JUNE 2023 Market Update

While Everyone Runs in One Direction, Careful Analysis May Yield Better Long-term Results

In ancient Athens, an ambitious merchant named Demetrius was enticed by stories of hidden treasure. Ignoring logic, he joined the crowd of fortune seekers and embarked on a perilous journey to discover riches. The group endured rough seas, sickness, and misery, but Demetrius remained steadfast.

Finally, they reached their destination only to find no treasure. Most of the crowd despaired, became depressed, and blamed others for their misfortune. Demetrius, however, learned from his experience. Demetrius realized the value of independent thinking and the folly of surrendering one’s critical thinking skills to the crowd.   

This phenomenon repeats itself throughout history and is documented in the book “Extraordinary Popular Delusions and the Madness of Crowds” by Joseph de La Vega, Charles Mackay, and Martin S Fridon.  

I often speak to those who have previously been caught up in the .com craze, the cannabis craze, the cryptocurrency craze, or any of the many other examples we could name. Each of them has a slightly different view of things.   

1. One view is I will never invest in anything like that again. 

2. Another is, ‘Let’s do it again. It will be different this time!’ 

3. The other view is, ‘Let’s participate, but let’s do so carefully and thoughtfully.’ 

The third option works out better in the long term.  

Last month the banking crisis was in full swing, and the debt ceiling debate was heating up. Ultra short-term rates increased during the past month as concerns grew that the U.S. government might default. Now that the government or other industry participants have backstopped a debt ceiling deal and struggling banks, the market has moved on to enter the Artificial Intelligence craze full tilt.  

This monthly note has mentioned Artificial Intelligence and how it will likely change nearly every aspect of our lives over two years, so recent developments are unsurprising. What may be surprising to many is where the consistent longer-term gains come within a diversified portfolio. Unless the world suddenly stopped needing food, oil, natural gas, or manufactured goods, we see opportunities to harvest some gains coming from the recent high-flying valuations and put that money to work in what many may consider the boring or mundane, profitable businesses that have been quietly retooling and utilizing these new technologies for many years. These companies often get less press; however, they consistently perform well for their investors, often paying consistent and growing dividends providing ongoing income for their investors. Interestingly, as the artificial intelligence (AI) mania continues to heat up and attract more investment dollars toward the arguably more exciting businesses, the valuations of these “boring” companies have fallen, making their valuations more attractive.  

While it is important to participate in the momentum and rally, however narrow it may be. It is equally important to take some of those gains and reallocate them carefully among some steady “boring” businesses that have positioned themselves well to capitalize on how the world will change quickly. Your portfolio underperforms a particular index for a while, but it accomplishes your personal long-term objectives.   

Moving away from the mania of the day and looking at the macro market environment, we continue to watch the geopolitical climate closely. China’s grand reopening has fizzled, and Russia has redirected its oil and natural gas flows in a different direction to avoid sanctions. 

We are experiencing a significant shift in consumer spending and sentiment here in the U.S. as the Federal Open Market Committee (FOMC) is committed to holding the current rates. Add to that a presidential primary that is sure to provide a wonderful political theater for those that enjoy that sort of thing, and we have a recipe for plenty of summertime volatility.  

As retailers report their numbers, there are clear winners and losers. Higher-end retailers like Macy’s suffered while Nordstroms yielded solid results, mainly due to their Nordstrom Rack lower-end store sales. Conversely, Walmart and Costco have performed well while Target and Dollar Tree have struggled. These consumer decisions indicate that higher-end consumers have started considering their price tags due to multi-year higher inflation that higher wages have not offset. Further lower-end consumers may realize that there is a price difference between the lower-end retailers. We even see teen spending slow as parents apply the brakes as old faithful Ulta Beauty, Five Below, and Nike take a hit. We are also beginning to see cracks in some housing markets negatively impacting stores like Home Depot and Lowes. All of that said, while consumer sentiment reaches lower, actual consumer spending remains resilient for now.

One of the more interesting areas of the market is the energy space where sizeable multi-billion-dollar deals are being made; however, oil and gas prices remain relatively subdued with the U.S. selling more oil abroad than ever before during the month of March at 11.27 barrels per day. The prevailing theory is that new technologies may soon vastly reduce the cost of extraction and increase output in the coming year, particularly in shale oil. There are three distinct areas of the oil industry. 

• Upstream, which is the exploration and extraction business

• Midstream is the processing, storing, and transporting 

• Downstream is the refining and purifying of crude oil or natural gas.

Currently, we find the midstream area most attractive followed by upstream; however, given the current dynamics and geopolitical issues, the oil and energy space is not for the faint of heart.

Please remember that this note is not investment guidance for you; it is simply information and opinion. We strongly encourage you to speak with Guardian Rock™ or another experienced professional who can help you determine what plan is the best option for you and your personal situation.

Define your outcome and allow a skillful artisan to help you create it.

Please remember that this note is our opinion from a broad perspective based on over three decades of money management experience and is not personal advice.

For more information and a copy of the Amazon Best Selling Book Build A Life Not a Portfolio, reach out to us HERE or text the word LIFE to 321-421-5213

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Talk soon,

John

Phone: (561-) 327-4646

Email: info@advocacyinvesting.com

John Browning, MBA, and CSA®

* Securities and investment advisory services are offered through Guardian Rock Wealth™ Investment Management Inc. (GRWIM). GRWIM is a wholly-owned subsidiary of Guardian Rock™ LLC. Neither of these entities provides tax or legal advice.