Market Update and Portfolio Rebalance-November 2023

We have recently completed our semi-annual Fall Rebalance and Portfolio review. We largely felt comfortable “staying the course” with most of our holdings. However, the economic landscape is ever changing. And with those changes come opportunities for strategic adjustments, and careful risk controls.

Because you may notice some activity in your account, we wanted to provide you with a brief overview of our market outlook as well as some core investment themes we are addressing on your behalf.

There are plenty of reasons to be optimistic about where we’re headed:

·         The labor market shows signs of moving in the right direction, with more balance between the supply and demand for workers.

·         Inflation is coming down. The Fed is most likely done with its aggressive rate-hiking campaign, which is good news for investors and policymakers alike.

·         The fourth quarter is historically the best quarter for the S&P 500, with average gains of around 4.2%.

While we are optimistic by nature, we need to acknowledge the challenges and unknows the investment markets are currently wrestling with:

·         Geopolitical conflicts in Ukraine, The Middle East, and the risk that these conflicts spread to neighboring regions. 

·         Potential for slowdowns in the US economy as consumers and businesses grabble with the likelihood that interest rates will stay higher for longer.

·         Weakening foreign trade as China’s economy slows and the U.S. dollar strengthens.

Our aim is to keep you positioned in holdings that are appropriate for your goals, control risk, and can participate in growth and innovations.

Here are 3 core themes are addressing with our revisions:

Bonds– Short- and intermediate-term bond yields are at multi-year highs due to an aggressive rate hiking effort by the Federal Reserve. As we are likely approaching the top of the rate hiking campaign, we want to add more intermediate-term bond holdings at these higher yields. Bonds are useful components of a balanced portfolio and can provide a hedge against recessions or geopolitical events.

Valuations Matter– Positive market growth in 2023 has largely been driven by a select few large companies. We continue to have a positive view on many of these companies, and also feel there are mid-sized and small-sized companies that are inexpensive relative to the current price of some market leaders. We want to make sure we have a balanced exposure to take advantage of value today. 

Tax Efficiency– Because much of the market gains this year have come from a few companies, there is an opportunity to shelter current or future gains through tax-loss harvesting. Furthermore, we have identified several opportunities to utilize tax-efficient ETF investments which are less likely to create capital gains distributions (these can increase your tax bill). 

If you are interested in hearing more about the changes we have made, and why we are making them, we have posted a short video discussing these updates, which you can view on our website.

It is often in times of mounting market concerns that we see the resiliencies of companies take over. Addressing our bond exposures, and continuing to monitor equity opportunities, should help your investments stay competitive and balanced in 2023 and beyond. 

As the fourth quarter continues, we will hope for continued clarity but plan for uncertainty. In the meantime, these model adjustments will continue to support the diverse approach we take with every strategy.