Perspectives
Quarterly Market Newsletter
Third Quarter, 2024
Each year, the third calendar quarter is typically the most volatile. There are a few explanations as to why, but none seem to stand up to scrutiny. An old one has to do with the agricultural cycle when farmers needed to borrow funds to bring in the crops, thus draining the banking system of liquidity. Another more recent one is that this period saw the fiscal year-end for many mutual funds. Many funds would do some selling and would be reluctant to add new positions as they approached the end to their measurement cycle. A third explanation is that it is simply a historical accident that weighs on investors’ psyche and perpetuates similar expectations and behaviors.
Nevertheless, this year has been no different. The extreme volatility started in early August and reappeared in September. The ostensible cause was fear for the economy and concern that the Federal Reserve was too slow in reducing interest rates. By being too tight for too long, many investors feared that our Fed would throw our economy into recession. Some respite happened when the Fed finally began reducing rates in September by a larger-than-expected one-half percent.
After the rate cut, markets celebrated. However, with the looming presidential election and many potentially threatening international events, volatility is likely to return. This is why Riverplace Capital has taken some defensive moves. Among these have been removing the “dead wood” from portfolios and raising cash levels. This has not prevented us from also picking up some bargains as they emerged. To see what we expect now, read the Forecast section of this letter.
Forecast
Economy
Now that our Federal Reserve has started loosening monetary policy, our confidence that our economy can continue to grow is enhanced. We cannot yet say that a recession has been avoided, but the odds are better. The results of the upcoming presidential election will pose another set of variables that could cause further concern. This is why Riverplace Capital is braced for a continuation of volatility well into the fourth quarter.
In a recent blog, Riverplace Capital offered advice on how to invest during volatile times. Some suggestions included be patient, raise cash reserves, and be prepared to pounce when opportunity arises to pick up bargains and enhance your portfolio. This is what we have been doing.
Equities
Fixed Income
Investment Strategy
Equities
Riverplace Capital has done some selling clearing out what we perceive as “dead wood.” This leaves room to upgrade portfolios and pick up some bargains. We will continue to do this until we rebuild portfolios back up to being fully invested. However, we are in no hurry and believe being patient and going slowly will pay off.
Clearly, the newly emerging technology of artificial intelligence is providing many interesting investment opportunities. Good research is needed to identify the best ones. Then, of course, price also matters. This volatile period is offering up occasions when both quality and a reasonable price are available. We have pounced.
The shift from a stock market that was narrowly focused upon only a few reliable fast-growing companies to one that sees a broader array of opportunities continues. Of course, this depends upon continued economic growth. With the recent pivot in monetary policy by our Federal Reserve, that expectation is enhanced. Therefore, we are continuing to add to sectors that are typically business cycle sensitive. Many issues here are cheap, but quality and resilience are what we are looking for.
In short, we are using this period of uncertainty to upgrade portfolios and position them for continued growth.
Fixed Income
Wealth Management
Talk With Us
The world moves through incremental changes, most of which fail. Many are small but some changes are large. When a change survives, it moves the earth. That move may not be all that apparent immediately but in time can have major effects. Just look back at the many technological innovations over the past two decades. Did anyone truly grasp how much the original personal computer would change everything? How about the first mobile phone? At first, both seemed to be cute toys useful to only a few!
Investing, in many ways, reflects reality. Many investments fail to perform as expected, but then one in an obscure corner catches fire and succeeds beyond original expectations. How often, when looking back on a portfolio’s performance, do surprising results come from unexpected candidates? Good investors accept that serendipity plays a big role.
Failure is easier to identify than potential. A good strategy is to remove the clear failures in a portfolio (removing dead wood). This makes room for potential positive surprises. At the heart of this approach is the willingness to keep looking and exposing the portfolio to this possibility. Once success is found, stick with it. That is what nature does!
Remember, diversification is both defensive and offensive. It is defensive in that it distributes risk over many investments thus preventing a big negative surprise from one that could do major damage to a portfolio. The offensive nature comes from exposing a portfolio to many more opportunities.
There is a lot to be learned from nature. These principles are merely a few. If you would like to discuss your approach and review your holdings, Talk with Us.
as of 9/30/2024
20.8%
Dow Jones Industrial Average
12.3%
Mid Cap Stocks (S&P 400)
12.2%
NASDAQ Composite
21.2%
Small Cap Stocks (Russell 2000)
10.0%
MSCI EAFE
10.4%
Barclay Aggregated Credit Index
5.2%
Inflation
2.5%
(Equity indices are nine-month returns excluding dividends)
Mother Nature always wins.
- The Lonely Bull
Notice
Riverplace Capital is offering a free financial plan ($1,500 value) for anyone, not just our clients. Information is powerful and knowing how well your needs are being covered can help you make better decisions during this time of heightened uncertainty and stress. You may want to analyze a variety of “what ifs.” Can you be more aggressive with your investments, or should you be more conservative? If you get sick, how well can you manage through the illness? Other questions may come to mind that cold rational analysis can help you see through the fog of the moment.
Free is free and no one is under any obligation to Riverplace Capital. The Bull and his partners want to help investors make the correct decisions. In other crises, we have seen too many people do great harm to their financial futures. This can be avoided with the proper analysis and counsel. It is important to stay on a disciplined path. You may need to make changes, just do them as part of a rational plan. Let us help you.