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One down and three to go

| April 12, 2023

We finished up the first quarter of 2023 on the plus side, though it was a very lopsided market. Those parts of the markets that did well this quarter were also some of the biggest laggards over the past year.

The disparity between large cap and small cap is huge, not to mention growth versus value. Let’s look at a couple of stocks that are extreme examples. Both are tech stocks and both are wildly volatile.

Meta (Facebook) is up almost 80% this year, but still down over 40% from its highs about a year ago.

This one is Netflix.  Up only 14% for the year, but up over 100% from its lows in July of last year. Of course, it is still down roughly 50% for its highs in late 2021.

Obviously, these are extreme examples, but very large, well-traded stocks. I don’t know very many people who can stand that type of volatility. In fact, we can see that many people bailed out of the stock at the lows (in both cases). Why? Because Netflix went from $800 to $164 a share and Meta went from $384 to $88. Crazy! Would you be able to hold on through that if these were meaningful positions in your portfolio?

In fact, here’s how narrow the market is this year. There has been a $2.15 trillion increase in value across the S&P 500, but almost all of that is in just the 20 largest companies.

This is in contrast to what the bond market is saying. The 3 month/10 year treasury hasn’t been this inverted since the 70s and early 80s and the bond market is saying there will be a recession.

Now, maybe the bond market is wrong and we won’t have a recession, or that it will be so mild that we won’t really notice. We will see.

We certainly talked about green shoots last week and we see some, just not enough to get wildly bullish yet.

Here are relevant comments from our good friends at Riverfront.

I think that’s a pretty balanced look at the possible outcomes. Which one actually happens is anyone’s guess. What do you think?

Here’s another look at the disagreement between the FED and the bond market referenced by Riverfront. It will have to be resolved one way or the other.

Finally, not much has changed with our model recently. Here are how the macro asset classes stack up currently.

International is still holding the top spot with cash sitting in second place. Commodities not far behind in third place. Domestic equities sit at #4, perhaps a reflection of the narrow market we looked at earlier.

Have a good week and as usual, if something doesn’t make sense or you want clarification, let’s talk. Oh, and don’t forget that Tax Day is less than one week away (April 18th). We’re here if you need tax docs – or if you want to do some tax planning for the year ahead!