Over the last several years everyone had to own the FAANG stocks (Facebook, Apple, Amazon, Netflix, & Goggle). They were the top holdings of Growth mutual funds. Then, near year’s end, the stock markets’ love affair with these stocks ended unexpectedly and suddenly and the FAANG stocks imploded, bringing many Growth mutual funds down 30% or more. Additionally, the new-technology disruptor stocks, whose prices rose to the sky on slim earnings and great promise, also crashed hard. It was a hard lesson.
The trigger was our Federal Reserve finally deciding, after years of inaction, to spike short-term interest rates and cool inflation by suppressing the economy. Not surprisingly, longer-term interest rates pulled back after initially rising with the Fed’s short-term hikes; perhaps suspecting a looming 2023 recession and the resulting pressure on corporate profits.
Fortunately, the market re-discovered Value Stocks (i.e., the great industrial, financial, and medical companies that build America). The price of oil stocks, after years of dismal performance, soared. None of this was foreseen a year or so ago. These stocks had been mostly ignored, but this year they supported the market.
The point here is that trying to make predictions of what is coming is at best difficult, and often impossible. Furthermore, our modern economy is now constantly buffeted by fiscal, political, and monetary interference. It is difficult to know what to do.
At WST, we believe the solution is a thoughtfully built and monitored portfolio of investments that is highly diversified. America is a great country. Our economy has been, is, and will be the engine of modernity; and as always, our resolve and the markets will be tested. Keep the faith.