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I PROMISE

By: Tony Minopoli

As I script this post, I am sitting in St. Thomas with my wife, son, and future daughter-in-law (I can’t believe I am typing that, but a story for another day), my daughter, and her boyfriend. The trip was driven by my daughter’s desire to be “someplace warm” while she was on break from her physician assistant program at Canisius University in Buffalo, New York. This follows four years at Marquette University in Milwaukee, so finally heading to someplace warm with loved ones for the holidays was an understandable request.

I had promised my team and myself that I was truly going to unplug. Karen, my wife, gave up on that notion years ago! You can’t try to be serious about investing and think you can just “unplug”. In any event, I was reading an article in the Friday, December 15th Wall Street Journal, decrying the notion to beware of the expectation of a soft landing. Everywhere you look, this appears to be the unmitigated conclusion. The Fed has pulled it off, so buy stocks, spreads will narrow and all will be great. Another article mentioned the trillions of dollars in cash that could come off the sidelines and propel the market to higher levels.

As I have written many times, I am not a market timer, and I am not about to change my tune. We continue to look at the credit card spending information and we are seeing the consumer be a little less optimistic in terms of discretionary spending. While the recent inflation data continues to show a lessening of inflation pressure, inflation is still well above the Fed’s target. The major concern that we see right now is that the soft landing is not only a crowded trade, but it appears to be the foregone conclusion that this is the only path. We have been reminding clients to take opportunities to rebalance towards target levels. If you own growth and technology stocks, particularly the Magnificent 7, there is a likelihood that you are now overweight[1]. If this is the case, rebalancing to your long-term target allocation will allow you to realize the profits that were built this year. With bonds rallying over the last 6 weeks, suddenly fixed income is not quite the boat anchor it has been during the rising rate period.

I promise (see what I did there!) that we are not predicting Armageddon or extolling investors to completely move to cash. We are asking people to be thoughtful and not just assume the “consensus” view of a soft landing is a “fait accompli.” Last year, the consensus view was that the U.S. would be in a recession, and perhaps a deep one, during 2023. That did not pan out and we only have two weeks left in this year. Be wary of consensus views when we are at times of stretched prices and valuations. Let us know if you would like to discuss your current positioning.

[1] Magnificent 7 contains: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

KoCAA is an SEC registered investment adviser that maintains a principal place of business in the State of Connecticut. For information about KoCAA’s business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov. KoCAA is a wholly owned subsidiary of Knights of Columbus, one of the world’s largest Catholic Lay Organizations. Investing involves risk and you may gain or lose money on your investments. For additional information visit KoCAA.com or write to kofcfunds@kofcassetadvisors.org.