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Market Insights for Q1 2023 Thumbnail

Market Insights for Q1 2023

2022 was a blighted year for equities and bonds alike. There have been plenty of autopsies reviewing the bad news. Inflation, supply chains, the fed, earnings, rising interest rates, crypto, investor psychology, etc., were all contributing factors related to a tough 2022. Let’s move forward…

2023 is a new year and the market feels a little different at the outset. That said, OnTrack Wealth Management produced a video of Market Insights for Q1 and beyond that we believe will have staying power. Here are some of the highlights:

Portfolio Allocations

Research has shown that the biggest decisions most investors will make is related to their portfolio’s allocation percentage of equities (aka, stocks) and fixed income (most often bonds). Done properly, portfolio allocations will match up with an investor’s risk profile. Underneath the surface, investors should see appropriately sized risk and return – meaning higher risk investments should come with higher potential returns. Investors should seek to build a portfolio that is strategically non-correlated to achieve greater balance.

60/40 asset allocation is a classic measuring stick for a diversified portfolio. Annualized returns with a well built 60/40 asset allocation model tend to perform better than average in most years. By design, rarely will it be at the top or bottom of the asset class returns list.

Price Matters – Value Investing

Within a year of buying equities that have a cheaper forward price to earnings ratio (aka, P/E ratios), positive returns are statistically a little nebulous. However, forward P/E ratios and subsequent 5-year returns are much more robust and predictable when measured. Bottom-line is that buying a lower forward P/E ratio has a tendency to yield better mid to long term investment returns.

US Dollar & International Equities

When the dollar drops, it tends to provide a tailwind effect for international equities. There are cycles that the global markets trend through. US markets have outperformed International markets for the past 15 years, but that hasn’t always been true. It is possible that International MSCI EAFE is poised to outperform US markets similar to the early to mid-2000s following the dotcom bubble.

Short Term Treasuries

Treasury Bills with short term duration of less than 1-year are paying higher yields than bonds with durations of 5, 10, or even 30 years. Economists call this yield curve inversion. It’s an indicator of a looming recession and other things. It’s also an opportunity for investors to capture what is termed as “risk free” return by socking money away in 3, 6, 9, and 12 month Treasuries that are currently fetching yields above 4.6%! 

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