) – but there are some chinks in the armor. Readers will know I don’t subscribe to a soft-landing. Typically in the lead up to a recession – spectators will generally lean towards it being “soft”. Few ever forecast ‘hard landings’. For example, if you have unemployment below 4% and positive GDP growth – it’s hard to see anything else. But very rarely do things land softly. We’ve seen one over the past five decades. That’s not a high ratio. What’s more, soft landings are exceptionally rare after 550 basis points of rate hikes (not to mention over $1 Trillion in quantitative tightening – of which we have no parallel).
Cautious… But Invested
It’s a brave person who is short the market. Probabilities suggest we are headed higher in the near-term. For example, previous episodes of Fed pausing suggests stocks typically gain. My sentiment today is best described as ‘cautious… but invested’. To that end, one should always be invested to some extent. And whilst it’s always unwise to be completely remiss of the risks — it would be an even greater mistake not to have some exposure to higher quality risk assets and fixed income (at current yields)
For a full list of posts from 2017…