Q4 2023
Dear Client,
Happy New Year!
2023 marked our first full year as Orographic Financial Advisors. We knew we would work hard, and we hoped you would work with us through any potential hiccups (though thankfully there were very few). Now, seeing it with the perspective of a year behind us, it is quite gratifying. We hope you feel the same and know that we are honored and humbled by your trust and confidence in us. If anything has changed in your financial situation, or you just want to have a check-in or catch-up, please reach out so we can schedule some time together.
2023 will certainly be a case study in both economics and behavioral finance in future years. The resounding and overwhelming consensus at this time last year was that we were moving quickly toward a recession and the best place for your money was short term Treasury securities. As it turned out, Treasury securities were great, yielding 5-5.5% over the course of the year. We were and are happy to have been able to finally get back to buying some bonds with attractive real returns. However, the equity market and the economy shocked everybody with overwhelming strength and by maintaining steady growth respectively.
The index numbers for the quarter and full year are as follows (calculated from wsj.com/market-data):
S&P 500 change: 11.33% Q4 (23.79% FY 2023)
S&P 500 Equal Weight Index: 11.26% Q4 (11.56% FY 2023)
Nasdaq Composite change: 13.57% Q4 (42.13% FY 2023)
Nasdaq Composite Equal Weight Index: 13.24% Q4 (31.2% FY 2023)
Dow Jones Industrial Average change: 12.66% Q4 (13.7% FY 2023)
Ten Year Treasury Yield change: -16.52% Q4 (2.87% FY 2023)
Crude Oil (WTI Front Month Contract) change: -21.11% Q4 (-11.07% FY 2023)
Gold (GLD ETF) change: 12.3% Q4, (11.59% FY 2023)
Clearly, the fourth quarter of 2023 was a heck of a year!
In particular it is interesting to note that the equal-weighted indices performed equally strongly as the market-cap weighted indices. That means the performance was not limited to the largest few stocks as it was for most of the year. If that signals a shift in trend, it could well be the start of the catch-up for the smaller cohort of the indices. If so, that could lead to a sustainable continued positive performance for the markets. That said, it could also have been year-end ebullience and way too much positivity following the errant assumption that the Fed will be aggressively cutting rates and the economy will continue to chug along in 2024. As ever, we lean toward a positive, but cautious outlook. In this case that means we think the run-up in Q4 was overdone and the likelihood of 5+ rate-cuts (as some market participants were claiming as justification) is quite low. Rather we anticipate a slow and cautious stance from the Fed, meaning rates will stay where they are for much of 2024, and that may well result in slowing (or at least quite weak) growth during the year.
Much like last year when we didn’t quite buy all the doom-and-gloom leading into 2023 (although we maintained our cash cushion and caution), we aren’t convinced that it’s clear skies ahead in 2024. We will maintain cash and fixed income cushions as it makes sense for each of your individual situations and look for opportunities as well as potential problems as the year progresses.
We must also be wary of the potential impact of domestic politics as we enter a presidential election year, as well as the ongoing terrible situations in the Mid-East, and in Europe.
The end of one year and the beginning of the next is inevitably a time for reflection as well as looking to the future. In that spirit we wanted to share a bit of the philosophy we bring to Orographic and to you:
Patience, persistence, a bit of passion, and attention to detail. These are some of the necessary ingredients as we strive to manage your investments and guide your financial situation through the ever-changing economic and market environment. We try to never chase fads but pay attention to trends. We continually monitor our existing investments, investments we are interested in but haven’t yet acted on, and the shifting sentiment and news in the markets. We must approach our work with some amount of passion and enjoyment in order to have the energy to maintain the vigilance necessary for the prior two items. Finally, we must be precise in our thinking, exact in our calculations, and attentive to the many variables involved in making successful investments and managing (sometimes temporarily) unsuccessful ones, as well as keeping up with the needs and details of each of your accounts. In short, this work is never dull, always challenging and interesting, and we are grateful to you for giving us the opportunity to practice our craft.
We wish you all the best for happiness, health, peace, and prosperity in 2024!
Take care, Lesley and Bo
