3rd Tuesday 3 For 3!

Third Tuesday 3 For 3! June 18, 2024 Doing, Being and Dreaming with an update on Sell in May and go away….” Not THIS May. The S&P 500 has gained over 9% since May–and by way of comparison, 2023 saw just shy of 6% over the same timeframe and posted 24%+ for the year. Is it time to “chill out?” Is the heat of the summer season mimicking an overheated NDVIDA driven Mag 7 meltdown?  Fear and loathing be gone! Yet, the season of being (in passive overly concentrated indexes) may be over for a bit as investors seek allocations/managers that “DO” something more: Mitigate concentration and drawdown risk while riding the rollercoaster of positive returns with your friends and neighbors–who, BTW, may be caught unaware and leaving the carnival without a sweet treat. Not sure if you’re in line for the docile tea-cup ride or for the  adrenaline rush of the rollercoaster? Be sure to book a 3-6-10 Allocation review today. Do That, THEN, you can get back to dreaming and being!  Multi-asset class Outsourced Chief Investment Officer (OCIO) • Investment Strategist • Client Portfolio Manager • Public and private markets BA Northwestern University MBA/Finance Northwestern-Kellogg School of Mgt  Opinions, elections and bubbles  We live in fascinating times. Will 2024 be the year all rational expectations were defied? The recession that never was, inflation that never abated, and the bubble that never burst?  The data are far from conclusive… Last week, markets cheered the lower inflation numbers. Using month-over-month figures, Core CPI fell to the Fed’s 2% target in May. While a month does not make a trend, and it is too early to cry “victory,” it helps to explain the market’s reaction to this news: arriving at lower inflation numbers would give comfort to the Fed in lowering rates at some point this year (possible, but not our central scenario). It’s thus no surprise to see money managers positioning in sectors that would all benefit from rate hikes – financials, tech, utilities. Will political opinion surveys incorporate this encouraging inflation data at some level? Inflation has been the pain point weighing on consumers, particularly the lower income population. Consider that Biden’s approval rating reached a new low this week: the weighted average of all approval rating polls, published by FiveThirtyEight blog, clocks this number at 38% – the lowest in Biden’s presidency. This is inflation speaking. Opinions also drive certain market and economic surveys. Many economic data releases are based on opinion surveys, such as the University of Michigan consumer confidence report, or the ISM business sentiment surveys. Since these surveys are collections of opinions, and since opinions can be swayed against the backdrop of other factors (persistent inflation or political considerations), it’s not far-fetched to consider that these “soft” surveys are more a measure of political opinion than a true barometer of the economy. The “hard” surveys – GDP, jobs, inflation – are all quite strong. Taking the opinion-driven consumer confidence survey as an example, last week, confidence came in much worse than expected, at 65.6, its lowest reading so far in 2024. This was a big surprise as most economists had predicted it would increase. Democrats have clearly soured on the economy as election hopes falter. The risk is that economists will take these opinion-based surveys to reflect hard facts, whereas the argument can be made that these surveys are actually political opinions, not economic ones. Further complicating the picture is continued bullish investor sentiment. Across the world, passive investing in index funds or ETFs has all but become the norm. Investors seem to agree that it is better to let the market price risk and reward, and the opportunity cost of not jumping on this bandwagon is leaving money on the table. When I began working in the markets, in the early 2000s, in the wake of the dot com bubble, Alan Greenspan’s “irrational exuberance” term had just been coined. Market strategists discussed “Animal Spirits.” While our portfolios are allocated across certain cost-effective passive strategies and researched, active stock selections across US and international markets, and while we closely monitor risk/reward across these and other dimensions, we feel compelled to point out that the US stock market has not been this concentrated in four names since 1964. No, we don’t believe that the index will concentrate into an “S&P 1.” But does this constitute a bubble? Bank of America published the chart below showing a history of the formation of asset bubbles. Usually, markets only recognize an asset bubble after the fact. Bubbles are more about human psychology than economic or financial metrics, but their common characteristic is a price deviation from a particular asset’s intrinsic value. The difficulty here is in pricing the intrinsic value of AI from a multitude of different vantage points, as we have discussed: technological development and deployment, industries, demographics, regulations, adaption and adoption! We