What follows is our Q3 2023 Quarterly Newsletter. Want in on the action? Scroll to the very bottom of the page to sign up.

— —

Fall isn’t the only thing in the air. As the leaves change, there’s economic uncertainty floating around, too. We’ll try to make sense of it, tell you our approach, and then wrap things up with a handy list of definitions of terms we throw around often.

Lastly, we’ve finally completed our transition to Schwab. (Hold for applause.) Scroll to the end for a reminder on how to access your Client Portal.

We’re here for you,

The Copia Team

— —

Market Update

 

Major U.S. Stock Market index performance over the trailing 3-month period (data as of Oct 31):

• S&P 500 -8.41%
• Nasdaq Composite -9.97%
• Russell 2000 -16.75%
• Dow Jones Industrial -7.11%

Obviously, the most talked about topic in financial media throughout 2023 (and 2022, as well) continues to be the Federal Reserve’s penchant policy of raising interest rates to combat the rampant inflation that peaked in late 2021. In many ways, this policy decision has helped – all the major inflation indicators have certainly seen a decreasing rate of change since that time. However, in the 3rd Quarter of 2023, reported inflation expectations saw a positive inflection, which is at least mildly concerning with regard to how long the Fed continues to raise rates or at least keep them elevated.

At the same time, the U.S. economy’s growth expectations are slowing with increasing concerns for a domestic recession arriving as soon as early 2024. These two diverging conditions – increasing inflation and decreasing economic growth – are what the markets are currently trying to price in, hence the recent increased market volatility and the broad negative stock performance. It is important to remember that the equity markets tend to be leading indicators of the state of the economy – meaning what the market is pricing now is often reflected in the economy within 6-12 months.

It is equally important to note that recession“expectations” amongst Wall St. economists have been predicted (incorrectly)since Q1 of 2022 – so just because the probability of an outcome may increase, by no means does that make it a guarantee to occur. In addition, there is no certainty as to the length or depth of an economic recession, nor is it easy to predict when or how quickly markets will recover from hampered economic conditions. There have been 13 documented recessions since World War II (defined as two consecutive quarters of GDP decline). Surprisingly, the S&P 500 actually rose an average of just over 1% during all recession periods since 1945.

This is precisely why we subscribe to “modern portfolio theory” which preaches broad diversification, patience, and discipline. Most self-directed investors think that “running for the hills” and waiting until the economy turns around is a sound investment strategy when financial media is discussing economic worries, geopolitical issues, inflation expectations, and political tensions at a higher rate. However historical data shows that the market bottoms out roughly four months before the end of the recession, on average. And when recoveries begin, they typically happen very quickly, and missing out on the early stages of a market recovery leads to significant underperformance.

So while equity portfolios are down nearly across the board over the short time period of the past few months, at Copia we have continued to add to and overweight areas of the market that historically have had outperformance in similar setups as our current situation. Those asset classes include Commodities, Energy, Precious Metals, Small Caps and International Markets. In more conservative portfolios, we also continue to implement our fixed-income strategy of owning physical bonds in the form of U.S. Treasury Bills. In conjunction with the Fed raising rates, the 6-month Treasury Bill just recently touched 5.6% yield – and these bonds are exempt from state income taxes, making them attractive short-term investments to help smooth out elevated volatility in equity portfolios.

Interestingly, the month of November has historically been the best performing month for stocks, on average. We are already seeing a bounce from “oversold” conditions, with most of the aforementioned U.S. Indices already up over 2% this month in just a couple of trading days. Even with all of the negative sentiment and incoming economic data, don’t be surprised if markets continue to see a rally from these recent oversold levels, and potentially even a “Santa Claus rally” into December.

Ultimately, we are very aware of how unsettling this market can be! It’s not easy to watch account values diminish as market prices fall …And we certainly are anticipating some continued headwinds and elevated volatility in the coming months. But as we have said many times before, the best course of action when markets struggle is to sit back, remove any emotion you may have, and trust in the plan.

— — 

Glossary of Common Terms

Not all investors understand all of our jargon. We thought it’d be helpful to provide a running “Glossary of Terms” to help clarify some terms that are common to us!

 

• S&P 500 Index – a group of stocks representing the 500 largest companies in the U.S. by market capitalization
• Nasdaq Composite Index – a broad index of over 2,500 stocks listed on the Nasdaq stock exchange heavily weighted toward the Technology sector
• Russell 2000 Index – a market index comprised of 2,000 SmallCap companies
• Dow Jones Industrial Average – a stock index that tracks the share prices of 30 of the largest U.S. companies
• Market Capitalization (or “cap” for short) – the value of a company represented by the price of the stock multiplied by the number of shares outstanding.
• Small Cap – a stock from a public company whose total market value is under $2 billion
• Mid Cap – a stock from a public company whose total market value is between $2 and $10 billion
• Large Cap – a stock from a public company whose total market value is greater than $10 billion
• Volatility – a statistical measure of the dispersion of returns for a given security or market index – often it refers to the amount of uncertainty or risk related to a security’s value.
• GDP – Gross Domestic Product measures the monetary of final and services produced in a country in a given period of time
• Recession – a period of temporary economic decline generally defined by a fall in GDP in two consecutive quarters

— —

Schwab Transition Finalized

Our long-anticipated transition of custodian from TD Ameritrade to Charles Schwab was smoothly completed over Labor Day Weekend. As a reminder, this means that clients can no longer access their account(s)online through TD Ameritrade’s website. In order to see your important account details, we encourage you to continue to use our custom Client Portal through our website, or you can also create a new username and password in the Schwab Client Center.

Our Client Portal is a very robust tool that we encourage all clients to maximize! The client dashboard in this portal offers a myriad of tools and features that can help you on your financial journey. This includes, but is not limited to, all the following:

• A secure client Vault where we upload and share quarterly performance reports, account statements, and other important financial documents
• Extensive, fully customizable performance metrics
• Portfolio analytics, where you can break down your portfolio’s allocation, positions, projected income, etc.
• Net Worth tracking tools that allow you to link outside accounts, including checking & savings, company 401k’s, and more
• Easy access to review details of your long-term financial plan we have built-in MoneyGuidePro (if you haven’t gone through the MoneyGuidePro process with us yet, let us know if that is of interest to you!)
• And much, much more

If you need any assistance getting access to Black Diamond, or you have misplaced your login credentials, please reach out to Geoff or George in the office so that they can get you set up!