The 2023 tax season is underway, with the filing deadline approaching on April 15, 2024. Whether you self-file or work with a professional, we wanted to pass along some helpful information and reminders before finalizing your tax returns. Learn more.
Trivia
Avoiding
Financial Scams
Online scammers are becoming increasingly sophisticated. With digital transactions increasing year-over-year, it’s important to know how to spot a scam. To get you started, our team compiled some fraud prevention tips to help keep you and your information safe. As always – if you have any questions – please contact your Summit Advisor.
Summit
Team Updates
Six of our Summit teammates recently celebrated a well-earned promotion. Please join in us in celebrating:
Steve Cavalieri (promoted to Chief Investment Officer and Associate Advisor)
Kate Coghill (promoted to Associate Advisor)
Sam LaVielle (is now a CFP® professional)
Luke Salcone (promoted to Chief Compliance Officer)
Tim Swain (promoted to Chief Operating Officer)
Austen Harrison (promoted to Partner and Senior Financial Advisor)
Investment
Commentary
From the Abyss to the Summit: A Market Odyssey
Scene: The flickering candlelight dances across the weathered face of the stock market chart. Its jagged lines trace the tumultuous journey of the S&P 500 voyage. The narrator leans in, his face worn and wrinkled from his travels. Adjusting his spectacles, he begins in a low, gravelly voice:
“Ladies and gentlemen, gather ’round. Let me take you on a journey—a voyage through time, where fortunes rise and fall like the tides. Today, we stand at the precipice, gazing upon the S&P 500 chart. Behold, the peaks that touch the stars—the all-time highs.
But rewind the clock, my friends. Back to a time when Wall Street was shrouded in gloom, when strategists whispered dire predictions over their morning lattes. Our journey begins in the year 2022, when swelling tides of inflation capsized investor hopes. The S&P 500, battered by aggressive rate hikes, clung to life like a shipwreck survivor on a splintered plank. Economists, their brows furrowed, penned articles decrying: Beware, recession lies ahead!
Wall Street strategists—those soothsayers of finance—they were the true harbingers of doom. Their brows furrowed deeper still, as if they carried the weight of the world on their shoulders. ‘Flat! There will be no gains ahead,’ they collectively cried. Some broke from the pack. ‘Flat’ was decidedly too bullish of a stance to take. Their signs, emblazoned with skull and crossbones, simply predicted: -20%.”
Yes, to anyone that has been watching the markets for the past two years, it does feel like we’ve been in a dramatic movie. Movie critics would certainly opt for a tag line of “A psychological thriller guaranteed to keep you on the edge of your seats,” rather than “Feel good movie of the year.”
2022 wrapped up not just with lower asset prices, but with market “experts” decidedly pessimistic. For their 2023 outlooks, Wall Street strategists, who traditionally forecast around a 10% return on stocks, collectively predicted a flat stock market, something not seen in over twenty years. A handful of them felt “flat” was far too optimistic and chartered their own course. Bank of America, Morgan Stanley, and Deutsche Bank all predicted drawdowns greater than 20%. Morgan Stanley’s Chief U.S. Equity Strategist, Michael Wilson, dramatically stated stocks were in the “death zone.”
Wall Street economists similarly noted dire outcomes for 2023. “More than two-thirds of the economists at 23 large financial institutions that do business directly with the Federal Reserve are betting the U.S. will have a recession in 2023,” stated a Wall Street Journal article dated January 2, 2023.
How about CEOs? These are the people in charge of running the businesses that make up the economy and the businesses represented in the stock market. They were even more pessimistic than the economists! A KPMG CEO survey revealed 91% of CEOs expected a recession in 2023 and only one-third of them expected it to be mild and short.
Market professionals and executives, most of whom have likely studied behavioral finance, fell victim to Recency Bias, leading them to overweight the probability that recent negative events would continue. Emotions are a powerful force in finance, one that not even the professionals can escape.
With everyone stranded in the abyss of negativity, the markets shot higher from the beginning of 2023. The February jobs report came in better than expected, which was viewed as a wrench in the Fed’s fight against inflation. The markets pulled back as they started pricing in higher peak rates. Silicon Valley Bank became a household name in March, as its collapse kicked off a regional banking crisis, which resulted in three of the four largest US bank failures of all time. The banks became casualties of aggressive Fed Policy – interest rates driven too high, too fast.
As the Fed signaled a prolonged high-rate environment in Q2, markets had to confront the reality of delayed interest rate cuts. Returns were muted in April and May and resumed their upward thrust in June. Despite positive returns, decreasing inflation, and a solid job market, consumers remained markedly negative, as imminent recession headlines continued.
The buoyant summer rally hit a wall on August 1st when Fitch rating agency stripped the US of its coveted AAA credit rating. There was nowhere to hide as Q3 returns across stocks and bonds turned downward, with the quarter closing decisively off the 2023 highs.
Asset prices remained challenged in October, as rates continued to march higher. The yield on the 10-year Treasury hit 5%, and the 30-year mortgage climbed north of 7.75%. Then on November 1, the Treasury made a surprise announcement that they were slowing the pace of sales on long-dated treasuries. Less debt issuance inspired investors, and rates declined in a straight line for the rest of the year. The 10-year Treasury moved from 5% to 3.75%, which encouraged equities higher into the end of the year.
For all the volatility and dramatic events of 2022 and 2023, the two-year return was close to flat for large caps, mid-caps, and international equities.
2024 began with the Fed and interest rates in focus. The Fed Funds futures market revealed seven rate cuts were priced into 2024, a stark contrast to the Fed who signaled just three. One might think such a chasm between the Fed and the Fed Funds futures market would lead to stock market strife, but 2024 has provided an impressive continuation of the fourth quarter’s momentum. A better-than-expected February jobs report repriced Fed Funds futures, now assuming five cuts in 2024. A shift in Fed expectations like this would traditionally result in a market selloff. Instead, the market established a new summit, with the S&P 500 reaching all-time highs. Despite the markets not receiving the expected near-term easy monetary policy, the strength of the S&P 500 remains impressive, closing higher in 14 out of the last 15 weeks, a feat that has not happened in over 50 years.
Looking back, what are we able to extract as the lessons? A doctor might say that adjusting your portfolio based upon market action, economic activity, outlooks, and current events may be hazardous to your wealth. Forecasting markets and economies is hard, and market timing based on outlooks (be it yours or experts’) historically leads to decreased returns. Here at Summit, we focus on what we can control. We work with you to create an investment plan in a broadly diversified portfolio to fit your needs and risk tolerance. As we continue with you on your financial odyssey, we remain dedicated to guiding and supporting you. As always, your Summit team is available to answer any of your questions.
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Trivia Answer: Summit CFO, Partner, and Senior Financial Advisor Mike Scherer and his wife Megan founded the Worth the Wait Charity in 2021, to ease the burden for young adult cancer survivors pursuing parenthood by providing financial support for fertility treatments, adoption and surrogacy.
