Market Commentary
The most critical positive catalyst for the equity market will be when the Federal Reserve starts to modify policy, a debate that began following the recent rate increase of only 25 basis points. Additionally, early earnings reports came in modestly better than expected, along with less pessimistic 2023 forecasts. Despite some technology layoffs, the employment market remains solid.
Consider a few more positives. 2023 started with a reasonable Price / Earning valuation, Europe is avoiding a recession (thanks to a warmer winter that didn’t cause heating bills to impact consumer spending), and China is reopening. Lots of work remains, but 2023 could be a good year.
MCM Growth Strategy – Growth stocks rebounded last month as a “risk on” investment environment was fueled by anticipation of a less aggressive Federal Reserve. Several poorly performing stocks from 2022 became the early 2023 winners, including Tesla (+40%), Nvidia (+26%), Qualcomm (+21%), and Amazon (+20%). Laggards included healthcare stocks United Health (-7%), Eli Lilly (-6%), along with Charles Schwab (-7%).
Purchases and Sales – We increased positions in United Health and Costco last month while we sold Nike and Netflix. After some index rebalancing, we made modest reductions in Apple, Amazon, and Nvidia.
MCM Value Strategy – 2023 started slowly for value stocks, last year’s winning asset class, as the risk on trade turned against the consumer staples, utilities, and healthcare sectors. The energy sector was the only one to advance in 2022 but started 2023 in the red as oil prices fell. Much like the growth strategy, last year’s laggards rebounded. Disney, American Express, Old Dominion, and target all had double-digit gains.
Purchases and Sales – We sold CVS Caremark as we project deteriorating fundamentals. Elevance Health and Johnson and Johnson were reduced to shift exposure from pharmaceuticals and insurance to devices (Abbott Labs was increased). Housing exposure was increased by adding Scotts Miracle Grow (yard and garden) and Trex Company (decking). Lastly, the utility weighting was increased by adding to NextEra Energy and Vistra.
MCM International Strategy – Similar to the U.S. markets, risk on investments performed well while the U.S. dollar declined. Mercadolibre, On Holding, Taiwan Semiconductor, and ASML Holding advanced more than 20%. Decliners included Lululemon and AstraZeneca.
Purchases and Sales – We increased the holdings of BHP Group and Linde PLC to gain more exposure to the materials sector. We increased Schneider Electric (commercial and industrial electrical devices) and modestly reduced Novo Nordisk after a solid 2022.
