FOMO (Fear of Missing Out)

2023 introduced two themes that were consistently discussed in the financial media and broad media, FOMO and the Magnificent 7. FOMO is the Fear Of Missing Out. According to the Merriam-Webster dictionary, the literal definition is the “fear of not being included in something that others are experiencing.” One of the things that people fear missing is making money, and nothing made money in 2023 like the Magnificent 7, seven stocks that led the markets. These seven companies, in order of 2023 returns, were Nvidia (+238.60%), Meta (+197.76%), Tesla (+105.54%), Amazon (+82.60), Google (+58.94), Microsoft (+56.48%) and Apple (+48.99).

The Magnificent 7 led the Nasdaq to a return of over 44% for the year. The S&P 500 was up over 26%, the Dow Jones Industrial Average was up just over 16% as were small cap stocks represented by the Russell 2000. To further illustrate this point, the 1,000 largest companies make up an index called the Russell 1000. That can be split into growth stocks and value stocks. The Russell 1000 Growth index was +42.66% while the Russell 1000 Value Index was +11.21%. Much of this is attributed to the rebound from 2022 when the S&P 500 was down over 18%. If we look further out, for example 3 years, the Russell 1000 Growth was +29.30% and Russell 1000 Value was +30.71%. This is why most investment professionals consistently say you cannot time the market!

Over the years, I have been consistently asked about things people read or hear on the internet. Very few people still get a newspaper, read magazines or fact check anything! And even if you do, most of the media is owned by someone with a political agenda and you may or may not be getting the facts, but instead skillfully worded opinions disguised to be facts.

Going into 2023, the “experts” were convinced we were going into a recession, unemployment would sky-rocket and inflation would destroy the economy. None of that happened. Those of you who have been with Paragon for a long time know that we are usually optimistic and take a long-term view. In October, Paragon celebrated our 25th Anniversary. We showed a great video tribute (which can be found on our website or YouTube channel) where Howard Jacobson made clear that, going all the way back to the founders of our country, if you bet against the United States you were going to lose. We continue to follow Howard’s footsteps and aggressively search for opportunities to help our clients achieve their financial goals.

A lot happened in 2023, let’s take a quick look at some of the highlights (or lowlights):

• The Magnificent 7 – as previously discussed, the markets had a tremendous year, rebounding from a historically bad 2022 where we saw both stocks and bonds drop over 10%. Returns for all major stock indexes in 2023 were positive and in double figures.
  

• Financial Crisis – The first quarter brought a financial crisis to the banking sector as Silicon Valley Bank failed and drew attention to bank balance sheets and, more specifically, the true value of their bond portfolios. The government stepped in and backed the banks and averted a major crisis, but the damage was done. Investors pulled billions out of bank deposits and bought money market funds as interest rates paid on money markets were considerably higher than rates paid on bank deposits.
  

• The Federal Reserve and Interest Rates – The Federal Reserve continued to raise interest rates throughout 2023, attempting to combat inflation and decrease it to the target rate of 2%. Many “experts” thought the aggressive rate hikes would lead to recession, but as we enter 2024, these same “experts” are now calling for a soft landing.

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• Artificial Intelligence and Chat GPT– 2023 was the year of AI and Chat GPT and other competitors were poised to take over the world. Many feared that AI could do it all and would put everyone out of work. Again, a bit of an over exaggeration, but AI does have many real-world applications and will continue to be a theme in 2024 and beyond.
  

• Strikes – 2023 will be noted in history for labor strikes. Key strikes included Hollywood (with the writers and actors fighting over the role of AI in Hollywood), UPS workers, and of course the UAW (United Auto Workers) strategically closing plants and creating havoc in the car market with low inventory.
  

• Conflict/War – 2023 continued to see much of the same in the Russia/Ukraine war as Ukraine desperately seeks funding and weapons to continue the fight. Then, as we headed into October, we were shocked with the violent and brutal attack on Israel by Hamas. The implications for this war are not clear yet as Iran is funding Hamas, Hezbollah, and the Houthis. The U.S. has moved in battleships, major commercial shipping lanes have been impacted causing delays and increased costs in addition to the continued holding of hostages.
  

• Barbenheimer – For fun, let’s not forget the epic movie releases of Barbie and Oppenheimer that finally gave people reason to go the movies.
  

• Taylor Swift – Finally, because Paragon is in Kansas City, we would be remis if we did not mention Taylor Swift. Her Eras tour sold over $900 million in ticket sales in 2023 representing an estimated 3.3 million tickets worldwide. The tour is projected to generate close to $5 billion in consumer spending. However, for Kansas City, the big news is Taylor showing up too many of the Chiefs games bringing a whole new audience to the NFL and making the Chiefs very popular amongst Swifties worldwide.

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As we begin 2024, what are we telling our clients? This could be an interesting year with interest rates expect to fall, inflation lower, conflicts still in Russia/Ukraine & Israel (including terrorist groups affecting shipping costs and escalating conflict), conflicts politically with China, a budget that needs passed, money to be allocated for Ukraine and Israel, a Presidential election in November. These events could cause volatility in the markets this year.

As for investing, we continue to recommend and create structured products for our clients to help with increasing income from their portfolios, (to date we have created just shy of $500 million in notes). We feel private credit presents an attractive opportunity relative to other fixed income opportunities currently. We continue to search for attractive alternative investments for our clients. Due to the complexity of some of these investments, the Securities and Exchange Commission (SEC) places differing suitability requirements on clients based on net worth. If you are a qualified purchaser (net worth greater than $5 million, not including primary residence) and not receiving our QP newsletter, please let us know.