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2024 04 Comfortably Numb Thumbnail

2024 04 Comfortably Numb

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Comfortably Numb

There was a summer in my youth when I listened to the Pink Floyd album The Wall on an endless loop. Despite being 80 minutes long and having 26 tracks, by the end of that summer, I knew every word by heart.

With the advent of Spotify, I have revisited the soundtracks of my youth. Some of my old favorites have held up; some have not. While not everything on The Wall holds up to my memories of how epic I thought it was way back when there is one song that stands out above the rest. Comfortably Numb is a song about the experience of one of the band members who was incredibly ill before a performance. The on-call doctor misdiagnosed Roger Waters and gave him an injection of a tranquilizer shortly before he went on stage. Waters said he could barely move his arms during that performance, which left a lasting impression on him and ultimately resulted in one of the most iconic songs ever.

On January 3, 2022 - after an epic 13-year run that saw an increase of over 600% from the Global Financial Crisis low on March 9, 2009 – the S&P 500 topped out. Given that I started Context Wealth in March 2022, the 25% drop from the January 2022 top was a recurring point of conversation with clients. On January 19, 2024 - after a slump that lasted two years and 16 calendar days - the S&P 500 finally surmounted that previous high and found several new highs throughout Q1.

There has been plenty to worry about these past two years and 16 days. Just top of mind, we have conflicts in Gaza and Ukraine, inflation has recently been at generational highs and remains stubbornly higher than the Fed target rate, and Congress recently (barely) passed a budget to finish out the fiscal year (approximately eight months behind schedule), the US debt continues to grow, there was a flash in the pan bank crisis that everyone has forgotten about, and we are looking at a hotly contested presidential election in November.

And yet, despite this wall of worry, the stock market has found new highs this year.

To commemorate that new high on January 19, 2024, Invesco Global Market Strategist Brian Levitt wrote, "The S&P 500 has hit 1,176 new highs since its 1957 inception. That's the equivalent of a new high every fortnight or 14.3 days. History suggests that investors should expect the market to ascend to many new highs over their lifetimes, even if the path isn't always a straight one."

To echo that point, an annual piece by the mutual fund company DFA argues that there is no "average" in average annual returns. As this graph shows, for 1926-2022, there were only six "average years." The rest were either extremely high, extremely low, or somewhere between.

What follows is one of my all-time favorite combinations of charts. The first chart shows a meteoric rise in the S&P 500 from 1991 to the present day. The red line reflects an approximate 8% compounded annual return in the S&P 500 from 1991 to the present (which does not include dividend reinvestment). The black line represents an approximate 10% return in the same index (which includes dividend reinvestment). The dotted line shows the "average" of these returns. This graph looks like a hockey stick in later years, which illustrates the power of compounding.

The second chart, which plots the S&P 500 on a logarithmic scale, corrects the "distortion" of plotting it on a linear scale, as in the first chart. In other words, the 8% and 10% growth lines are represented as straight lines. This graph shows that stocks are approximately in line with their long-term compound annual appreciation trajectory. There are periods when returns are above and below the average but, in the long run, stay very close to the average.

The word "risk" is overused and often used out of context. When you hear the word risk in relation to your portfolio, the focus is most often on volatility risk. For example, when you take a risk tolerance survey, you are really being measured for your tolerance for having your portfolio lose money in the short term.

Here's the point of all of this: Sure, as the sun crosses the sky, markets will go up and down. Volatility risk is inescapable. These things are out of our control. However, there is something that is within our control, and that is what we do in the face of volatility risk. It's why we spend time identifying the best long-term asset allocation strategy and why we spend so much time setting expectations about what might happen in markets and within your portfolio.

Now that we are in a period when the market has done well (2023, trailing one year, and trailing one-quarter returns are all positive), it's time to consider if your portfolio has the right amount of potential risk volatility for your taste and circumstances. And while I do not want you to become Comfortably Numb in the Roger Waters sense, I encourage you to ignore the barrage of news that can and will sensationalize stories at the expense of your long-term investment strategy and financial plan.

Q1 2023 Recap

During the quarter, the broad-based S&P 500 Index notched 22 closing highs, the Dow recorded 17 new highs, and the Nasdaq posted four new highs. Repeated new highs on the major market indexes suggest the rally, concentrated in a few large stocks last year, is broadening.

"The Stock Market's Magnificent Seven Is Now the Fab Four," read a headline in the April 1 Wall Street Journal (and it was not an April Fool’s joke!). "It is a bullish signal that the market is rallying without the likes of Apple and Tesla," according to some investors.

Dubbed the Magnificent Seven by a Bank of America analyst last year, Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA), Amazon.com (AMZN), Meta (META, Facebook), and Alphabet (GOOG/GOOGL, Google) were responsible for a big chunk of last year's advance in the S&P 500.

As the table illustrates, U.S. stocks have had a solid start to the new year.

What’s driving stocks higher?

The rate of inflation is off its peak, and the Federal Reserve is considering up to three quarter-point rate cuts this year. Moreover, the economy is expanding, and corporate profit growth has been strong, according to LSEG, formerly Refinitiv. Finally, the AI locomotive has yet to show any signs of slowing down.

But we are always mindful that pullbacks are simply an unexpected headline away. Bull markets create wealth for long-term investors who adhere to a diversified and disciplined approach, but market corrections can’t be discounted. They are inevitable.

Chart of the Month

If you’re a chocolate lover, you might be in for a shock. Weather events have severely impacted the production of Cacao, the main ingredient in chocolate. Wholesale prices have spiked accordingly. The chart below is US Dollars per ton. We may end up paying 2-3 times as much for our favorite form of chocolate in the coming year.  


I trust you have found this review to be informative. If you have any inquiries or wish to discuss other matters, please don’t hesitate to contact me or any team member.

As always, thank you for choosing us as your financial advisor. We are honored and humbled by your trust.

Chris Duke

April 8, 2024


This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. The views expressed are those of Chris Duke and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates

Investment advisory services are offered through Mutual Advisors, LLC, DBA Context Wealth, an SEC-registered investment adviser.