Quarterly Webinar Replay | Q2 2023

August 08, 2023

Enjoy the Vineyard Global Advisors Quarterly Webinar Replay!

2nd Quarter-2023

“Slow Recovery, Broadening Markets, and the Beginnings of Bullish Momentum.”

In last year’s fourth quarter webinar, we discussed the odds of a better year for investors in 2023 based on the improvements we saw in our macro models late last year and the bullish message from several key bear market analogs of the past.

While this bullish outlook for 2023 has been accurate, the manner in which it played out in the first half was somewhat unexpected. The first-half gains were relatively narrow and primarily driven by a handful of large-cap tech stocks caught up in the frenzy surrounding Artificial Intelligence (AI). This is not a great backdrop for a sustainable bull market since a market dominated by a few stocks can only last so long.

The good news is that many of the issues holding back the broader market in the first half appear to be passing.

1) The regional banking crisis was resolved (or at least ring-fenced) by the Fed’s actions.
2) A resolution to the US debt ceiling showdown was reached.
3) Inflation continued to decline.
4) Corporate earnings remained strong.



Tom Samuelson, CFA, CMT, Chief Investment Officer, Vineyard Global Advisors

Kendall Dilley, CFA, CMT Portfolio Manager, Vineyard Global Advisors

Sam Caylor, Investment Analyst & Senior Trader, Vineyard Global Advisors

Original Broadcast: Wednesday, July 26th, 2023 


Risk-Managed Rewards

Most of our strategies declined less than their benchmarks in 2022, and as of July 25th, 2023, they are either back to making money for clients or on the cusp of doing so, highlighting the importance of a risk-managed investment framework.

Dividend stocks are an important focus in several Vineyard Strategies. After gaining 26% in 2021, our Russell 3000 Enhanced Dividend Strategy fell only 0.5% last year versus the S&P 500's 18% decline and the Nasdaq's 33% loss. After a solid July, the Russell 3000 Enhanced Dividend Strategy has fully recovered from last year's drawdown and is back to making money for its investors.

The Math of Volatility

It's important to understand the math of volatility. If you lose 50%, it takes a 100% gain to recoup that loss since the gain required is now on a smaller base value. For example, the Nasdaq lost 33% last year, and now needs to gain 49% to recoup that loss. Because of that, it's still down 11% from the start of last year.

This demonstrates the negative impact of extreme volatility on your wealth and what it takes to recover from a large loss. If you're into your retirement years and withdrawing 3 or 4% per year from your account, you’ll have an even tougher time recouping from a significant loss.

That’s why VGA embraces a risk-managed approach to investing, and we endeavor to give our clients greater peace of mind by delivering steadier returns over time.

The Case for a Bull Market

While we still expect pullbacks, we think the probability of another 20% plus bear market is relatively low at the current time. With solid earnings and broadening market participation, the odds favor continued bullish momentum. In addition, inflation has improved, with the Consumer Price Index (CPI) declining for 12 months in a row after its peak in June of last year.

With the S&P 500 index now in a new bull market, some may ask, is it too late to get back in? Since 1929, the average bull market has gained 114% over 1104 days, a little over three years. Since the lows in October last year, the S&P 500 has rallied 27%, which suggests it’s still early days for this new bull market.

Artificial Intelligence

One of the most significant data points in the first half was the dawn of investor awareness of the transformative power of Artificial Intelligence (AI). Demand for AI across all industries is expected to drive a multi-year spending boom from $67 billion spent this year to 1.3 trillion by 2032, a 39% compound annual growth rate.

AI may strengthen the Bull Case by causing the market to look past any near-term earnings shortfall due to the longer-term positive impact on earnings from enhanced productivity. VGA has owned several key beneficiaries of this multi-year spending boom in our strategies and added several less obvious, reasonably valued players during the second quarter.

The Case for a Bear Market

With the resolution of the banking crisis and the US debt ceiling showdown in the first half, we think the main case for a bear market boils down to a potential recession. If inflation reaccelerates, the Fed will have to continue raising interest rates, and this will increase the odds of a recession.

Liquidity concerns are also part of the Bear Case. The Fed continues to drain $1.1 trillion from the financial system through its "quantitative tightening" program, and the US Treasury will also drain about $800 billion in liquidity by selling Treasury bills to replenish the funds it drew down to pay the country's bills during the debt ceiling showdown. The large $1.3 trillion US budget deficit will also require more Treasury issuance, which may push up interest rates to a level that spooks markets.

We continue to monitor many indicators for signs that these concerns are escalating to levels associated with severe corrections and bear markets.

The Bottom Line

After being thrown a few curveballs in the first half, our macro models (that drive our investment process) re-asserted their bullish message in the second quarter. We continue to expect a good year for investors in 2023 and those favoring a value discipline (like us).*

*All data sourced through Bloomberg.

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Investment advisory services are provided through Integrated Advisors Network, LLC (“Integrated”) a registered investment advisor. Registration does not imply a certain level of skill or training. Vineyard Global Advisors, LLC is a practice group of Integrated.

The opinions expressed herein are those of Vineyard Global Advisors and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Vineyard’s assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Vineyard Global Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Investment advisory services offered through Integrated Advisors Network, LLC (“Integrated), a registered investment advisor. Vineyard Global Advisors is a DBA of Integrated.

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There is no guarantee that the investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results. Does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations.

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