don’t have the answer, nor can we predict the most likely dénouement, but we do believe in self- and market-awareness, as read in the above data. We do wonder how high today’s valuations can fly, and with them the momentum-driven stock market performance we’d all like to see continue. Keep in mind that markets are also, increasingly, powered by narratives. The internet, the crypto revolution, and AI have driven markets and extreme speculation. We look forward to continuing to observe the current AI narrative play out, through the lenses noted above, and maintain a prudent, balanced portfolio positioning. Cokie’s 3 For 3: Courageous Leadership: Being, Dreaming and Doing “Remember, you are human BEING, not a human DOING…” my mother commented in response to an Instagram LIVE post last week. She’s right. How much of our days are spent BEING? And, in my 20+ year (or 51 year?!)  “Perfect Day” experiment, what I know is this; if you don’t dream first, the whole “being” part can be quite mundane.  A serial doer and recovering perfectionist, let’s address the elephants running around. “Doing” and attention to detail, especially in the finance world, are perfunctory. Seasons, I offer you–analogous to out of the zip code indulgences on trips, as well as the about-face days of disciplined diet and exercise whilst in the zip code, come and go. I hope you see the likeness; they’re seasons for doing and being—and like the elusive work-life balance fallacy of career demands on a life well lived, the two, doing and being, usually aren’t balanced—they come in waves.  Seasons.  Summer doesn’t offer 40 degree mornings and the delight of changing fall leaves. Its hot and buggy. Recently, the market and thanks to the addition of CIO, Elizabeth Breaden in 2023, have certainly helped recently, offering a season of less “Doing” at Alphavest.  Yet, we’re always at the ready to pivot, de-risk and DO in our portfolios. AND, I am thankful for this current season of Being and Dreaming. After all, the Schwab/Folio merger and a 7 year partnership unwind brought much DOING to the forefront since September 2023. Thank you for your patience and commitment to Alphavest during that transition. Lack of Market Volatility and with most firm transisitons behind us, the dreaming and being side of business has been cathartic, I might even say fun. It only takes a little dose of dreaming to fuel many seasons of doing. What does Dreaming and Being look like you might wonder….. Deciding to recruit female advisors to the Alphavest Team… Committing to giving back to our clients with our Alphavest Partners Program… Diving deep into client-centric value creation with our 10 Words Campaign… Saying YES, again, to 411 LIVE  and WINK, to name a few. For me Dreaming and Being at Alphavest is always client-centric. That’s what makes me tick. Enjoy whatever season you’re in…what’s guaranteed: there’s another season coming—and that season, will soon pass, too. Look where your feet are: BE there. Partner with Alphavest! Inquire about Alphavest Partner POINTS for Events, Reviews, and Referrals! What Investors Need to Know NOW (WINK) WINK is back. Stay tuned for the live/video features of WINK and how you can tune in. For now, here’s your savvy sound byte: Last week, the S&P 500 tapped 5400 for the first time ever and is up 14.75% year-to-date, putting it on track to post a double-digit gain for the first half of the year. Anytime the market has a strong run, questions like “How much further can it go?” inevitably arise.  Historically when there’s been a strong start to the year, that trend has continued in the second half of the year more often than it has reversed. The table below shows the first and second half and calendar year returns for every year in which the S&P 500 has gained 10% during the first six months of the year. Including last year, there have been 28 times when the S&P has gained 10% or more during the first half of the year since 1928. Of those 28 years, there have been only seven occasions (or 25% of the time) when SPX has followed up a 10%+ first-half gain with a negative return in the second half The most recent occurrence was in 1987 when the S&P gained 25.53% during the first half of the year and then went on to lose -18.72 % in the second half, which of course included the Black Monday crash in October. 1987 was the second year in a row that the S&P gained more than 10% in the first half of the year and then lost ground down the stretch. In 1986 the index posted a gain of 18.72% through the first six months and was then down -3.46% during the second half, finishing the year with a respectable gain of 14.62%. WINK: Only once has the S&P 500 gained more than 10% during the first half of the year and then had a second half that was bad enough to push it into negative territory for the year. Unsurprisingly, that year was 1929 when the S&P was up 12.57% in the first six months of the year, then lost -21.74% in the second half of the year, which included Black Tuesday and the start of the Great Depression. In fact, except for 1987 and 1929, which each had historic market meltdowns during October, every year in which the S&P gained more than 10% during the first half of the year, it finished the year with a double-digit return. Outside of ’29 and ’87, the lowest calendar year return for a year that started with a 10%+ gain was in 1988 when the S&P gained 10.69% to start the year and added 1.54% in the last six months bringing its total gain for the year to 12.40%.  