Previously in the Market
August 2023: Summertime Grind?
“Don't count the days, make the days count.”
– Muhammad Ali
September 2023: The Choppy Path: When Good Is Bad
“Great things are done by a series of small things brought together.”
– Vincent Van Gough
December 2023: Down the Stretch with Hints of Shifting Narratives
"People calculate too much and think too little."
- Charlie Munger
We use our monthly publications as a time to reflect, to step back from the market’s day-to-day news
flow, and to see what stands out amid the noise. As we round out the year, many of the defining
characteristics of 2023 are showing subtle signs of changing, or, at the very least, becoming less
influential. We leverage insights from our technical, macro, and fundamental research to guide our
investment approach. We scrub a litany of factors that influence our take on each discipline, and each
has a storyline that is showing signs of shifting.
The stock market has rarely been this concentrated. At one point in time last month, the recently
coined “Magnificent 7” (Alphabet (aka, Google), Amazon, Apple, Meta, Microsoft, Nvidia and Tesla)
represented more than 100% of the year-to-date gains in the S&P 500. A few weeks ago, Microsoft
joined Apple as the second individual company that has a larger market capitalization than the
combined market capitalization of all stocks in the small-cap Russell 2000. Small caps are currently
trading at their lowest level vs. the S&P 500 (total return) in more than 20 years and represent less
than 4% of the total US equity market, their lowest percentage in more than 70 years.
It seems like quite a while ago, but the third quarter began with a seemingly goldilocks backdrop of
strong growth and peaking interest rates. A fair dose of FOMO (fear of missing out) led to a
broadening equity rally, and confidence in a soft landing increased. However, as the summer wore on,
the market narrative quickly shifted, and a cautious air drifted in (the S&P 500 fell -2% in the third
quarter). The most proximate cause in this change in sentiment has been some recognition on the
part of holders of Treasury securities that the Fed is likely to keep short-term interest rates higher for
longer than previously anticipated.
A resilient US economy is challenging the disinflation narrative, pushing bond yields higher and
catalyzing a choppy trading backdrop. While higher oil prices and US dollar, as well as challenging
seasonals, have raised consolidation odds, we remain encouraged by the balance of our analytics.
How will this “good news is bad news” backdrop play out?
Markets continued their push higher last month, buoyed by an accelerating economy, decent
earnings results and, we suspect, FOMO (fear of missing out) buying by reluctant bears. Soft landing
optimism has increased, and with it, bond yields. The bar for further outperformance has increased,
raising consolidation odds, but we remain encouraged by our supporting analytics. Will a
summertime grind alter the market’s long-term trajectory?
October 2023: The Rate-Growth Dilemma: An Elusive Endgame
“He who awaits much can expect little."
- Gabriel Garcia Marquez
November 2023: Good Trends, Messy Internals: What Gives?
"Success is a science; if you have the conditions, you get the result."
- Oscar Wilde