December 2023 Monthly Commentary
Greetings Team & Happy New Year!
As we embark on this new year, I invite you to join me in the Land of Make Believe, a place where the stock market reigns, and every trend holds the potential for profit or peril. It is a world where the art of investment meets the rhythm of TikTok.
The journey to profitability across all our portfolio strategies, from capital preservation to opportunistic growth, proved to be the most challenging in my 22 years of managing money for our clients. However, despite the obstacles presented by the markets, the political landscape, the team’s transition to a new firm, and the solidification of our team infrastructure, we have emerged triumphant. We’ve successfully transitioned from Morgan Stanley to Raymond James and expanded our team to include eight members with diverse expertise. We believe the evolution of the market cycle, coupled with our strengthened infrastructure, will continue to benefit our clients, and propel us to new heights in 2024 and beyond.
A significant milestone in our journey this year was the addition of Daniel Mar, a seasoned Wall Street veteran, to The Schmitt Group as a Financial Advisor. Daniel and I were classmates at Penn State University, and we have been admirers of each other's achievements in the industry for over two decades. This unique collaboration between us, blending institutional and private client expertise, holds immense significance for The Schmitt Group. The integration of these two facets enables us to offer a comprehensive and holistic approach to wealth management. By combining institutional insights and strategies with individual client portfolios, we ensure a personalized and highly effective approach. This collaboration sets The Schmitt Group apart in the industry, showcasing our unwavering commitment to excellence and dedication to providing exceptional service and results to our valued clients.
Back to the Land of Make Believe, as pundits claim to combat the challenges of climate change and strive for responsibility in all feasible areas, it is important to note that the United States is currently producing record amounts of oil daily. While this action by our current administration has led to a simple economic impact of driving oil prices lower, despite rampant conflicts in Eastern Europe and the Middle East, it unfortunately creates a secondary effect of reducing the mirage of inflation. This, in turn, provides the Federal Reserve with a longer runway to stimulate the economy as we head into a critical election year. However, we must recognize that the fundamentals and targets of monetary policy, as well as the challenges posed by inflation, remain unchanged. The longer we choose to patch up or postpone addressing these issues, the greater the risk to the United States economy. This facade is not only problematic for our future but also causes confusion in the present. The disparity in overall market index benchmark returns is just one example of the significant impact this confusion has on us. Differing perspectives and interpretations of data further exacerbate the confusion among us.
The variance in returns for 2023 highlights a phenomenon we have never experienced before in the history of indices. The aggregate bond market barely achieved positive returns, while the dividend portion of the S&P 500 saw a modest increase of just +2.85%. In contrast, the widely followed and publicized S&P 500 posted a remarkable return of +25% for the year. This discrepancy raises important questions about the health of our economy, as it funnels capital towards a select few companies and presents a skewed market-weighted index, leaving many individual investors unaware of the risks they are exposed to. In 2023, it was impossible to ignore the meteoric rise of what we now refer to as "The Magnificent Seven". These seven large technology companies, traded on the Nasdaq and S&P 500, have dominated most returns in the current year. When we remove the "The Magnificent Seven" from the equation, the returns of the S&P 500 Index for 2023 amount to approximately +8%. This misrepresentation not only distorts the reality of our economy but also exposes many investors who passively invest in the S&P 500 to a significant amount of risk. When the cycle of "The Magnificent Seven" comes to an end, many may find themselves in a similar position to the late 1990s when tech giants like Microsoft, Cisco, and Intel (returning for Round 2?), once hailed as darlings of the industry, experienced a crash that took over a decade to recover from.
As we concluded 2023, headlines captured the excitement of indices such as the S&P 500 nearing all-time highs. However, we must remember that the success of seven companies alone is hardly indicative of a healthy and robust economy. The clarity and consistency of the metrics we use to evaluate the "health of our economy," specifically inflation and employment, need to be addressed.
Our approach to money management has always been basing our strategy on fundamental research, which is very difficult to do in a world where information being disseminated is not reflective of underlying reality. While it remains unclear where the next leadership will be as the market cycle turns, our clients here @ The Schmitt Group of Raymond James are positioned to benefit across equity, fixed income, and commodities markets.
It is time to celebrate our success during this challenging, critical, and transitional time. Everything is in place, including multiple years of efficient, customized tax loss harvesting across our client portfolios, for a prosperous New Year, building upon the accomplishments of 2023.
However, let us not invite complacency that could undermine the very foundation of our success as we march forward.
We put in the work, and your commitment has been unwavering.
Onwards & upwards, always!
For pleasure reading, please find Raymond James Institutional Equity 2024 outlook attached. 2023 in review displays how index performance was biased toward growth and large cap – otherwise it was a flattish year for most equities. Drilling down further, sector performance was very biased towards the “Magnificent Seven” Technology Names. Pg. 78/87 draws attention to Why Annual Forecasts Are Barely Above Useless as Unknown Unknowns crop up every year. Pg. 79/87 highlights the Top 10 Risks (Downside and Upside) to 2024 Outlook. An active and successful money manager must remain vigilant around the clock and be ready to adjust to the ever-changing landscape accordingly.
Thank you & Happy New Year!
Steven and Daniel
STEVEN W. SCHMITT, MBA, CFP®, CPM®, CRPS®, ADPA®
Managing Director
CA Insurance # 0G61253
The Schmitt Group of Raymond James
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Steven Schmitt & Daniel Mar and not- necessarily those of Raymond James.
