Global markets finished the quarter on a very strong note. The S&P 500 Index rose

11.7% while the Dow Jones Industrial Average rose 13%. The NASDAQ composite

appreciated 13.8%. The MSCI All Country World Index rose 11.5% with the

Bloomberg U.S. Aggregate Bond Index moving up 6.8%. U.S. Treasury rates fell

sharply even as the yield curve remained inverted. The ten-year Treasury yield at

3.88% was 69 basis points lower at quarter-end versus the prior quarter while the

two-year Treasury yield at 5.04% fell 80 basis points. Our view has not changed,

despite the rally in bonds, the treasury curve inversion continues to bode poorly

for the economy in 2024. The three-month U.S.T bill at a yield of 5.34% is 146 basis

points higher than the 10-year U.S. Treasury note (widening 58 basis points from

last quarter), historically a sign of a forthcoming recession.

The Federal Reserve appears to be on hold for any further rate increases. While

they made it clear after the September meeting that it was only a pause, at their

last meeting they recanted and essentially told the markets that they are done

for this cycle. Fortunately, the FOMC continues to slowly reduce their bloated

balance sheet. The market now believes the FOMC will lower rates at least three

times (75 basis points) in 2024. This was a major reason for the market rally this

quarter. We are not inclined to believe in the three-time reduction. If there is

indeed a reduction in interest rates by the FOMC, it shouldn’t occur until the

second half of 2024. Rising levels of inflation appear to have abated, although

getting back down to FOMC’s target of two percent is unlikely in 2024. We have

yet to see, in the face of today’s rate of inflation, now decelerating, the FOMC

tightening until they “broke” something. Could this mean a ‘soft landing’ for the

US economy is in the offing?

The first quarter of 2024 will bring new challenges to the economy and the

markets. First will be the US Congress’ punting of the budget impasse to this

quarter. Increases in minimum wages in 27 states will bring price pressure to avariety of businesses who will need to pass along some, if not all, of those

additional expenses. Some companies have already announced a reduction in

headcount as they assess their options. How widespread this will be is unknown.

We continue to believe market volatility will continue to be a story in 2024. We

are concerned about a global equity and fixed income market correction of even

more substance than occurred at several points in 2023. Valuations, particularly

those that are specifically technology related, are even more elevated than they

were in 2022. Seven technology companies (known as the ‘Magnificent 7’) were

responsible for the bulk of US equity market performance in 2023. Comparative

valuations to the 1999/2000 overvalued equity markets should not be ignored.

Intermittent ‘bear market’ rallies of considerable magnitude, like the fourth

quarter of 2023 and substantive declines (as we saw earlier in 2023) might well

be the norm for 2024. While fixed income rates have fallen dramatically this

quarter, the interest rate spread between investment and non-investment grade

securities still does not reflect realities in today’s inflation-fueled economy.

While the dollar was weaker against world currencies this quarter, that may not

last for long.

And we repeat: The impact of the war in Ukraine still cannot be assimilated into

the global economy with any degree of confidence even after two years; nor can

Middle East violence. The human and economic tragedies are reminiscent of past

periods of violence and war. These horrors and the aftermath of the pandemic

continue to reverberate in the global markets, caution is warranted.

Our continuing search for and investment in undervalued assets requires patience

and a healthy dose of optimism for humanity.


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No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All

investments include a risk of loss that clients should be prepared to bear. The principal risks of SWM strategies are disclosed

in the publicly available Form ADV Part 2A. Although bonds generally present less short-term risk and volatility risk than stocks,

bonds contain interest rate risks; the risk of issuer default; issuer credit risk; liquidity risk; and inflation risk.