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2024 Second Quarter Insights

April 2024 • Edition 34

The 4 Disciplines of Investing for Retirement and Wealth Creation

1. “Investing is a marathon and not a sprint.”
2. “Do no harm.”
3. “Knowledge creates success; stay calm, objective and long-term oriented.”
4. “Choose carefully what you read and to whom you listen.”


“The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.”
– Warren Buffet

2024 started off right where 2023 ended, in the midst of a buying stampede that began in late October. Today, the S&P 500 index has been overbought for 50 consecutive days, moving it into a unique group of only 12 prior instances since 1943. The most recent occurrence was in early 2018, during a tight monetary policy environment, in which the S&P 500 plummeted nearly 20% during November and December of that year. The second most recent occurrence was in 1998, where the S&P 500 also fell over 15% from those overbought numbers in a few months. Lastly, March of 1987 saw another S&P 500 buying stampede end after 58 days of being extremely overbought. The first half of 1996 as well as 1987 were not good times to be overly bullish. As I will discuss in this Quarterly Insights, we are not overly bearish or bullish in the short term, merely cautious. We live in an environment with elevated tail risks ranging from fiscal concerns to geopolitical concerns. Please enjoy reading our latest insights.

Pros and Cons

Below are some of the items we are watching during the first quarter and into the second quarter of 2024.

Pros:

  • AI and technology-led Fourth Industrial Revolution
  • Low unemployment
  • $6 trillion dollars on the sidelines in money markets
  • Interest rates and inflation appear to have peaked

Cons:

  • Oil prices up 16% with gasoline prices up 29% YTD
  • Inflation is sticky, with rising energy price along with copper, lumber, and other commodities moving higher
  • Valuations on equities are not inexpensive
  • US Federal Government spending and Deficit are not sustainable
  • Higher Treasury yields likely
  • Geopolitical issues
  • Investor Bullish sentiment is close to or at all-time highs

Inverted Yield Curve

The 3 Month Treasury Yield and the 10 Year Treasury Yield curve have now been inverted for over 500 days. On average, it takes 589 days for a recession to begin. In 2007, the last time the yield curve was this inverted, the S&P 500 climbed to all-time highs through October of 2007 while the curve remained inverted until a recession appeared at day 712. The 3 Month Treasury Yield and the 10 Year Treasury Yield curve are considered one of the most reliable indicators of a recession, and investors that dismissed or did not respect it paid a hefty price in 2008 with losses on some indexes that were greater than 50%. “This time is different,” famous last words.

BW-2024-2ndQuarter-Chart1

Source: StockCharts.com

Fear & Greed Index

Investor sentiment is hovering around all-time highs. Most investors feel that equities and markets will never move lower. Below is a chart we use often, and it shows that investors are very optimistic on the markets. I want you to look at the 1 year ago number, it was at 41. This number is particularly important because this time last year, we had Silicon Valley Bank, Signature Bank, and First Republic Bank get shuttered by the FDIC, and the Federal Reserve launched the Bank Deposit Funding Program to prevent a systemic financial banking crisis. The S&P 500 traded as low as 3,800, investor sentiment collapsed and fear exploded higher. The average investor is often being driven by the emotions of fear and greed.

BW-2024-2ndQuarter-Chart2

Secular Bull Market

In the short-term, we are cautious, and on intermediate to long-term, we remain bullish on the prospects of higher markets. There are a lot of uncertainties currently, and as a result of all the Covid programs and the massive infusion of liquidity into the markets, we believe investors and investments can be more susceptible to larger market moves in both directions.

Written by: Nicholas W. Sergio, AIF®
Founder & Chief Investment Officer • Banyan Wealth
Registered Principal & Financial Advisor • RJFS
2024 RJFS Leaders Council Member*
nick.sergio@raymondjames.com
banyanwealth.com/

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Dow Jones Industrial Average (DJIA) commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The Russell 2000 Index measures the performance of the 2000 smallest companies in the Russel 3000 Index, which represents approximately 8% of the total market capitalization of the Russel 3000 Index. BPS stands for Basis Points and refers to a common unity of measure for interest rates, one basis point is equal to 1/100th of 1% or 0.01% it is used to denote the percentage change in a financial instrument. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of capital might occur. All investing involves risk and you may incur a profit or loss of capital. There is no assurance any investment strategy will be successful. All information, data and analysis provided in this report is for informational purposes only and is not a recommendation to buy or sell any security. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete; it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Any opinions are those of Nicholas Sergio and not necessarily those of Raymond James and are subject to change without notice. Raymond James does not offer tax advice and services. You should discuss any tax matters with the appropriate professional. Holding investments for the long term does not insure a profitable outcome. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer’s credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of a portfolio. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.

* Membership is based on prior fiscal year production. Re-qualification is required annually. The ranking may not be representative of any one client’s experience, is not an endorsement, and is not indicative of advisor’s future performance. No fee is paid in exchange for this award/rating.

https://www.cnn.com/markets/fear-and-greed