Year-End 2023 Market Update

Dear Clients and Friends,

We hope you had a wonderful holiday season and wish you all a Happy New Year. As we close out 2023 there were many unexpected twists along the way, but the biggest surprise was the majority of the returns for the major stock indices (Nasdaq, S&P 500 and Dow Jones Industrial) all were heavily dependent on the performance of seven stocks, coined The Magnificent Seven by Jim Cramer, earlier in the year. To put things into perspective, below are the Magnificent Seven returns for 2023 and how their performance impacted the S&P 500.

Magnificent Seven Stock Performance
Company    Ticker    Market cap, in trillions    2023 % Gain
Apple           AAPL    $2.99                              48.2%
Microsoft     MSFT    $2.79                              56.8%
Alphabet     GOOGL $1.75                              58.3%
Amazon      AMZN    $1.57                              80.9%
Nvidia         NVDA    $1.22                              238.9%
Meta           META    $0.91                              194.1%
Tesla           TSLA    $0.79                              101.7%


S&P 500 Total: 24.2%

Magnificent 7

In 2023 these 7 stocks accounted for over 75% of the total return of the S&P 500 which means the S&P 500 would have been up about 6% in 2023 for the year if these seven were excluded.

Bauer Heitzmann Performance

At Bauer Heitzmann we had a fabulous year with our equity portfolios up 24.46% and bond portfolios up 4.57%. So in short, our equity portfolio matched the return of the S&P 500 but with much greater diversification and lower volatility and our bond portfolio doubled the performance of the aggregate bond index.

Some of the reasons for our risk adjusted outperformance this year came down to a few items. We were overweighted in XLK which is our technology ETF that gave us exposure to the fastest earnings growth type stocks. We also owned outright four of the seven magnificent seven stocks in our Alpha sleeve.

We have owned Nvidia for the last few years believing AI would be a center of growth for several years and believe there is more to come. We also have owned Amazon, Apple and Tesla believing these companies gave us the opportunity to gain additional performance with lower percentage weightings.

The other decision which has benefited our portfolios the most over the last three years was staying away from bonds in 2021 and 2022. By not owning this staple in our portfolios we did not get hurt as interest rates went up over the last few years and not putting us in a position to hold those positions until they recovered. Earlier in 2023 once interest rates exceeded 5% on the Fed Funds rate we started tip toeing back into the bond market.

This allowed us to buy bonds giving us 6-9% interest rates but more importantly allows us to have large amounts of capital appreciation as interest rates go down. This started over the last two months on expectations of lower rates in 2024 and we believe this will be a strong area of our portfolios over the next 12-24 months as interest rates go back to the 3% range on the Fed Funds rate.

In addition to the standard stock/bond asset classes, we have continued to successfully implement other structured products that offer attractive rates and leveraged growth notes that we believe will be catalysts for growth in the years to come. 

While the 2023 rebound was a surprise to many, we enter the new year with optimism that we are firmly rooted in a technological revolution that will continue to surprise expectations. Undoubtably there will be volatility and unpredictability, but we are armed with data, context and perspective. 

Our aim in 2024 is to be a beacon of clarity in an ever-changing, complex financial world. In a life devoted to service, we stand as your vigilant guardians of wealth. We are grateful for each of you, the most productive people on earth.

All the best,

Stephen, Dan, and Chris

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