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  • Tessa MacDonald

The BIG Report: October 2023

The BIG Report: October 2023

I want to start this note with a B.I.G. thank you. We were recently voted best investment firm/financial planning practice by the readers of both the Delaware State News and the U.S.A. Today’s Delaware papers. Two papers, two polls and two wins voted on by the readers. Thank you so very much for your trust and confidence and for taking the time to both nominate and vote for us.

As you may have noticed, the market softened August through September. If you read last quarter’s newsletter, you know we were expecting some volatility during this time and were prepared. We’ve taken this recent weakness as an opportunity to do some buying.

BUYING? You might be asking. ARE WE CRAZY? You may be wondering. Yes, we’ve been buying and no we’re not crazy. But what about..... “enter your biggest market concern here”? There is no shortage of concerns. Recession fears continue to loom, interest rates continue to spike, consumer debt and defaults are rising, inflation is proving slow to soften, global geopolitical tensions are increasing and Washington D.C. appears to be ineffectual.

Well, I have some good news for you today. I found an old crystal ball that I used early on in my career. In this edition of the B.I.G. Report, I’m going to lay out exactly what you can expect in the coming months and years and remove all of the worry about the markets. But I warn you, it’s not for the faint of heart.

You think inflation is bad now? Expect a resurgence of inflation that will hit double digits and send interest rates SOARING. Never mind 8% mortgages, think more like 14% mortgages and 21% car loans and that’s if you have good credit. We will suffer a few recessions, two of them back-to-back beginning this year. Geopolitical tensions will explode to some of the highest tensions between superpowers in modern history and the U.S. will engage in a Middle Eastern war. Unfortunately, terrorism will increase and run rampant including a bioterrorist attack on U.S. soil. Businesses will fail at record rates. Banks will fail at record rates causing a historic crisis in the financial sector. I’m saddened to say there will be an attempted assassination on a future U.S. president and finally, the U.S. stock market will suffer a historic crash so jaw dropping and

sudden that many people will get out of the market with big losses and never invest again.

I know this outlook sounds horrific and I’m sorry to have to tell you that my crystal ball is INFALLIBLE. Let that sink in for a second... digest everything you just read maybe even read it Again.

My crystal ball is 100% accurate exactly 20 years into the future from the date that it was manufactured. That said, it was manufactured on January 1, 1980. Everything you just read happened between 1980 and 2000. Rampant inflation, double digit interest rates on mortgages and auto loans, three recessions, incredible political tensions with Russia, The Gulf War, plane hijackings by terrorists, bombing in Beirut, the Oregon salad bar salmonella (bioterror) attack in 1984, the Savings and Loan crisis of the late 80’s causing 1,042 Savings and Loan failures, the attempted assassination of President Regan and the October 1987 stock market crash costing the market 22% in a single day.

If today was December 31, 1979 and you read this and believed it was all going to happen, would you invest in the stock market? Of course not.

Yet, this period of time covered one of the most prolific secular bull markets in U.S. history. The Dow Jones gained over 1,000% return over this period of time. Yes over 1,000%!

Despite all of the existing fear and worry, we are in a strong secular bull market that began around 2013. A bull market is a market headed higher while a bear market is one heading lower. A “secular” bull or bear is a trend that spans many years. When in the midst of a secular trend in the market, “cyclical” bear and “cyclical” bull markets will happen along the way. Cyclical moves are much shorter term and more muted than their secular trends. I know that last year’s -20% bear market doesn’t sound “muted” but consider that the S&P declined 46% during the 2000 – 2002 bear market and 56% in the 2008 – 2009 bear market. Both of those declines took place during a “secular” bear lasting 13 years. What we have witnessed since is definitely muted by comparison.

Given the timing of when this secular bull began, we could easily see this trend continue into the early to mid 2030’s which would mean a lot of potential gain for markets in spite of the long list of worries facing the economy and investors. Last October, the market came right down to a key level that if broken, could have technically ended the “secular bull”. Instead, the market rallied significantly right after touching that key level and the long-term trend of the secular bull is soundly intact.

This doesn’t mean a recession isn’t on the way although the data does not reflect one being imminent. It also doesn’t mean the market won’t fall or have ordinary volatility over the course of time. We mentioned in the July newsletter that the market could move lower August into September and that we had raised cash in anticipation. That has happened and we have taken this weakness to do some buying. History suggests that the market could end the year quite strong. I wish my crystal ball could tell me for certain if this is the case but as previously mentioned, it can’t see past the year 2000. As such, we have maintained a position in bonds for protection.

Earnings estimates appear to be improving or at the least, stabilizing and when all things are considered, the market cares most about earnings expectations. It is the number one driver of stock prices. After all, when you buy a stock, you are buying a piece of a business. You buy a piece of this business because you have an expectation that it’s going to make money and benefit you in the process.

The fears, concerns and looming recession are all very real and in the case of recession, it’s not a matter of “if” but “when”. But as we learned in the 1980’s and 90’s, a lot of money can be made during challenging times especially when the market is in a secular bull trend and we are firmly in a secular bull trend today.

So, we are staying engaged in the market, trimming when it’s high, buying when it’s low and maintaining a position in bonds in case things take a sudden turn for the worse. We will likely experience more volatility now that rates are higher but 5 steps forward and 2 steps back still keeps things moving in the right direction. Until someone invents a time machine to let us take this crystal ball back to January 1, 1980, being diversified and flexible is a sound way forward.

Thank you for your trust and confidence.

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