This is the “don’t try this at home” type of thing. No. retail investors should not try to time the market. While frontpage news on social media is plenty of I-made-it-big going all-in on one big bet, there are far more many tombstones on investors’ graves that read “I thought I was right”.
But, if there is a year for professional market players to do so, 2023 might be the one. First, this one sounds like a revenge call. The past 10-15 years have been largely dominated by one single trade: go long FAAMG or go home. These top tech players outperformed the market like there is no tomorrow. This comforted passive investors into thinking that low-cost auto-pilot index-driven strategies had no match. The macro trend was very lenient too. Low-bar regulation, high liquidity thanks to repetitive quantitative easing waves, and popular belief turned-cult that innovation cycle were shorter and stronger.
Now, headwinds are rising. Call it higher rates, geopolitical turbulence, slowing demographics, growing wealth gap, or slower growth, all point to higher discrepancies in the way people, businesses, and geographic ensembles fare economically. This moment is ripe for active managers to harvest the ebbs and flows of asset performance.
Besides, the effects of a slower economic growth for the US have been delayed for now. While analysts argue on soft landing or crash landing, dire predictions made in late 2022 are been revised upward. So much so, that US stocks have clocked in 6% performance YTD23.
Now what happens? BoFa’s Michael Harnett argues that a delayed arrival of a US recession will result in a stock crash landing in 2H23, and S&P500 would return to 3800 by spring, basically where it started the year. Amundi’s CIO, Vincent Mortier, suggests that developed market equity could go down by 15% to 20% in spring as well, which was the low point reached in Oct22.
Well, to some it all makes sense. Economic surprises are running short on inventory, inflation is persistent, and rates continue to be high. The political front looks hairy as well, spring-war is imminent in Ukraine, China-US are no better friends now, and US politics promise to be bumpy in the run-up to the 2024 election to say the least. Meanwhile you’re seating on an unexpected 6%+ performance early into 2023, and you can place it all safely at 5% on ultra short-term fixed income.
What do you do? Call a friend. Roll the dice and go to page 23? What we suggest to do is to hedge against various scenarii. We agree that the risk-reward is great on ultra-short quality bonds and money market, and this remains a go-to deal. God forbid a recession happens, it’s likely that rates will come further down on the long-end, which means that investment grade longer duration bonds should be good too. As for equity, we like the high-dividend sort, and Asia with China still at odds of getting its economic act together. Overall, we believe 2023 to be a year favouring bond-like portfolios.
Be safe out there, and remember, don’t try this at home.
360 Advisory LLC is a Boston-based RIA managing investments, including crypto