Wright Cove Capital: April 2024

April 2024 

We began the year by saying that our best trade idea was simply to remain calm. Maintaining patience in the short term is as important in up markets, as it is in down markets.  

 To summarize from our January Insights, we came into the year with the following mindset: 

  • The Fed would most likely cut rates, but not as fast or as deep as the market was pricing. 
  • The best place for long-term returns remains the US Stock Market. 
    • Within the stock market, we continued to prefer large, quality growth companies with strong balance sheets and pricing power.  
  • In fixed-income, we favored short to intermediate-term bonds vs longer duration debt. 
  • Finally, for conservative investors, or those with short-term liabilities, earning over 5% in T-bills remained a viable strategy. 

As we close out the first quarter of 2024, most of our asset allocation strategies have paid off. Quality stocks continue to outperform the broader market, and despite the feeling that tech stocks are the only game in town, sectors such as energy, financials, industrials, and healthcare have ALL outpaced the broader tech sector year-to-date.   

Coming into the year, the market was pricing in six rate cuts by the Fed, whereas the Fed was signaling only three cuts. This optimism by investors fueled a stock market rally to record highs. However, after 3 straight disappointing inflation reports, the momentum of the rally has stalled as the realities of persistent inflation set in.  

The stock market rally in the first quarter put many, including us, in a predicament. While it was fun to watch the market reach new record highs, the data was telling a different story with inflation remaining stubbornly high. Rate hikes may have slowed the pace of future investment, but fiscal stimulus, student loan forgiveness, and pent-up demand for travel and leisure have kept prices and inflation above trend.  

One of the toughest tasks for individual and long-term investors is to remain calm in a period where the market gets ahead of itself.  

Headlines today are full of bubble talk and comparisons to the tech meltdown of the late 1990s. While there are some similarities in the charts, we prefer to say the market is currently overbought in the short term, rather than being in a bubble. From October to April, the market rose over 20% without any significant pullback. We view a potential 5-10% correction from the highs as a healthy reversion rather than a reason for major concern – especially given the geo-political environment in the Middle East.  

Our strategy for the remainder of the year continues along the same path – position portfolios for the greatest probability of success, without making bets on Fed policy moves. How do we win if the Fed cuts rates (remain invested in quality growth stocks), and how do we limit downside if the Fed does not cut rates (avoid longer duration debt and unprofitable companies/sectors).  

Chasing trends and making impulsive market calls for clicks and views, or the chance to be on CNBC is not our game. We actively avoid market timing and single security bets and prefer to rely on data, valuations and experience as we strive to achieve the greatest return per unit of risk.   

With yields exceeding 5% on short-term government debt, and transformative technological advances being made in computing and A.I., we remain excited about the future investment landscape, but remain eyes wide open – preparing for risks by Fed policy change or escalations on the geo-political front.  

We continue to define our success by our ability to listen, understand and achieve each of our clients’ unique goals. As always, if you have any questions or concerns – or believe someone you know would benefit from working with Wright Cove Capital, please feel free to reach out. 

Regards, 

 Eric and Cass 

 Eric Leinwand, Principal – Eric@wrightcovecapital.com 

 Cass Tokarski, Principal – Cass@wrightcovecapital.com 

 The themes and strategies that we speak about and the positioning we take in portfolios are all customizable to best reflect each of our clients’ own unique goals and should not be interpreted as general investment advice. 

 


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