It seems not that long ago I was composing the Market Pulse edition that was ushered out 2022 and welcomed in 2023. Yet now, here we stand, doing it all over again, this time showing 2023 the door and embracing 2024. It seems to confirm that time melts away faster as one engages in a business of one’s choosing and enjoyment.
On the topic of melting, sans mention of snow, the close out of the investment market year may have witnessed its own version of a melt. Not routinely referenced in the investment media is the concept of a market melt-up (as opposed to its better-known feared sibling, a market meltdown). The idea is similar – a sudden and extensive move in one direction or another. Or, for those better persuaded by official definitions, Investopedia gives:
“A melt-up is a sustained and often unexpected improvement in the investment performance of an asset or asset class, driven partly by a stampede of investors who don’t want to miss out on its rise, rather than by fundamental improvements in the economy.”(1.)
Regardless of direction, melts are never “called” as they’re happening. Using fancier expressions, market melt labels are conferred ex post facto, meaning you don’t know you’re in one until it’s through. It is only by estimations, such my own, that we can surmise one in advance. My observation is simply based on seeing many equity markets shed 10% or more from late July to late October, only to turn on a dime and bounce back up 10%-15%, in some cases even rise 20%, in the final two months of the year.
There’s a trader adage that suggests markets usually take the stairs up and the elevator down. Some have updated that maxim to better hit the point, replacing “elevator” with “window”. No doubt a more suggestive tone. In any case, one need only examine historical market actions to understand this isn’t far from the truth. But for the cases where the markets seem to take the elevator up, rarely do they take the stairs on the way down either.
One year ago, I closed out the final 2022 edition by allocating some ink to the Buffett Indicator. You can refresh the concept by reviewing the December 2022 edition. Instead, I point out that the indicator posited a generally favorable year in 2023, given its downward trend into the close of 2022. Dropping from an all-time high 208% to kick off 2022 to 155% at year’s end gave favorable indications for market prospects in 2023. In reviewing the year’s numbers, we generally see confirmation of that sentiment.(2.)
So, while I continue to stand by position that in no way should most investors base decisions simply on the indications of one number, I can feel some of your fervorous curiosity wondering, what has the Buffett Indicator been up to in 2023?
Yielding only to interest and nothing more, we note that from a starting point of 155% in January, the ratio gradually increased to 175% at the end of November. Standing by its lonesome, this revelation suggests 2024 may not be as fruitful as 2023. Alas, we shall further entertain our curiosity in this matter in 12 months to confirm this provocative prognosis.
The year looks to have been transformative, where our clients saw momentum in building, protecting and ultimately enjoying wealth. I am inspired by what the future holds and welcome the opportunity to share in the momentum with you. For those lacking inspiration and motivation from your current advisor, a new year brings a new opportunity for us to connect for an informal conversation about how Pinnacle Sovereign Investments of ACPI may be a more effective money manager of your investment affairs.
To a healthy, happy and prosperous 2024,
Adrian Harasymiw Investment Advisor Pinnacle Sovereign Investments of ACPI
P.S. To review the December market numbers or download a PDF copy of this commentary, check out the Monthly Market Pulse page on our website.