Market In a Snap! July 28th, 2023

By: Dave Chenet, CFA, CAIA

 CloseWeekly returnYTD return
S&P 5004,5821.01%19.34%
Nasdaq Composite14,3162.02%36.79%
Russell 2,0001,9811.02%12.66%
Crude Oil80.365.02%0.41%
US Treasury 10yr Yield3.79%  

Source: YCharts, Yahoo! Finance, WSJ

Recap of Presidio Capital Management Webinar We had hoped to share a replay of the webinar that we hosted this week with special guest, John Tousley, CFA, Managing Director – Goldman Sachs.  However, due to an unnamed staff member selecting ‘pause recording’ instead of ‘record’ (don’t worry, Dustin, I won’t tell anyone it was you), we do not have a recording to share with those of you who were unable to attend.  So, instead, below are a few highlights from the conversation:  

  • Dustin hosted John Tousley for this conversation.  John is the Global Head of Market Strategy for Goldman Sachs Asset Management.  He is regularly featured on financial news television and consults with institutional investors on delivering successful long-term outcomes.
  • Dustin laid out the case for investor caution, including Fed rate hikes and ‘higher for longer’ rates in the face of persistent inflation causing problems for consumers & corporations (credit card/auto loan delinquencies, rising borrowing costs, lower corporate profit margins and reduced hiring).  Dustin made the point that the current AI/tech rebound may be too optimistic in light of the economic backdrop.
  • John presented the case for optimism.  He highlighted potential for the Fed to stop hiking rates, improving economic activity indicators, and an AI-driven productivity boom.  Despite his view of a “soft” landing, John expressed a Flat & Fat thesis, where equity gains are constrained by higher interest rates. 
  • Dustin and John took a deep dive into the investment landscape and highlighted opportunities for investors in each asset class.
    • Cash: While a tactically useful asset class to take advantage of a potential pullback, cash yields will likely fall with interest rates.
    • Fixed Income: Despite 2022’s challenges, fixed income is an important part of a diversified portfolio.  In today’s environment, it offers yield and the potential to be a ballast to the more volatile equity positions.  Investors should be selective, however, of the credit risk within their fixed income positions.
    • Stocks: While Tech/AI has been the story thus far in 2023, there is opportunity for a “catch-up” in cyclical areas of the market, including small/mid cap and non-US markets.
    • Real Assets: In a period of global economic recovery and sustained higher levels of inflation, certain commodities look attractive.
  • Overall, both Dustin and John stressed the importance for investors to build an investment plan that is designed specifically around their unique risk and return requirements.  In a market environment of high interest rates and a fully-valued stock market, investors should be prepared to stick to their plan throughout the inevitable ups and downs of the market cycle.

What We’re Reading:

WSJ: US economy grows at slowest pace in 5 months.  Inflation ‘sticky,’ S&P says

Morningstar: Fed’s Powell Talks Tough After Rate Hike, But a Pause Seen Likely From Here

Chart of the Week:

A chart from Bank of America featuring the AAII investor survey data shows a significant divide between stock positioning of retail investors (dark blue) and professional investors (light blue).  This gap will likely close – either by professional money managers chasing returns, or volatility causing retail investors to reduce their fully-loaded equity allocations.

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