By: Matt Garrott

The stock market in 2023 has been dominated by the 4 Comma Club, the Trillionaires* – Apple, Microsoft, Alphabet, Amazon, and Nvidia.  Nvidia’s position in this elite group is not cemented in place as it has recently fallen back down to a mere $925 billion market cap.  Schwab’s Liz Ann Sonders doesn’t view the performance concentration in mega-caps as a problem, but the lack of participation from the broader market is worth watching.  As of June 7th, the S&P 500 sits 20% above its October 2022 low.  Are we truly out of the woods or are we missing the forest for the mega-cap trees?

On the other end of the portfolio, investors are getting paid to hold bonds and even cash.  5% yields are everywhere.  Investors are presented with a new dilemma: chase short-term yields or extend duration and lock in today’s rates for a longer time?  With inflation cooling and yields at attractive levels, extending duration may carry less downside risk than it has in the past even if the Federal Reserve still has another rate hike in its future.  These are the conversations we are having with our clients.

The markets are offering interesting opportunities to investors, but also face risks.  What if there is a recession?  What if the mega-caps are overbought?  What if inflation persists?  What if there are more bank failures?  A prudent investor manages these unanswerable questions by adhering to their financial plan.  Diligent rebalancing steadies the portfolio through shifting markets, pruning back winners and allocating to discounted asset classes.

Rebalancing is not a “fun” activity.  It doesn’t require intelligence or skill.  Rebalancing demands courage and consistency, not the ability to predict winners and losers.  There are no points for style in wealth building.  Whether you made your money digging ditches or writing code, cash is the same shade of green.  The same goes for investing.  Boring works.  Passive investing, diligent rebalancing, and mindful consideration of taxes and expenses are fundamental.

Key takeaways for investors in 2023:

  • The 4 Comma Club is still a force to be reckoned with, but it’s not the only game in town
  • Diligent rebalancing can help investors weather the storms of the market
  • Boring investing works

*Side note: there’s a difference between reading $1 trillion and $1,000,000,000,000.  It’s like how quoting market movements in Dow points vs percent can yield very different perspectives.