April 2023 Market Update
US Equities proved their resolve posting impressive gains for the quarter. Inflation remains an issue, although the severity is declining. The economy still seems fine, however, the record rise in the Fed Funds Rate from 0% to 5% is starting to create some visible damage (bank failures, higher costs of debt, ongoing layoff announcements, growing concerns in real estate).
2023 YTD vs. the recent 5-year period:
Year-to-date:
It's a bit amusing to view the markets in terms of Growth vs Value. US Equity Growth moved significantly higher in the first quarter – albeit from somewhat weak levels based on a negative return in 2022 and tax loss selling into yearend. US Equity Value did not participate in the upside – the bank and energy sectors are examples of why (some banks failed and oil prices declined). In terms of the overall market, the S&P 500 continues impress (led by large cap tech of course).
Russell 1000 Growth (Yellow) / Value (Light Blue) and the S&P 500 (Dark Blue)
The five year trend…
Russell 1000 Growth (Yellow) / Value (Light Blue) and the S&P 500 (Dark Blue)
As stated in February, the Fed is the most important input right now and the equity and bond markets are simply anticipating rate moves. The expectation of a pause in rate hikes is what moved the market 1Q23. I’m not interested in being gamed by the market or the Fed with such aggressive short-term moves (higher) in US Growth Equity; remain patient and focus on what you can control.
Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity:
In the fixed income market, the yield for the 2-year Treasury Bond peaked at 5% in March and a week or so later was just under 4%. That is a big move and is typically not regarded as a sign of economic stability.
The highly anticipated recession of 2023 remains as stealth as ever – the negative effects of the Regional Bank situation will be revealed soon enough. Risk and volatility for US equities remain elevated. The broad market is still adjusting to higher rates and now tighter lending standards (the US economy runs on debt – lots of it).
Core Portfolio:
I remain selective regarding entry points when adding exposure to the US equity market. Don’t chase short-term rallies, slowly add to US Equity at the lows as best as possible. With cash and short-term treasuries earning 4-5%, being patient is more valuable than usual. Short-term treasuries remain attractive via a laddered bond portfolio.
Satellite:
I am watching Energy, MLPs and Industrial Real Estate (not office). Individually, these are quite volatile. The strategy for any satellite position is to add on weakness, dollar cost averaging into positions from cash. The purpose of the satellite portfolio is total return with reduced correlation.
Pro Tip: About those regional bank failures:
The Russell 2000 Value Index is a popular passive ETF vehicle. Be aware that the largest sector in the Russell 2000 Value is 26% Financials (that’s a lot for a sector and it is mostly Regional Banks)…it is probably a good time to start looking for an experienced active manager in the small cap value category.
Meme of the Moment:
Some of Janet Yellen’s statements in March 2023 regarding the banking situation were not well received by the banking experts - which prompted the following artwork on twitter. It’s good to keep it light hearted and twitter is great for political cartoons.
Best,
Jon Fritzinger
Founder / CEO
Western Level Advisors LLC
Hello@westernlevel.com
About Western Level:
Western Level Advisors LLC is an independent Registered Investment Advisor. The firm provides investment management and long-term financial planning services for individuals. All services are provided on a fiduciary and fee-only basis. Western Level’s only purpose is to establish a clear pathway for each client to help them manage and compound their wealth.
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The above google finance charts cover the year to date and 5-year periods as of April 5th, 2023 and are NAV only, the income they distribute is not represented. Performance is not annualized. For a complete review of the ETFs in these charts and their performance:
https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-sp-500-etf-trust-spy
https://www.ishares.com/us/products/239706/ishares-russell-1000-growth-etf
https://www.ishares.com/us/products/239708/ishares-russell-1000-value-etf
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Disclosures:
Western Level Advisors LLC ("WLA") is a registered investment advisor. The information provided in this commentary is intended to be informative and not intended to be advice relative to any investment or portfolio offered through WLA. The views expressed in this commentary reflect the opinion of the author based on data available as of the date this commentary was written and is subject to change without notice. This commentary is not a complete analysis of any sector, industry or security. This commentary is not intended to be a recommendation to buy or sell any investment. Please contact WLA with any questions regarding your accounts. The information provided in this commentary is not a solicitation for the investment management or other services offered by WLA. References incorporated into the commentary from third party sources are as of the date specified and are believed to be reliable. WLA is not responsible for errors in the third party data. Source information is provided under each chart. Additional disclosures are available at www.westernlevel.com.