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December 9, 2023 Market Update

The winning streak for U.S. stocks continued for a sixth straight week.  The S&P 500 Index edged up 0.2% for the trading week through Friday’s close (December 8, 2023).  The rise lifted the market just slightly above its summer high, marking a new high for the year.

The bond market was essentially flat this week, based on a broad measure of U.S. fixed income via Vanguard Total Bond Market ETF (BND).  Although bonds traded in a tight range, it’s notable that BND is holding on to a rally that began in late-October.  The implication: is Mr. Market continues to believe the Federal Reserve is done with interest-rate hikes.

Systematic asset allocation (also known as tactical asset allocation) is an investment style that periodically adjusts an investment portfolio’s exposure to various asset classes, market sectors and investment styles in accordance with a predetermined set of rules.  The rules are typically derived from academic and/or empirical research into how the markets have responded in the past to various economic and market conditions.  An algorithm can be created that applies these rules to current market and economic data to formulate recommendations on how to adapt a portfolio to the present environment. 

While the tactics used by systematic asset allocation (“SAA”) strategies vary greatly, many have struggled since the 4th quarter of 2022.  One of the main causes of SAA’s recent struggles is that history hasn't been a particularly useful market guide as of late.  As I mentioned in my market commentary on November 25, 2023, there have been several recent market and economic developments for which there is little or no historical precedent. 

Another has been that many SAA strategies, including those used by The Milwaukee Company, emphasize risk management and capital preservation.  Since the Covid 19 pandemic, many of the risks that SAA strategies guarded against did not materialize, which benefited more speculative strategies that focus primarily on maximizing returns and less on the risk of a permanent loss of capital.   

Finally, when done right, SAA strategies are designed to provide strong risk-adjusted returns over the long term as compared to strategies focused on immediate results.   This long-term focus can lead to occasional periods of lackluster performance. 

As a result, SAA may not be the best approach for investors looking to generate new wealth quickly.  But SAA’s history of generating strong returns while managing risk and encouraging stability makes the approach hard to beat for investors who are committed to sticking with it.

That’s all for now.  Have a great weekend, and invest wisely my friends.