Stocks are said to climb a wall of worry. Any given year in history and there is some compelling reason why the sky is about to fall, and yet it rarely does. Ok, so maybe it has fallen twice in the last three years with a 36% drop during the Covid crash of 2020, and then a 27% drop in the first nine months of 2022. Even so, from January 1, 2020 (prior to the Covid drop) through March 31, 2023, a period of just over 3 years, the market retuned 9.4% on an annualized basis. I can almost hear my colleague Chris quoting the adage, “it’s time in the market, not timing the market that matters.” It has been a remarkable few years to say the least and those investors that rode out the volatility have been rewarded.
So once again, geopolitics and recession fears have us thinking the sky is falling and yet stocks are just chugging along. What should investors be doing now? The most important thing is not to overreact. Predicting short-term market moves is always tricky. Having said that, the recent market strength does present an opportunity to take a little risk off the table. Large cap growth has been on a tear since October with the tech heavy Nasdaq returning 18.98% since the October bottom.
We favor lightening up slightly on this space and sticking with an overweight to more defensive, value-oriented stocks. We also note that international stocks have been outperforming domestic stocks over the past 12 months. We still view international stocks favorably from a valuation standpoint and think this could be the start of a longer-term trend.