By Chief Investment Officer Tom Kelly, CFA.
What if you could get the headlines of the market before everyone else? Do you think it would make you a better investor? Provide you with an edge to get that “superior return” you’ve always wanted? In some cases, perhaps, but in others, I suspect the market’s ability to move unexpectedly could leave you worse off.
What if I told you at the beginning of the year that the largest tech companies would continue their string of layoffs, the bank most tied to serving Silicon Valley technology firms would suffer a bank run and collapse, and central bankers would continue to raise interest rates? Would you have guessed the technology sector in the global stock market (as measured by the MSCI All Country World Index (Gross Div.)) would be up over 20%? Doubtful.
Source: Morningstar, as of March 31, 2023. The MSCI ACWI Index is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets, consisting of 47 country indices comprising 23 developed and 24 emerging market country indices. Indices are not available for direct investment. Index performance does not reflect the expenses associated with management of an actual portfolio. Index performance is measured in US dollars. The index performance figures assume the reinvestment of all income, including dividends and capital gains. See Important Disclosure Information.
Certainly, there are other factors at play than the ones above (the expectation of an end to Fed interest rate hikes is likely a large contributor to technology outperformance), but that’s how the market operates. The variables we think matter often don’t (or matter less), and outside events often disrupt or complement even the most well researched thesis.
The market’s reaction to tech in the first quarter is another reminder of how hard it is to time and predict the market, even if you “know” what is going to happen. The moral of the story is that we need to remain diversified and invested, even if we think we know how the story might end.
Important Disclosure Information:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
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