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For our latest newsletter and 2024 Outlook from the period ending 12/30/23 CLICK HERE.

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EXCERPT FROM CLIENT LETTER 12/30/2023  (see full letter above for tables, charts, and full commentary)

FROM THE DESK OF BOB CENTRELLA, CFA                                                                     January 9, 2024

Happy New Year and wishing you all a blessed and healthy 2024 and beyond.  I received a belated Christmas gift when the Steelers snuck into the AFC playoff picture on Sunday. I’m not overly optimistic on their chances but as they say, “On any Given Sunday!” Congrats if your team also made it to the playoffs and has a chance to go to Las Vegas for the SB.

After 2022’s year of carnage there was a lot of angst about how 2023 would unfold.  Few were expecting 2023 to turn out so well in the equity markets, but a strong January led to optimism until the banking crisis hit due to rising rates. The  market bottomed in March after the Fed intervened and Silicon Valley Bank was sold, leading stocks back up and close to highs in August for a solid gain in the first 7 months.  Then bond yields started rising again with the 10-year UST reaching 5% and stocks stumbled in Q3. Also, Hamas attacked Israel bringing back some more angst in October. After stocks fell about 10% at the end of October from the August high, the Fed caught investors by surprise and offered a more dovish outlook for interest rates (supporting lower interest rates) as inflation data got better.  That fueled stocks to a 15.7% gain from the bottom to a big year overall. The S&P 500 returned over 26% for the year including dividends.  Also, bonds rallied as the 10-Yr yield dropped back below 4%.  You may recall that in my Q3 letter I proclaimed that “It’s the 10-year Stupid”.  And it sure was, as stocks followed the rally in the 10-year bond. 

[Table 1]

The crypto currency Bitcoin had a big bounce-back year climbing 156.8% while Ether rose 91.3% as the big winners. Bitcoin has been rising in anticipation of the SEC allowing Bitcoin ETFs to trade. But stocks were the big winners in 2023. The Nasdaq 100 rose 53.8% led by the now called Magnificent 7 (Apple, Microsoft, Alphabet, Meta, Amazon, Nvidia, Tesla). These 7 stocks alone generated over half of the S&P price gain of 24.2%. Almost 75% of the rest of the stocks in the S&P 500 underperformed the index so it was a very concentrated gain among the mega-cap stocks in the index.  Foreign stocks also had a strong year led by the Nikkei 225 up 28.2%, Italian MIB +28%, Taiwan +26.8%, Bovespa +22.2%, German DAX +20.3% and the French CAC-40 up 16.5%.  Overall, the Euro Stoxx index rose 15.7%.  Among other indexes and assets, the Dow Jones Industrials rose a “pedestrian” 13.7%, while Gold was up 13.3%. Bonds ended up in the positive with the Barclays Aggregate returning 2.34% after a big Q4. On the downside, Crude Oil fell 10.7%, Lean Hogs -22.5% and the biggest loser was the Argentine Peso off -78.1%.

Among cap sizes and styles, Large Growth (+28.4%) trounced Large Value (+19.9%).  Large cap S&P 500 (+24.2%) outperformed  Midcap (+16.5%) and SmallCap (+16.2%). The Russell 2000 SmallCap lagged but still returned 14.9%. 

For 2024, I think it will be an up year for stocks and a collect the coupon year for bonds. In sum, I think equities outperform bonds, but bonds should be held for income and protection in balanced accounts and should produce positive returns. I continue to favor a diversified equity portfolio with exposure to mid, small, and international stocks. Stock-picking will be key as you can’t just own the “Magnificent Seven”. Click on the link above to see details and my full letter with Summary & Conclusions.

Bob
  
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Bob Centrella, CFA
Managing Partner
Forza Investment Advisory, LLC

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