Insights

The Compass Q2 2024

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”

― Charles Dickens, A Tale of Two Cities

While Dickens was contrasting the lives of three families in London and Paris during the French Revolution, we think he could easily have been describing the stock market in 2024. For investors who owned a small select group of stocks (specifically Nvidia, Taiwan Semiconductor, Eli Lilly, Broadcom & Qualcomm) your return so far in 2024 is in excess of 70%. If on the other hand you owned the Dow Jones Industrial Average your return year to date is 5%, which pales in comparison.

Read July 2024 Compass

The Compass Q1 2024

“I skate to where the puck is going to be, not where it has been.”

-Wayne Gretzky aka “the Great One”

Nine-time winner of the Hart Trophy (NHL Most Valuable Player)

INVESTMENT UPDATE

This year’s market advance (saying nothing of the advance since the end of October 2023) has been breathtaking to say the least. While 2023 was dominated by the Magnificent Seven (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) so far in 2024 the market has broadened out to include many other stocks and sectors. In fact, the two leading sectors so far in 2024 are Energy and Communication Services.

Read January 2024 Compass

Fixed Income – The Compass – January 2024

FIXED INCOME

The fixed income markets continue to be volatile, but at the intermediate to long end of the curve. While the Fed has hinted at lowering rates, the evidence of when and how much continues to be the major discussion. Late in 2023 the Fed issued their “dot plots” (the expected path for rates) and targeted some 3 cuts in 2024. There was a major disagreement as the market had forecasted 6 – 7 cuts. Three months into 2024, both seem to have been way off. The Fed has an expectation of 0-2 cuts now, while the markets are betting on 1-3 cuts. This uncertainty has added to confusion and volatility in all markets. Numbers across the economy have been mixed while inflation remains sticky around the 3% level and job growth remains persistent (unemployment rate remains below 4%). The short end of the curve will not begin to move until the Fed starts to cut but the benchmark 10-year US Treasury continues to move based on those expectations for future cuts and more importantly the reasons for the cuts or the impact on the economy. The 10-year US Treasury closed the quarter with a 4.26% yield. In the last couple of days, it has even pushed slightly higher, putting it at levels we have not seen since late 2023. Where we go from here will be based on both the Federal Reserve and the economy, and their impact on each other.

Equities – The Compass – January 2024

EQUITIES

The equity markets started off at a positive pace to begin the year. The S&P 500 ended the quarter at an all-time high along with posting the best first quarter in some 5 years. The S&P 500 was up just over 10% for the quarter, while the Dow Jones Industrial Average and Nasdaq also participated, up 5.6% and 9.1%, respectively. Much like 2023 ended, the market’s gains were pushed by the excitement around artificial intelligence (“AI”) and the demand for stocks that had exposure to that industry. While those stocks associated with AI led the markets early on, there was some broadening out towards the end of the quarter. The Invesco S&P 500 Equal Weighted index participated also, outpacing the major indices for the month and up greater than 7% in the quarter.

As for earnings, the S&P 500 delivered 10.1% growth in 4Q23. This was driven by double digit growth by Communication Services, Consumer Discretionary, Utilities, and Technology. These growth numbers were dragged down by Health Care, Materials, and Energy. There was a significant spread between the top and bottom section of some 74%. Each reported negative earnings for the quarter. Revenues by comparison were up 3.7% for the most recent quarter. These numbers did not have the variance that

earnings had. There was only an 18% variance. Of the 11 major sectors, only 3 had negative results: Materials, Utilities, and Energy. The remaining sectors are reported at between 2.9% (Consumer Staples) and 7.9% (Technology). Source: LSEG S&P 500 Earnings Scorecard as of 3/28/24

Where do we go from here… The markets have all been positive not only since the beginning of the year, but also looking back to the lows posted in October. Prices have moved higher and while some stocks have gotten cheaper on a valuation basis, the major indices have not. Going forward, what are investors going to do? Will they continue to stay invested in those names that have outperformed, and do they continue to deliver based on expectations? Or is there broadening of the market participation that is sustainable? For either decision, what are investors willing to pay based upon interest rates and their direction? These seem like the same questions we have been asking for the last year plus. Will we get any answers or continue to climb those walls of worry?

The Compass – November 2023

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

Over the past nine months we have heard many a pundit declare unequivocally that a certain set of events were going to come to pass. From recession calls to cuts in interest rates by the Federal Reserve; many of the prognostications from earlier this year have failed to materialize as the market yet again proved that it can be very humbling to those who believe they know for sure what events will come to pass.

Maybe as a result of all “the certainty” that was being proffered, the market has been somewhat manic in its behavior this year. Throughout all the tumult, we at Cypress Bank & Trust have remained firm in our approach towards risk management in our clients’ portfolios. We have continually sought out opportunities that offer compelling return prospects that fit our individual clients’ risk tolerance.

Read November 2023 Compass