As we continue to navigate the ever-changing investment landscape, we wanted to provide you with an update on current market conditions and how we’re positioning client portfolios.

Recent market dynamics have seen the S&P 500 re-enter a bull market environment this summer[1] – typically considered a 20% or more rebound from recent lows – demonstrating its resilience. While encouraging on the surface, a metaphorical look under the hood will find less than 10 companies2 have been responsible for most of the index’s gains year-to-date.[2,3] This is often referred to as a “narrow market” rally,[4] whereas a “broad market” rally is marked by gains shared across many of the stocks in the index. Narrow market rallies tend to be more fragile and less resilient than broad ones.[5]

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Market breadth (or lack thereof) isn’t our only area of concern in the early innings of this bull market. Last month the Federal Reserve signaled its plans to hike interest rates even further this year in its ongoing battle to bring down inflation.[6] “Don’t fight the Fed” is a well-known credo on Wall Street, and it’s no surprise to us that the bond markets are currently pricing-in (predicting) an economic recession in the next 6 to 12 months.[7,8]

Adaptability and risk management become key in times like this. In recent weeks, we have been shifting to a more defensive posture in many client portfolios, trimming more volatile assets (equities) and reinvesting into less volatile assets (fixed income and alternatives). Diversification also plays a crucial role in navigating market uncertainties, and by thoughtfully investing across various styles and asset classes we aim to capture potential opportunities while mitigating risk. For example, we have always had a Value investment bias as a firm, but in recent years our inclusion of Growth investments in many client portfolios has allowed us to harness the potential benefits associated with each style in different market cycles.

We understand market volatility can create a sense of unease. However, it is important to remember our investment approach is grounded in a long-term perspective, risk management, and the principles of diversification.

All of us at Sapient thank you for allowing us to serve you, and we remain steadfast in our commitment to guide you through these periods with diligence and expertise.

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Sources:

1. Reuters, June 8, 2023, https://www.reuters.com/markets/us/behold-wall-streets-new-bull-market-maybe-2023-06-08/

2. Washington Post, June 6, 2023, https://www.washingtonpost.com/business/energy/2023/06/06/bull-market-vs-bear-rally-weighing-up-the-20-definition/d9e5b858-0427-11ee-b74a-5bdd335d4fa2_story.html

3. Financial Times, April 25, 2023, https://www.ft.com/content/b760c871-6812-4409-ba76-1e4a67f8b7e7

4. TKer, June 12, 2023, https://www.tker.co/p/bull-markets-narrow-breadth

5. Wall Street Journal, June 6, 2023, https://www.wsj.com/articles/this-rally-is-all-about-a-few-star-stocksand-some-investors-are-worried-b64382e2

6. Forbes, July 10, 2023, https://www.forbes.com/sites/miltonezrati/2023/07/10/fed-pauses-but-strongly-suggests-more-rate-hikes-to-come/?sh=4acec98f5a8e

7. CNN, July 2, 2023, https://www.cnn.com/2023/07/02/business/stocks-week-ahead-recession-2024/index.html

8. CNBC, July 7, 2023, https://www.cnbc.com/2023/07/07/yield-curve-inverted-the-lowest-since-1981-what-it-means-for-yo.html

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Although the statements of fact and data in this report have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. All opinions included in this report constitutes the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. Indexes, such as the S&P 500 Index, are not directly investable.

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