The market is growing impatient as it waits for the long-anticipated recession, while the list of perceived positive catalysts grows. The Fed is nearing the end of its tightening cycle. Inflation, which has been the primary focus since early 2021, continues to trend lower and now sits at a 2-year low. S&P 500 earnings estimates for the years 2023 and 2024 were revised lower in Q1 but stabilized in early April as companies guided analysts higher for 2H 2023 results. Positioning is fueling the rally after investors entered 2023 expecting an economic slowdown after 2022's aggressive rate hikes. With the S&P 500 rallying and the U.S. economy's resilience, investors are now chasing the rally after being caught offside.
Today's market is highly complicated and challenging to navigate, and emotions are high for both bulls and bears. A seemingly endless number of thematic cross currents pull investors in every direction. The easy solutions seem to be to hide in fear or to chase the rally, but those are both dangerous approaches because they require incredibly accurate predictions. The lack of recession (so far) among 18 months of presumed certainty of one demonstrates the difficulty in predicting.
Instead, we continue to rely on portfolio efficiency and diversification-by risk, asset class, geography, and factor. These are things we can control and will complement a well-designed and executed financial plan, without having to predict what happens next.