Cool Charts Explained: Market Returns

The stock markets are off to a positive start for the year. It’s a “cautious” start to what is expected to be a roller coaster of a year. There is a lot of “headline risk” expected this year with the U.S. funding two wars, a Congress that cannot create a long term funding strategy for the government and (of course) the Presidential Election later in the year. Combine that that with talk of a possible recession (which was talked about and never came to fruition last year).

The bond market is struggling a little to start the year off. Bonds are mostly effected by interest rates. If interest rates go up, long term bonds go down in value. If interest rates go down, long term bonds go up in value. There is much anticipation that “The Fed” will be cutting interest rates this year (which would be good for the value of issued Long Term bonds). We will see if “The Fed” gives us any indication of their thinking when their notes are released from yesterday’s meeting in the near future.

Cool Charts Explained: Market Barometer

When I look at the chart above, one thing dramatically stands out for me; Large Growth is still in favor!

For the past year, Large company stocks have outperformed their mid and small cap peers. Also, Growth companies have outperformed Value and Core style investments.

That still holds true today; however, we are starting to see the Core style gather some momentum. Could this be shift in investment philosophy thinking that the economy will not see a recession and continue to grow? Could this mean that investors are starting to get a little more cautious to start the year?

My interpretation would be that we are starting to see the beginning of investors taking risk out of their portfolios. The Small and Mid categories performed poorly this year and the dominance of the growth category is not as prominent.

So, I fully expect that we will see a lot more volatility this year than we saw last year. You will need to mentally prepare for that to remain a confident investor!

PLAN CONFIDENCE MODEL UPDATES:

FUTURE CONTRIBUTIONS:

Future contributions are money that is added to your plan with every paycheck. We monitor the future contributions monthly and are looking to direct these monies into investments that are should be “on sale”. This would allow you to buy more shares in your portfolio.

This month we are advising that you use the following:

· High Yield Bond

· Large Growth

· Mid-Cap Growth

The exact amounts you should allocate depend on the model that you are using. These categories may or may not be available in your plan. If they are not available in your plan, we will recommend the closest available asset class. You can find any substitutions on your “Proxy Page” within your dashboard. Please log into your Participant Dashboard to see the exact allocations you should be using as of today.

CURRENT ALLOCATIONS (REBALANCE) - STRATEGIC MODELS:

Current Allocations are the monies currently in your plan. Making changes to this money is known as a “rebalance”. Some plans have trading restrictions on how often you can rebalance the money in your plan.

There are NO CHANGES to our Strategic Models for this month.

(Last Rebalance was on Tuesday, January 2nd)

Our “Strategic Models” combine the benefits of asset allocation and “buy and hold” strategies. These models rebalance quarterly back to their risk “targets” and remain fully invested through all market cycles. Our Strategic Models rebalance the first trading day of every quarter.

The exact amounts you should allocate depend on the model that you are using. The categories we use may or may not be available in your plan. Please log into your Participant Dashboard to see the exact allocations you should be using as of today.

REBALANCE – TACTICAL MODELS:

The Tactical Models were updated as of today. Below are the categories we are using for each model available in our database.

The exact amounts you should allocate depend on the model that you are using. These categories may or may not be available in your plan. Please log into your Participant Dashboard to see the exact allocations you should be using as of today.

(Last Rebalance: TODAY)

Our “Tactical Models” combine the benefits of asset allocation and a “momentum investing” strategies. These models rebalance periodically back to their risk “targets” and the targets can be changed at any time given the current market conditions. These models may go through periods of time while holding larger amounts of cash than the Strategic Models.

Model Portfolio Update:

Plan Confidence relies on the research and model construction from BlackRock, Inc. (the largest asset manager in the world). We use their “Target Allocation ETF Multi-Manager” and “deconstruct” their models back to the asset categories to program the Plan Confidence Software. We then map those categories as closely as we can to the available investment options that you have in your plan.

Below are some excerpts from the most recent market research report we rely upon to advise you.

TRADE RATIONALE: Page 5

“Given the underappreciated but persistent strength of the U.S. economy, we could see investor enthusiasm for domestic value factor stocks reemerge. Recent improvements in these companies’ profitability and margins have them showing the best fundamental momentum now. In general, our belief is looser liquidity and higher earnings lead to higher prices for value stocks.

We’re also incorporating an actively managed factor rotation strategy to harness the daily trading, transparency, and tax efficiency of the ETF structure, in conjunction with the benefits of single security selection. Following a year of high concentration and narrow stock return breadth, we believe factor makeup and timing within equities may be a key ingredient to driving outperformance in 2024.

However, the economy isn't immune to challenges. Any reversal in inflation trends or deepening of geopolitical conflicts remain risks to our cautiously bullish thesis. The labor market remains tight, but some softening has become visible, with continuing jobless claims reaching two-year highs. This may incentivize the Fed to follow-through with rate cuts but could also arguably be an early indicator of further weakness ahead. We believe the bond side of the portfolio remains a ballast for protecting against this sort of potential volatility, with the treasury barbell in place and a freshly embedded active fixed income strategy aimed at generating attractive yields and capable of swiftly adjusting to changing market conditions.”

PERFORMANCE: Page 6

“The so-called “Santa Claus rally” came early this season, surprising investors with one of the best monthly returns for both stocks and bonds in years – a welcome gift after three consecutive months of losses. The festive turnaround was fueled by a cocktail of US economic moderation and global easing of inflation, hinting at an impending end to the cold snap of central banks' restrictive monetary policies. The S&P 500 donned its holiday best, soaring nearly double digits, with technology and growth stocks shining brightest, followed by a sharp bounce higher in beaten down small cap stocks. Commodities and energy stocks played Scrooge, retreating from their highs, with oil slipping below $80 per barrel. A diplomatic engagement between the US and China offered a glimmer of hope for reduced global tensions, supporting sentiment in emerging market stocks. The yield on the US 10-year Treasury plummeted from a mid-October peak of 5% to 4.3%, buoying the entire fixed income landscape from government bonds to US high yield and emerging market debt.”

This update has been written by Kevin T Clark, RF™.

All opinions expressed are those of the author and not that of Plan Confidence Corporation nor any other firm or individual.

Kevin T Clark, RF™ is the CEO and Co-founder of Plan Confidence Corporation. Kevin is an ERISA Nerd and one of only a hundred(ish) Dalbar certified Registered Fiduciaries (RF™) in the United States. He has been helping hard working Americans invest their money since 1997!

Plan Confidence Corporation is an SEC registered investment firm specializing in providing advice to hard-working Americans investing in their employer’s retirement plans (401k, 403b, TSP, etc). They have created proprietary software so any hard-working American can receive advice on their employer’s retirement plan from an adviser of their choosing!

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The Confident Chronicles: February 1, 2024