The first quarter of the year maybe remembered by three notable economic headlines:

1. The economy has kept chugging along nicely.
2. The rising stock market that we saw at the end of 2023 generally continues.
3. Inflation rates have leveled off at rates lower than they were a few years ago, but not low enough for the federal reserve to lower interest rates.

Yes, economists now are putting off fears of a recession for 2024 as the stock market has risen 10% in the first quarter of the year, with several high-flying tech stocks leading the way.  As interest rates have stayed higher than expected, this has been a damper on stocks recently, and securities that are sensitive to high interest rates, such as utilities, and bonds continue to lag.  However, they represent good investments for those looking to put new money in places for good income (bonds, utilities, etc.)

Earlier in the year many experts predicted that the federal reserve would lower interest rates as many as five times during 2024. With inflation data remaining stubbornly high, experts are now predicting perhaps just a few reductions in interest rate reductions and perhaps an interest-rate hike. Although inflation has come down from its high, about 9% to a little more than 3%, it still hasn’t reached the Fed’s goal of 2%. And don’t confuse lowering inflation rates with lowering prices: Lower inflation just means that prices aren’t rising as quickly; unfortunately, it does not mean that prices are actually coming down.

So far, the historical tendency that presidential election years are good for markets has held true. Barring some unforeseen crisis or financial bubble, 2024 is likely to continue this trend. Caution: Do not be one of those investors that keeps money on the sidelines because of a prediction you’ve heard on television or the Internet. In the office, one of Seann’s favorite dictums is that “It’s not important to time when to be invested in the market, but rather how much time you have in the market.” Even if there is a dip, dips have historically proven to be temporary. However, missed opportunities from money sitting on the sidelines is difficult to make up.

Similarly, for fear of future market declines, an investor may be tempted to sell securities that have run up gains. This may be a good strategy if the security is now weak, but not if it continues to be a quality investment.  Remember, even good investments take two steps forward, then one back, then repeat.

By the Numbers

Below are three-month 2024 valuation changes next to valuation changes for all of 2023. 

Selected key asset groups: 

On a personal note, John is recovering very nicely from recent shoulder surgery, and is now debating with himself how much to follow his surgeon’s direction about cutting down on his tennis and golf.  He has just completed his physical therapy program and taking things slowly.  It’s just nice to be out of that nuisance sling.  We will keep you posted.

As always, we love to hear our readers’ reactions.

The Dougherty Investment Advisors Team

Past performance does not guarantee future results

Markets Perform Nicely
The Santa Claus rally that started early in November continued into December, allowing
investors to see a very nice rebound from the previous year.
Additional data in December gave investors expectation that inflation and interest rates were
stable and would continue to decline. Indeed, experts predict that the Federal Reserve would finally reverse direction in 2024 and begin to reduce interest rates.

By The Numbers

When we show 2023 valuation changes next to valuation changes the previous year, 2022, we
can easily see how asset values fluctuate and how short-term emotion often carries market
prices. Here are some key asset groups:

Some other interesting corporate stock assets price changes:

Additional observations: You can see by the figures above that investors shifted between 2022
and 2023 from not liking tech stocks to loving them. You may also notice that health and
industrial (Honeywell), as well as utility company stocks, lagged behind tech stocks in 2023, but
led them the previous year. Rather than being disappointed with lagging sectors, we view the
smaller price appreciation of these groups last year as potential bargain areas for new purchases.
However, we shall not lose focus that technology companies will continue to lead the economy.
This is no more evidenced than the huge increase in the stock valuation of Nvidia, a computer
chip maker of artificial intelligent components that are in very high demand.

We continually fine-tune and tweak our core group of stocks and other securities that we
recommend for our clients. For instance, during the final quarter of 2023, we removed Disney
from our core group. As a result, if you have had Disney stock in your account, you probably do
not any longer. Quantitative performance scoring and analysis of this company find that it no
longer qualifies to be part of our clients' portfolios.

A final observation about the obvious performance difference between 2022 and 2023:
Managing these fluctuations is where our firm has to earn its keep. Investing can be emotional
and often short-sighted. Our clients pay us to put emotion aside, and instead contribute cool and
studied analytics based on education, experience and information. It would have been easy to
react to Microsoft's 2022 decline by selling off some or all of it after it sank 29%. We saw some
other money managers do this in their clients' accounts. But analysis has continued to indicate
the long-term strength of the company, so we stayed put and were fortunate to enjoy the 57%
jump in 2023.

2024 Predictions? Never!

We suppose that some historical predictors of trends deserve some credence. In the Dougherty
Dispatch back in July that reviewed the first half of 2023, we quoted a historical finding: "The
S&P 500 stock index has risen an average of 5% in the second half of the year when the index
recorded a positive return in the first half."

In the first half, the S&P rose 15%. In line with historical trends, the market indeed rose in the
second half--another 9%.

Another interesting historical trend: In the last 16 presidential election years, the stock market
has risen. This year, 2024, is an election year.

Let's see what happens.
Our office is in the process of preparing full year client summaries for each of you. If you have
any questions after received, give us a call.

Happy New Year!
The Dougherty Investment Advisor Team

Well not quite. Stocks climbed 6.2% in January – second best January since 1990 – as a result of good inflation and Fed news, but then declined 2.6% in February, and for the year are up about 3.4%. Tech stocks on average are up for the year about 9% through February.

Good Riddance to 2022 !

The number 2022 has three twos in it, but you might think that with what happened last year it had the curse of three sixes. The list is long: High inflation, rising interest rates, continuing difficulties with Covid, disasters with flight cancellations, high energy prices, and stock and bond markets falling are all enough to make us wish we had taken a long nap – or maybe hired an exorcist.

For a record seventh time this year, the Federal Reserve has raised rates, this month 0.5%.  The chairman of the Fed also indicated they may have another 1% during 2023, topping out to about 5.1%.