Economic & Market Review: Q4 2023 [Webinar Summary]

Presenters: Lowell Pratt, CFA, Andy Pratt, CFA, CAIA, and Adam Newman, CFA, CFP®, RICP®

Here is the webinar recording from January 17th, 2023. You can browse topics discussed and main takeaways using the sections and time stamps below:

Click the time-stamp in each section title, and you will jump right to that part of the video in a new screen!

• Introduction and Current Events (00:00)
• Quarterly Market Summary (01:36)
• Long-Term Market Summary (04:37)
• Returns During and After US Election Years (8:38)
• Annualized Returns During US Presidential Terms (10:38)
• 2023 Stock Market Performance (11:54)
• Small Caps Lagged During Stock Market Recovery (17:14)
• Looking Ahead: The Case for Small Caps (18:39)
• The Short- and Long-Term Trends Both Favor Small Companies (19:36)
• Smaller Companies are Undervalued (20:17)
• Stock Selection Opportunity Outside of Magnificent 7 (21:39)
• Audience Q&A (25:15)
  
• 10 Reasons Why Goldman Worries Less about Growth Risks (52:41)

Introduction and Current Events (00:00)

• Overview of asset class returns for the year.
• Mention of the strong finish for equities in Q4, leading to overall robust yearly returns.
• Discussion on the rally in bonds salvaging what could have been another poor year for fixed income.
• Anticipation of election news overshadowing inflation as a major focus for investors.
• Speculation on the potential impact of a Biden-Trump rematch on the investment climate.

Quarterly Market Summary (01:36)

• Strong close to the year across various asset classes and global markets.
• Acknowledgment of the volatility throughout the year despite double-digit gains.
• Recovery in real estate in Q4 due to interest rate fluctuations.
• Historical perspective on market returns and the non-linear nature of gains.

Long-Term Market Summary (04:37)

• Strong close to the year across various asset classes and global markets.
• Acknowledgment of the volatility throughout the year despite double-digit gains.
• Recovery in real estate in Q4 due to interest rate fluctuations.
• Historical perspective on market returns and the non-linear nature of gains.

Returns During and After US Election Years (08:38)

• Analysis of market performance in pre-election and election years.
• Historical data showing market performance aligns with long-term averages regardless of election timings.
• Emphasis on the minimal long-term impact of elections on market performance.

Annualized Returns During US Presidential Terms (10:38)

• Review of market returns during various presidential administrations over the last century.
• Observation that market returns during different administrations align with long-term equity market averages.
• Conclusion that presidential terms have limited long-term impact on market performance.

2023 Stock Market Performance (11:54)

• Focus on the 'Magnificent 7' tech companies driving market returns.
• Discussion on the disproportionate influence of these large companies on market cap-weighted indexes.
• Contrast between market cap-weighted and equal-weight index performance due to these companies.

Small Caps Lagged During Stock Market Recovery (17:14)

• Commentary on the lag in performance of small-cap stocks during the market recovery.
• Contrast between large-cap and small-cap stock recoveries post the 2022 bear market.
• Insight into the atypical nature of small caps lagging in a recovery phase.

Looking Ahead: The Case for Small Caps (18:39)

• Observation of current market trends indicating a positive shift towards small-cap stocks.
• Anticipation that small-cap stocks will gain favor, especially in a long-term market phase.
• Noting that small-cap stocks currently present a valuation advantage compared to large caps.
• Suggestion that the underperformance of small caps in recent times sets the stage for potentially higher future returns.

The Short- and Long-Term Trends Both Favor Small Companies (19:36)

• Both short- and long-term trends are leaning towards better performance of small companies.
• The recent end-of-year rally suggests a positive trend for small caps.
• Reference to historical market phases where small caps have typically led the recovery.

Smaller Companies are Undervalued (20:17)

• Smaller companies are seen as undervalued when compared to their larger counterparts.
• Significant differences in valuation between market cap-weighted and equal-weight indices.
• This undervaluation presents a potential opportunity for investors to capitalize on.
• Current market dynamics suggest a favorable environment for investment in small companies.

Stock Selection Opportunity Outside of Magnificent 7 (21:39)

• Emphasis on the potential of investing in companies beyond the dominant seven tech firms.
• Discussion of the effectiveness of Burney ratings throughout 2023

Client Q&A Session (25:15)

• Audience questions cover a wide range of topics from economic concerns to investment strategies.
• Speakers provide insights into the current state of the economy and markets.
• In-depth discussion on the role and outlook for cryptocurrencies and gold in investment portfolios.
• Addressing how global conflicts and geopolitical uncertainties might impact investment strategies.

Why Goldman Worries Less About Growth Risks (52:41)

• Presentation of Goldman Sachs' research indicating a less worrisome outlook on growth risks.
• Economic data points are more favorable than commonly perceived.
• Despite current challenges, long-term growth expectations are still positive.