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  • Chip Barnett

Up And To The Right, Some Day

January 2023


The S&P 500 was, with dividends, down 18.3% in 2022. The bond market was down 12%. Rarely are both stocks and bonds down for a calendar year.



Thanks to diversification and changes in portfolio in 2021, BCM client portfolios were down less. Our defensive positions performed better than growth stocks in 2022, and I expect that to continue into 2023.


“Rarely” doesn’t make anyone feel better. While markets in 2022 were unpredictable and wrung out some excesses, there’s no guarantee 2023 will be an up year.


Since the 2008 bottom in stocks, investors have been spoiled by low borrowing costs. That ended last year. Historically, when rates are high or rising, investors tend to have less patience for companies that lose money. Tech stocks with fanciful product ideas but no profits are Exhibit A (see the year 2000). The good news is the Fed right now is telling markets that they’re about to pause their tighter money campaign. When they do that, it’s not going to lower the cost of business and make growth stocks go up overnight, but it will be a signal that optimism can return. There will come a time again to buy growth stocks.


This is exactly how 2022 played out, with value outperforming growth. This time last year we recommended remaining invested (and not going to cash). We advocated staying away from high profile, low profit tech, and instead, owning some small cap value in the portfolio. SCV was down in 2022, 9.3%, so it helped performance in a relative sense.


Let’s watch how interest rates and value play out in the first half of this year. The next move is to use some of the value in the portfolio that has performed relatively well, and convert it to growth.




Sincerely,

Chip


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