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Volume 12, Edition 10 | March 27 – March 31, 2023

Avoid Being the April Fool

Doug Walters, CFA
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.

Working It!

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.

Holiday

Happy Easter and Passover!

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