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2023 in the rearview mirror

By Carter E. Anthony, CFA


Early in 2023, there were rumblings that after two years of Fed-induced interest rate increases to fight inflation the economy was going to hit the skids led by employee layoffs, a consumer-spending pullback, and lower corporate earnings.

Pair that with huge Federal debt, growing Federal deficits, supporting a war in Ukraine, a southern border allowing migrants in from every country on the planet and an administration that cannot shoot straight.

Warren Buffett, the Chairman and CEO of Berkshire Hathaway, who is considered the best investor of all time, stated “the incredible period for the U. S. economy has been coming to an end in recent months. The majority of our businesses will report lower earnings this year (2023) than last year (2022)”.

Buffett throughout history has been ultra-bullish on the U. S. economy and has almost always been a stock investor.

Buffett cited persistently higher inflation; higher interest rates and a banking crisis have made him more concerned about investment returns going forward.

His longtime partner at Berkshire, Charlie Munger, made a similar comment saying, “Get used to making less”.

Buffett and Munger put their money where their mouth was by liquidating $10.4 billion in equities in the first quarter expanding their cash hoard to $130 billion, about 15% of all assets.

As mentioned previously, I’ve seen this movie before.  In the 1970s, inflation was rampant and interest rates were rising.

Corporate earnings were declining and employee layoffs were common.  The Dow Jones Industrial Average fell 50% from 120 in 1973 to 63 in 1974. (120 to 63, now 37,000!)

It remained in a trading range of 90-110 for the remainder of 1970s.  Fixed income securities were king!

A financial services writer published a book, “Limits to Growth” in which he enumerated all the problems with the economy and predicted low to no growth in the future.

His research obviously did not include discussions with computer manufacturers.

Following conventional wisdom of growing inflation, higher interest rates, lower corporate earnings and employee layoffs, I cut back on allocations to growth stocks and added slower growth, higher dividend-paying stocks.

It didn’t take long to realize my mistake. In the first quarter, all stock indices were positive with the Nasdaq climbing about 20% out of its hole created by being down 30% in 2022.

It didn’t look back for the whole of 2023. I scrambled to reverse my “dumbing down” earlier year investment changes but not before they affected some of our annual returns.

In fundamental economic analysis, I made the right moves but the market, often not fundamental, proved me wrong. Sometimes, following the economics of the situation, while right, turns out wrong.

For the year, the conservative Dow Jones Industrial Average rose 14% reversing its 9% decline in 2022; the broader S & P 500 rose 24% reversing its 20% decline in 2022; and the tech-heavy Nasdaq rose 43% reversing its 33% decline in 2022.

Both the S & P 500 and the Nasdaq returns were pushed by seven tech stocks with Artificial Intelligence aspirations.

The market cap of those stocks rose to 30% of the market cap of all the 500 stocks in the S & P.

They were strong drivers of the good return. If it makes you, or me, feel any better, most of the well-known strategists, analysts and economists missed the forecast, too.

“It’s tough to make predictions, especially about the future!”  Yogi Berra

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