February 2024 Monthly Review

A Look Back

The above title was an iconic song for the English punk rock band The Clash. It was released in 1982, and only climbed to #45 on the Billboard charts. However, the song received much greater attention a decade later as a result of a Levi’s jeans commercial. When re-released in 1991, it reached #1 in the UK, and top ten status around the world. On a recent road trip to see my parents in North Carolina, the heavy-guitar-riff song took me back to my college days, and also got me thinking about the question that many clients are pondering now, “Should I stay or should I go?”. Typically, it specifically references staying invested in stocks…either fully or to some extent. I’ll break the cardinal rule of journalism and bury the lead, but the short answer is…stay. Assuming you’ve done your due diligence with your overall asset allocation and you have accurately identified your risk appetite, then shorter-term market fluctuations or external macro-factors should never directly lead to an “all-in” or “all-out” result. We talk about this now because the Large-Cap S&P 500 index was up 5.34% in February, and over 7% for the first two months of 2024. Mid-Cap and Small-Cap U.S. stocks did equally well in the month, while international stocks, although positive, lagged. Core bonds were negative for the second month in a row, as the long-awaited pivot by the Fed (the description of the Fed turning from a rate-increasing cycle to one where they lower short-term rates) has been kicked down the road to…maybe June of this year. For perspective, we started 2024 with expectations of 5-6 quarter point rate cuts. The market expectations now are 2-3, and even that is tenuous. For more perspective, the bell-weather S&P 500 index is now up over 30% in the last year, and the three and five year annualized returns are well above the historical average of around 9 to 9.50%.

A Look Ahead

We say stay because, in general, that has proven to be the best answer by far over the very long-term. It should be emphasized, however, that stay will not be the right answer in every situation. Imagine a scenario where a common 60/40 stock/bond allocation has been beneficial for an investor over a longer time-frame. Further imagine that now, that same investor knows that they are going to spend a decent chunk of their current assets on a second home in retirement, or more extravagant vacations for family, etc. It may certainly be reasonable at this point to say, staying, at least in current allocations, is not appropriate…and especially given the out-sized returns from their stock component over the last year. The big-picture point is that in investing there are some longer-term, historical truths that are important and worth remembering. But, it is equally true that every individual situation needs to be looked at and taken into account. Maybe what is good for the goose is not always good for the gander. We believe that sticking to your investment objective is important over time. We also believe that paying attention to what has recently happened and potentially making adjustments for specific, individual circumstances makes sense too. We continue to be fairly neutral in our stock/bond allocation. We also know that markets can and do surprise. There are always enough factors that we know of that can drive performance…and there are usually some that we don’t currently know of. So we proceed with some justified caution and stand ready to adjust around the margins to reduce risk. But yeah, generally stay. Even in The Clash song, it says, “if I go there will be trouble."