Please find our Quarterly Market Review Report here. (For those that want to dig deep.)
Quarterly Summary - Up across the board.
Stocks have quietly been up the last 6 months. Who knew? They haven’t yet exceeded the record highs of about 1/1/2022 - but of course stocks will return to record highs at a schedule and pattern that we can’t predict in advance.
Bonds which had an unusually bad Q1 2022, reacting to the historically strong and late reaction to inflation (aggressive series of interest rate hikers) of the Federal Money Policymakers, have now returned to a wonderful state of health. Though the raising of interest rates of 2022 into 2023 was painful, it did return interest rates into a more normal range, and now bonds pay dividends in a historically normal range which is good.
We added a Vanguard TIPS shorter duration bond fund VTAPX with in response to the record interest rate hikes. Now that the hikes are almost over and inflation is abating, we will gradually move away from VTAPX and shift more assets back to our mainstay TIPS fund DIPSX.
How did the small, value and profitability premiums perform in Q1 2023? After outstanding outperformance in 2022, small and value premiums took a pause in Q1 2023. The profitability premium was in favor in Q1 2023. You can see these details including broken out by region in the Quarterly Market Report (link above).
See 2 page performance summaries for O’Reilly Model Portfolios going back 24+ years and including Q1 2023 - for the standard portfolios here and for the social models here. The social models slightly outperformed the standard models in Q1 2023. The social models screen out companies who behavior or whose products/services are incongruent to traditional Christian values. Call us if you have questions.
What’s going to happen in investing, economy and inflation? We don’t know, and we don’t base investment strategy on short term predictions. Our guess is that the rate of inflation will continue down - how fast and if/when we reach the Fed 2 % target - don’t know. If inflation continues dropping, if the jobs market robustness shows more “cracks” and especially if GDP contracts, it may cause the Fed to cut rates which would cheer the market. Two consecutive quarters of GDP contraction is a technical
What about corporate profits? They have leveled off and are slightly trending down. If they can avoid stronger drops, the market will remain firm. As I am adding final edits 4-25-2023, a few tech companies posted positive results today.
Overall there are forces pulling the market in both directions. Our guess is markets will be slightly up by the end of 2023. The range of that result could be from slightly down for the year to about an average market return for the year. I should note here that I do not own a crystal ball and I don’t think there are any that consistently work.
The interest rate hikes add a lot of uncertainty because you don’t know how big of an effect they will have on the economy and on reducing inflation. It takes a long time for those hikes to work their way throughout the entire very large economy.
By the way, keep in mind that numbers like inflation and GDP are calculations, designed by humans, are not perfect and the number reported can be very misleading. Analysts not only look at the “headline” number, they have to “dice it up” and look at each component. Please feel free to reach out if you have questions. We use this Blog to share insights and updates; please take advantage!