On the other end of the spectrum, there have been 12 times when the S&P gained 10%+ in the first half and followed that up with a double-digit gain in the second half of the year. The S&P just narrowly missed accomplishing this in 2019, when it gained 17.35% in the first half and 9.82% in the second half, just shy of the 10% mark. However, we don’t have to go back much further to find the last time this occurred – in 2013 the index gained 12.63% from January through June and then gained steam, posting a gain of 15.07% in the second half of the year, to finish the year up 29.6%. The best second-half finish, following a 10%+ start came in 1954, when the market gained 17.73% during the first six months and then gained momentum, adding another 23.18% in the second half, bringing the calendar year return to 45.02%, which is also the best single-year return for the S&P since 1928.  Last year, a strong first half once again led to a strong finish to the year as SPX gained just under 16% in the first six months of the year and advanced another 7% in the second half. WINK: While we are once again on the verge of 10% first half gain, there is a key difference between this year and last – last year the S&P was coming off a 19% loss in 2022, while the index came into this year on the heels of a 24% gain. While we’ve already established that a strong start usually continues through the second half of the year, does that tendency hold even when the market ran up in the prior year? In the image below, we’ve expanded our table to include the prior year’s returns and highlighted the years when the S&P was up 10% or more the year before. As you can see, there have been numerous occasions when the S&P gained more than 10% in the first half of the year after posting a double-digit gain the year before. In fact, such years account for 15 of the 28 years in which the S&P has gained 10% in the first half since 1929. It’s also apparent that the majority of the second-half returns are positive. However, these years also account for five of the seven times when the S&P gained more than 10% in the first half of the year and lost ground in the second half; these years also show a lower average second-half return (3.26%) than the average second half return for all years in the table (5.92%). We can also see that there have been two occasions when the S&P has posted three consecutive 10%+ gains in the first half and the calendar year (1943 – 1945 and 1997 – 1999). However, both periods preceded multi-year drawdowns for the index. WINK: Overall, history suggests that follow through on a strong first half may be more of a challenge after a 10%+ gain the prior year, but it has happened on several occasions and, in rare instances, has even extended further. However, those periods, like 1997 – 1999, were followed by extended drawdowns. So, from a longer-term perspective, it may be preferable to see the market cool off as opposed to advancing 10% every six months. WINK BOTTOMLINE: Your customized 3-6-10 Allocation is critical to your investment and financial success, in good markets and bad. At Alphavest, we are active mangers. We’re armed and ready for either scenario. Get your 3-6-10 check in TODAY. Portfolio Winners & Losers YTD & 30-day Portfolio “Winners”: While NVIDA may be all the talk, Taiwan Semiconductor/TSM is first AI downstream to win when NVDIA wins…so, its Taiwan Semi, 2 months running for the YTD win in our Alphavest 10 Year High Conviction Model +14.72% (vs. 15.73% S&P 500) YTD. Our 30 day winner is also Taiwan Semiconductor/TSM with a close 2nd place from non tech Eli Lilly + 14.94% YTD from our  Alphavest Equity Income Model +9.35% (vs. 3.88% Dow Jones/DJIA) YTD. YTD & 30-day Portfolio “Losers”: Petrobras/PBR and McDonald’s/MCD have been the 2 double-digit detractors of performance, YTD. With the likes of quality widely held names like Cisco/CSCO -38% and Tesla/TSLA -25%, we’re HOLDING our “losers” for now. With a Morningstar 3 & 4 Star ratings and with undervalued share prices amidst an froathy market, are among reasons to HOLD these positions, yet we continue to monitor daily.  Key Corp/KEY is top of the losers board for the last 30 days, yet with a 1 YR return in excess of 36%, a Morninstar 4 star rating and boasting a forward dividend yield of 6.0%%, this mid-sized regional bank is a HOLD in our Alphavest Aristocrats Model +11.62% (vs. 3.88% Dow Jones/DJIA) YTD. Energy continues to pull down performance in models, yet we feel overseas conflict, undervalued shares and attractive dividend yields offer excellent ballast to other overly concentrated widely held tech names. ‘

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