Please, sir, I want some more.
The Oliver Twist fans out there will probably recognize this line from the classic Charles Dickens novel. Young Oliver requested some more gruel on his first day at the orphanage. He didn’t get more; in fact, he got a nasty reprimand and was treated like an ingrate and a general miscreant for asking. So…maybe this shouldn’t be the headline for this quarterly summary, but… wow! What a great quarter we just had! I would like another, please!
It is not often that we put together our chart of indices and see positive gains across the board. Nice gains, to boot. Lot’s of double-digit gains. Take a look at the Bloomberg Sub Gold Index – up 41% over the trailing twelve months. If we didn’t have any other information and you told us that gold was up by that amount, our immediate thought would be that it must have been a bad year for stocks, because gold is often used as a safe haven asset when other markets are getting clobbered. Clearly that has not been the case this year.
The economy is humming. Unemployment remains low, inflation just came in at 2.8% this past quarter, wages are higher, the housing market is showing signs of coming back and CDs and bonds are offering healthy yields. It appears that the Federal Reserve actually pulled off that soft landing.
Yet…it doesn’t quite feel that way for many Americans. A lot of basic prices remain high. This is partly due to the fact that we avoided a recession and so we didn’t have deflation. Inflation has slowed down and is getting nearer to the Fed’s target of 2%, but the cost of goods is still higher than it was pre-pandemic. The job market is strong but the dollar doesn’t go as far. We suspect that the economy feels quite different depending on what the credit dynamics are in each household. If someone has an existing low-rate mortgage and has savings in their bank account, they are benefitting from an increased home valuation and they are getting a nice yield on their savings and CDs. On the other hand, if someone is in the market for a new house they are looking at higher prices and a higher mortgage rate, which could really cut into their disposable income. Households that have high credit card debt are in a very difficult position as interest rates have risen quite a bit. This is not a good time to be carrying debt.
We are optimistic that we are on a good path. One thing we know for certain is that our chart of indices will not always look as rosy as it does right now. The push and pull of market forces will reward some sectors and penalize others. We believe a diversified approach that includes a variety of sectors provides the best opportunity for mitigating risk and offering the potential for long-term growth. It is a better formula for success than whatever goes into making gruel, right Oliver?
*The index returns are drawn from Morningstar Advisor Workstation. Indexes are unmanaged and cannot be invested in directly by investors. MSCI EAFE NR USD-This Europe, Australasia, and Far East index is a market-capitalization-weighted index of 21 non-U.S., industrialized country indexes. S&P 500 TR USD – A market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it’s often used as a proxy for the stock market. TR (Total Return) indexes include daily reinvestment of dividends. Bloomberg US Agg Bond TR USD This index is composed of the BarCap Government/Credit Index, the Mortgage Backed Securities Index, and the Asset-Backed Securities Index. The returns we publish for the index are total returns, which includes the daily reinvestment of dividends. The constituents displayed for this index are from the following proxy: iShares Core US Aggregate Bond ETF. MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. Russell 2000 – Consists of the smallest 2000 companies in the Russell 3000 Index, representing approximately 7% of the Russell 3000 total market capitalization. The returns we publish for the index are total returns, which include reinvestment of dividends. The MSCI Emerging Markets (EM) IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of May 2005 the MSCI Emerging Markets Index consisted of the following 26 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.. The FTSE NAREIT Equity REITs Index is an index of publicly traded REITs that own commercial property. All tax-qualifies REITs with common shares traded on the NYSE, AMSE or NASDAQ National Market List will be eligible. Additionally, each company must be valued at more than $100MM USD at the date of the annual review. Equity REITs include Diversified, Health Care, Self Storage, Industrial/Office, Residential, Retail, Lodging/Resorts and Specialty. They do not include Hybrid REITs, Mortgage Home Financing or Mortgage Commercial Financing REITs. Bloomberg Sub Gold TR USD Description unavailable. Formerly known as Dow Jones-UBS Gold Subindex (DJUBSGC), the index is a commodity group sub-index of the Bloomberg CI composed of futures contracts on Gold. It reflects the return of underlying commodity futures price movements only and is quoted in USD.