The start of 2023 saw continued volatility and uncertainty marked by problems in the regional banks, the most notable being the failure of Silicon Valley Bank (SVB). For now the Feds seemed to have “ring fenced” these issues and the Federal Reserve appears poised to stop or significantly slow their rate hikes and tightening policies. With all of this as a backdrop, stocks managed to turn in a solid showing to begin the year.
What are we doing in our discretionary “core and explore” portfolios?
In the first three months of the year (Q1) we were tilted towards international stocks and in particular Europe which both fared better than domestic S&P 500 stocks. This is likely due to more attractive valuations, varying economic cycles caused by Covid, and the dollar weakening. We are maintaining the overweight in Europe, and international in general, looking for these trends to continue.
We also tilted towards “Large Value” stocks (think Warren Buffet) in Q1 which did not fare as well compared to the broader markets. We are dropping value stocks in favor of “Large Growth” stocks (think big tech companies like Apple, Microsoft, Nvidia, Google, Tesla, Exxon, United Health, and Amazon). These stocks have performed well lately, perhaps because of their perceived relative safety from secular growth stories and strong financial positions.
We are monitoring the markets closely to see if the bank issues spread and if commercial real estate loans and other unrealized losses in the banks are a next shoe to drop. Additionally Fed policies and the widely publicized potential recession. However, and notwithstanding, stocks look to continue their gains into April.