Bear with me on this one, as I am going to delve into the meaning of time. But before I do this, I am going to quench your thirst for data on the state of the economy.
TLDR – it is doing fine. This week we had fairly resilient services PMI for Oct23, stable jobless claims, and even an increase in non-farm payrolls. Cherry on the cake, consumer confidence unexpectedly rebounded.
A cooler but resilient economy leaves us with the expectation that rates have peaked, which gives further fuel to the strong market rally we’ve experienced in November. Ten-year US treasuries dropped by ~0.8% from peak, already prompting companies to refinance at marginally better levels.
As far as bond investments go, we consider that a safer risk-return is in medium-term quality bonds. US aggregate bonds currently yield 5.4%, which solves for a decent carry and a potential upside should rates go down. However, credit spreads have compressed rapidly and stand at 20-month low on both investment grade (105bps), and high yield (364bps). Despite rising defaults, spreads are well below their Oct22 top, which warrants for some caution especially on weaker credits.
In equities, we appreciate the widening of market breadth i.e. other sectors and styles are catching up to Tech and growth. Nevertheless the 5%+ rally of Google post Gemini-AI release buzz is a reminder that AI is definitely a power to recon with. In short, stay diversified.
We’ll touch on all the market risks and opportunities to watch for in 2024 in a next post, but for now onto why there is so much buzz about the year-end.
Time to call it a year, dress up a summary of 2023, and look into what 2024 has in store. Everywhere during this season, there is a flurry of year-end outlooks, books recommendations, lessons learned and good resolutions for the year to come.
We take this occasion coming closer to December 31st to analyze the past and plan for the future. In business, this usually corresponds to taking the past year “into account”, literally, and measuring up projects to come. Why now?
There is something to say about how we measure time. Our Gregorian calendar aligns with the astronomical time, the time it takes the Earth to complete one full rotation on its axis (a day), and complete one orbit around the sun (a year). Such rotation determines the timing of seasons historically key for agriculture, and therefore our subsistence.
Mastering time became essential not only to organize our agricultural practices but also our industrial and economic activities as a whole. In scientific research, time measurement is fundamental for experiments, and advanced studies in physics, chemistry and computer science. Timekeeping also allows for legal and historical record keeping, key to gauge the evolution trajectory of our species. Lastly, aligning with the astronomical time reinforces a system of rituals that has been fundamental to our quest toward meaning as a species.
For all these reasons, a year-end is a crucial moment to sit back, relax, celebrate each others, and gaze into what’s next. Nevertheless, a year is but a tiny fraction of the astronomical time that we’re so keen to match. It takes a dizzying ~41,000 years for the Earth’s axial tilt to vary between 22.1 and 24.5 degrees, typically leading to long-term climate changes. A much longer cycle.
We got incredibly efficient at measuring our short-time cycles. Businesses report and budget several times a year, economists and analysts dissect news by the minute, and ponder about the move of rates, inflation within the days to come. Yet, all this is terribly short-term.
The long term invites itself back to the table. The debate about climate has a lot to tell us about this. It flips the narrative of the survival of our human species. While leaving to the next day had become the prime concern that drove our economic development, this “survival instinct” is now being superseded by the anxiety of surviving the next 50 years. According to COP28, if we continue tracking this way, earth will warm up and climate will change so radically that it could call the end of our civilization as we know it.
This is the sense of context we are in investment as well. The narrative has to change toward the long term, the time that is long.
While the first questions my investors almost always ask me is “is it a good time to invest now?”, my answer is invariably “what are your key long-term projects?”, followed by “what level of volatility still makes you sleep at night?”, and “how much can you afford to lose at any given point?”. Investing should bring more answers than it raises questions, and should focus on outcomes not in 10 weeks, but at least 10 years from now. Invest early. Invest often. Don’t worry about short-term outcomes.
Cash in on the year-end celebrations to take your loved ones in your arms and tell them how much you love them. Not just for today. Forever.
Stay safe out there !
360 Advisory LLC is a Boston-based RIA managing investments