Adapted from my letter sent to my private wealth management clients on March 17, 2024.

Stock market indexes are once again hitting all-time highs. To have fully benefited from these gains, investors couldn’t buy into the stock market at the last minute; they needed to be buying or maintaining their positions when the situation didn’t look so rosy, in fact, it may have felt like a terrible time to be an investor.

As has so often happened in the past, the investors who are really benefiting from these new stock market highs are the ones who had to once again “climb a wall of worry” and exhibit great patience and investment discipline. Congratulations on your fortitude and sticking with the plan!

In the early days of the Covid pandemic, markets tanked and quickly lost about a third of their value, the S&P 500 stock market index dropped to 2,237, and the economic future was quite uncertain. I wrote to clients encouraging them to embrace a “Stockdale Mindset.”

“In times like today, remember the Stockdale Paradox: expect a rough road ahead, but with history as your guide, never stop believing that the good days will return.”

I wrote that “we developed financial plans and portfolios that insulate near-term (up to 5 years) financial needs from stock market risks,” and that “it’s important to note that five years easily covers most of our historical bear markets and recessions, as well as the subsequent recoveries (the Great Depression lasted 10 years, but when adjusting for dividends and deflation, actually offered decent investment returns in the interim).”

Looking back to early 2020, investors indeed traveled a rough road littered with market shocks, soaring inflation, recession threats, bank failures, corporate scandals, wars, and all manner of political turmoil; however, the market quickly recovered, and although stocks and bonds took another tumble in 2022, we are again witnessing record new highs with the S&P 500 crossing the 5,000 mark. We’re likely wishing we’d had more money to put into the market in early 2020!

“2022 was a really rough year for the markets. Soaring interest rates caused the bond markets to crash—have their worst year in about 100 years—and stocks had a tough year as well. So, coming out of 2022, looking at what was at stake, many forecasts were predicting a recession and predicting poor market returns heading into 2023. Instead, what happened? Patient and disciplined investors, those who more or less said, "I'm going to set aside these forecasts and the doomsayers," and stayed invested were rewarded with unexpectedly strong returns, in particular here at the end of the year, we were treated to a Santa Claus rally. Broadly, the markets had a really nice lift. This was a year where things were fairly concentrated, but the S&P 500, which is a stock market index that you hear widely cited, and it finished the year up 26%.”

I shared these thoughts and others in this financial outlook episode of my Money Matters radio segment (click to listen to the entire episode).

Portfolio Allocations

The past few months have been research heavy as I’ve attended meetings with economists and market strategists from firms such as JP Morgan, Goldman Sachs, First Trust, Wellington, DFA, First Eagle, and Thornburg Asset Management. There were many interesting viewpoints offered by impressive research teams.

Short-term market prognosticators have a very poor track record, as I detailed in this episode of Money Matters, but market valuations themselves have offered useful guideposts. A few points stand out when looking at today’s market, current valuations, and historical indicators:

U.S. large growth companies, particularly those in the technology sector, look comparatively expensive
International stocks are considerably cheaper and offer a richer dividend than U.S. stocks, on average. We should not forget that there have been periods where international stocks have significantly outperformed the U.S.
While yields on cash holdings and bank deposits look better than they have in many years, we expect bonds to outperform cash holdings going forward

With these observations, I am leaning portfolios into apparent investment opportunities and keeping a lighter portfolio exposure to assets that seem overpriced. Still, we know that valuation metrics or other fundamental investment measures are not perfect measures, and even if eventually accurate, they have been less helpful as short-term timing techniques.

Given these considerations, we know it is best to keep our tactical portfolio tilts modest and hold fairly tightly to the appropriate long-term strategic asset allocation we’ve developed with clients during our planning sessions.

New Planner Recruiting Podcast Interview

Caleb Brown has built “New Planner Recruiting” into one of the industry’s most recognized matchmakers for Registered Investment Advisory firms and early career financial planners. I had the pleasure of catching up with Caleb to talk about my path in the field and philosophy around striving to provide great value through advice and service. If you’re interested, you can listen to our conversation here.

In that vein, our team has received a generous number of referrals and to ensure that we continue to provide a high level of client service and expert quality of financial advice, I’ve been having many conversations with prospective team members. I plan to introduce a new team member soon. Thank you for your support!

We look forward to continuing our journey together through 2024 and beyond!

If you have any questions or would like to set a time to discuss your financial and investment plan, please let us know.

Thank you,

Scott Oeth, CFP, MSFS

Source:

J.P. Morgan Asset Managment - Compustat, FactSet, Federal Reserve, Refinitiv Datastream, Standard & Poor’s, Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price, as provided by Compustat. Forward price-to-earnings ratio is a bottom-up calculation based on IBES estimates and FactSet estimates since January 2022. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of February 28, 2024.