Dear Investors,
As we forge ahead into the second half of 2023, it appears that much of the market has been caught up in the excitement of tech, while many "boring" stocks, like rails and utilities, are not riding the AI wave. But we've been around this track before. While tech has led the charge in early 2023, we are increasing our S&P 500 forecast by a stunning 15% over the next 12 months. We believe it will be essential not to overlook these undervalued sectors. Our full-year 2023 outlook remains at 17.5% increase in the S&P 500.
There is no denying that the road ahead may have a few bumps. Increasing rates from the Federal Reserve, geopolitical tensions stemming from Russia and China, credit tightening, and an unexpectedly resilient jobs market will undoubtedly offer resistance to a more accommodative Federal Reserve Bank. But remember, the wise investor navigates these headwinds, not with fear, but with anticipation.
At the same time, we see several tailwinds in our favor. Early AI-fueled productivity growth, a pause in August/September and eventual easing from the Fed in early to mid-2024. Continued inflationary cooldown, and creative innovation across industries, particularly in tech, transportation, and even food, could spur unexpected growth in corporate earnings.
As the year progresses, the emphasis will shift towards a more aggressive strategy in equities, gradually introducing mid-cap growth as we navigate the second half of the year. This plan acknowledges the likely headwinds we face but also captures these opportunities before they arise.
Our bond strategy will evolve as well. We anticipate lengthening bond maturities from short term, 3 months to 3 years, to a more intermediate-term, 7-to-10-year maturity. As we observed the Fed's actions and the market's response, we believe this strategy will provide a reasonable balance between risk and return.
Above all, we'll be following a well-worn piece of advice that I've adhered to throughout my career: Buy well run companies. We will actively seek to take advantage of downturns in the market during the 3rd and 4th quarters of 2023 by adding mid-cap stocks especially those benefiting from Artificial Intelligence.
As always, remember that we're in this for the long haul. Predicting the market's short-term movements is a game for fortune tellers, not investors. The key is to remain focused, disciplined, and above all, patient.
That's how wealth is built.
Thank you for your continued trust and confidence.