Avoid Being the April Fool
On this celebrated day, we remind investors that markets move quickly and market timing can be a fool’s errand.
Contributed by Doug Walters , David Lemire , Max Berkovich , Eh Ka Paw
Stocks rose this week on news that the Fed has found a way to use the ChatGPT artificial intelligence tool to solve the current inflation and banking challenges. In fact, ChatGPT is the solution.
According to Fed governor April Fuls, users of ChatGPT are spending so much time on the app they are becoming a drag on the economy. Their personal consumption is falling, driving down prices and, with it, inflation. In addition, they are so preoccupied with asking the app things like “write a poem about investing in the style of Shakespeare” that they are much less likely to notice the banking crisis and, therefore, are not likely to precipitate an unnecessary run on their banks.
In all seriousness, the market mood was meaningfully more positive this week. As we discuss below, banking fears are subsiding for now, and a moderating PCE inflation read on Friday capped a positive week for equities.
It is a good reminder that sentiment can turn quickly. We talked last week about the risk of de-risking. When the market makes a move it can be swift and significant. It is easy to think of US stocks as providing, say, 10% annual returns, but rarely are returns in any given year close to 10%. In fact, over the past 30 years, annual returns of the S&P 500 were >15% three times more often than they were between 5-15%.
None of this is to say we are seeing a sustained recovery in our crystal ball. Rather we are pointing out that by the time recovery is clearly visible, it is likely already priced in and too late for those trying to market time their re-entry.
- (click to see our ChatGPT poem on investing in the style of Shakespeare)
Oh, hear me now, good sirs and ladies fair,
For I shall speak of wealth beyond compare,
Of fortunes vast and riches so divine,
That even kings shall envy what is thine.
To invest, to risk, to seize the day,
And watch your money grow in every way,
For though the markets ebb and flow,
Your profits shall forever grow.
But oh, beware, lest ye be swayed
By rumors, gossip, or untested trade,
For folly’s path is paved with haste,
And fortunes lost in reckless waste.
Instead, take heed of those who’ve gone before,
And studied well the art of wealth’s great lore,
For knowledge is the key that opens wide,
The gates to riches that shall e’er abide.
So learn and study, plan and prepare,
And soon your profits shall be beyond compare,
For investing wisely is a noble art,
That shall bring riches to your very heart.
And thus, my friends, I leave you now,
With wisdom gained from ages past somehow,
Investing well is more than mere chance,
It’s an art that yields great wealth and stance.
Headline of the Week
The Little Big Short
We recently re-watched the Wall Street horror flick “The Big Short,” which chronicles the cast of characters that profited from the Financial Crisis. It was an interesting reminder of the breadth and depth of the issues that led to that cratering in financial markets and how our most recent crisis (while painful) pales in comparison.
The press attempted to draw parallels, if not equivalence, from SVB and Signature to Bear and Lehman. While the current banking issues are not extinguished, they do seem to be contained. Markets seem more focused on the economy and interest rates rather than trying to guess the next bank to go under. Again, we are not signaling the all-clear as banks could face longer-term issues especially small to mid-size regional ones.
At this point, it seems likely that markets and Hollywood are not interested in any sequels.
The Week Ahead
A holiday-shortened week is in-store with mainstream media enthralled with President Trump’s indictment. In contrast, the financial media will only have the jobs data and the Institute of Supply Management’s Purchasing Managers Index to focus on.
Friday’s job report is the major economic release. However, other labor reports will trickle in during the week.
- The non-farm payroll report on the first Friday of the new month will hit as markets take a day off for Good Friday.
- The last report moved unemployment from a record low of 3.4% to 3.6% as the labor participation rate ticked up.
- The previous report surprised, with over 300,000 new jobs; will the resilient labor market pull that feat again?
- The consensus is for 240,000, with another increase in hourly wages expected.
Eye on the Ball
NCAA March Madness ends on Monday with Florida Atlantic, San Diego State, Miami (FL), and the University of Connecticut left still dancing.
- The University of Connecticut, a #4 seed, is the favorite to cut the net Monday night.
- The 2023 Masters Tournament tees off on Thursday.
- Tiger Woods, a 5-time winner, has yet to commit to the field officially.
- Jon Rahm is the favorite to pick up the Green Jacket.
The Week After
Not only do we have the Consumer Price Index (CPI) and minutes of both the Federal Reserve and European Central Bank meetings, but earnings kick off with major banks reporting first-quarter results.
Happy Easter and Passover!
Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.Overview
Strategic Financial Services, Inc. is a SEC-registered investment advisor. The term “registered” does not imply a certain level of skill or training. “Registered” means the company has filed the necessary documentation to maintain registration as an investment advisor with the Securities and Exchange Commission.
The information contained on this site is for informational purposes and should not be considered investment advice or a recommendation of any particular security, strategy or investment product. Every client situation is different. Strategic manages customized portfolios that seek to properly reflect the particular risk and return objectives of each individual client. The discussion of any investments is for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments identified and described do not represent all of the investments purchased or sold for client accounts. Any representative investments discussed were selected based on a number of factors including recent company news or earnings release. The reader should not assume that an investment identified was or will be profitable. All investments contain risk and may lose value. There is no assurance that any investments identified will remain in client accounts at the time you receive this document.
Some of the material presented is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Strategic Financial Services believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
No content on this website is intended to provide tax or legal advice. You are advised to seek advice on these matters from separately retained professionals.
All index returns, unless otherwise noted, are presented as price returns and have been obtained from Bloomberg. Indices are unmanaged and cannot be purchased directly by investors.