From World Headquarters
Premium Points 2Q-2024: Birthdays, Benchmarks & Behavior
The US equity markets have powered higher this year on the back of improved earnings and the anticipation of interest rate cuts from the Federal Reserve. Inflation has subsided to near normal, targeted levels, giving the Fed some room to maneuver ( lower rates) to forestall a possible slow-down. The global equity markets and US small cap markets have lagged the S&P 500 significantly. After making its last previous high in late 2021, the broad US equity markets (S&P 500) made a new high in late 2023, exactly two years after the previous high. In 1Q-2024 and 2Q-2024 the broad US equity market made more than 20 new highs as the markets rallied in expectation of inflation and rates easing. It was a most welcome return to High Water Marks for portfolios. Early in 2024, we undertook a project to re-tool our whole suite of portfolio benchmarks to be more relevant and intuitive. At our inception in 2010, we were primarily offering a small roster of strategies that involved a market exposure hedged with short, near-term options. Accordingly our benchmarks began looking like those portfolios. Before too long however, we found ourselves offering globally allocated, broadly diversified portfolios to meet client needs and demands. Our benchmarks however, continued to look like the hedged benchmarks we began with. Increasingly, the old benchmarks were not a good fit for the client portfolios. Something needed to change. Some years ago I read “No Shortcuts to the Top” by Ed Viesturs. Ed is one of the very few people that has summited all of the 8,000 meter peaks on the planet. Interestingly, they can all be found in the extended range known as the Himalayas. That should tell you a little something about plate tectonics. CSCM turned 14 years old on June 30th, 2024, the anniversary of our registration as an Investment Advisor being approved by the Pennsylvania Department of Banking and Securities. We thought we would offer a little historic return data from the bellwether S&P 500 over that fourteen year period as a reminder of how markets move over time, even though in the short-term investor anxieties wax and wane with short-term market action, geo-politics, headlines and daily disinformation from websites. A Monte Carlo simulation is a program that takes the inputs of expected return, volatility (measured by standard deviation), cash flows (in or out) and time to produce forward looking portfolio outcomes that vary randomly around a normal (bell curve) distribution. It is a very useful way to stress test a portfolio against a range of potential real world parameters to see how robust the deployment of the portfolio is, how much margin of safety there is and what are the likeliest outcomes. After a dismal 2022 for both stocks and bonds, the US equities markets continue to make new highs through the first half of 2024. When the markets finally breach their previous High Water Mark after a down period it feels like a reason to celebrate.
From the CIO's Desk:
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Review & Outlook 2Q-2024
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CSCM Model Portfolio & Benchmark Update
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No Shortcuts to the Top
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Birthdays, Benchmarks and Behavior
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Revisiting Monte Carlo (Not the Gambling Mecca) Read More...
James Taylor and Bonnie Raitt
"You Can Close Your Eyes"
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Closing Thoughts
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