Hello from Sycamore,

Performance and the Markets

It seems like there is always plenty to worry about and this year is no exception. Considering the political environment and the calls for a recession over the past year or so, there is plenty to be concerned about. However, as we think back over the years, there has always been enough to be concerned about, but how many of the things we worried about came to fruition? I think you’ll agree that the answer to that question is very few. According to researchers at Penn State University, only about 8% of the things people worry about come true. From our perspective, what we have today is simply more of ‘the normal’. Share prices and most markets have been declining a bit for the last month or so, but this is not unusual. We’re at about the same level now as we were at the 1^st of 2023 and for practical purposes, ad the market has been relatively quiet for almost 2 years.

The economy and the consumer are still strong. The Federal Reserve Bank of Atlanta’s GDPNow estimate for the 3^rd quarter of 2023 is +4.9%. This number is a good argument against a recession anytime soon. If a recession does appear, we feel it will likely be mild and after the roughly 25% decline in the S&P about 1 year ago, we feel the markets have already priced it in. Some sectors – especially tech – are a bit overvalued, but overall, we see the market as being ‘fairly’ priced. By the way, we’ve just had ten years of very good share value increases, and we do not expect those ‘outsized’ returns to continue. We look for more modest gains over the next few years. Fixed investments are now certainly paying more than they have since before The Great Recession, but we also have higher inflation, so they are just keeping up. We remain optimistic over the long haul. As we do our research looking for bargains, we are having no trouble finding good value.

The Economy

The economy appears healthy. As we mentioned above, The Federal Reserve Bank of Atlanta’s GDPNow estimate for the 3^rd quarter of 2023 is +4.9%. There are still some who feel we will have a recession, but those voices are fading a bit and their predictions have been tempered. It is true that the Fed has been raising interest rates though the rate of increase has slowed considerably this year. Higher interest rates should tamp down inflation and we’re already seeing some success with this. Additionally, the money supply, M-2 is declining. This is unfamiliar territory so time will tell, but we believe this is good and necessary after the cash infusion we had during COVID-19. While all this has been happening, the economy is continuing to do reasonably well. Unemployment is at historical lows, new home sales, which had declined significantly from their 2020 highs have started to trend higher during 2023. Disposable personal income is growing, new orders for durable goods are trending higher, and Inflation – which peaked in mid-2022 at an annualized rate of about 9% – has now dropped to around 5%. Things aren’t perfect, they never are, but overall, there is plenty to be positive about.

Purchase and Sale Activity During Q-3

We bought MDU Resources – MDU, ASGN Inc- ASGN, Forward Air – FWRD and AMC – AMCX

We sold Flour Corp – FLR, Kenvue – KVUE, and Knife River Corp – KNF

We’ve started to shift into longer-term bonds and fixed investments.

Investors and Speculators

Each year we like to remind you of our goals for your portfolio(s). We are pleased to have outperformed the S&P 500 over the last 27 years, but that is not one of our primary goals. Our long-term goals for your portfolio(s) are to deliver reasonably good returns, reduce your overall volatility, and reduce your taxes through lower turnover. Speculators worry about the latest story and today’s market opening direction. Investors purchase good businesses and participate in their growth.

As always, do not hesitate to reach out to our offices at (765) 455-1554 to discuss this.

Thank you for your continued trust and support,

Sycamore Financial Group

*Data not audited
*Results reported gross fees
**Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Investment return and principal value of an investment will fluctuate. Investor value, when sold may be worth more or less than their original cost.

Hello from Sycamore,

Performance and the Markets

So far so good for 2023. Since the markets found a low point last fall, they have been steadily climbing. We are not back to the highs that we experienced at the end of 2021, but with the Dow Jones industrial average at about 34,000 now, we’re within shouting distance. From June 30th, 2022, our growth and income composite have gained more than 19%. We are pleased with these returns. We are also pleased that the pending recession – which according to many news outlets, has been just around the corner for about the last 18 months – still seems to be around that corner! That’s not to say that it isn’t coming, forecasting can be difficult. As Yogi Berra said, “It’s tough to make predictions, especially about the future”.

Because we do our own research and make individual stock selections for your portfolio(s), we are constantly evaluating several hundred individual securities based on their assets and profitability. Nothing is assured, but currently, we see most securities that we follow as being ‘reasonably’ priced. While we do not expect our composite to gain another 9% during the last half of 2023, we are comfortable with current valuations. We believe that in the long run share prices will follow the profitability of the company. With a few exceptions, the profits of the companies that we follow are progressing as we would expect.

The Economy

We recently received good news on the inflation front. The current annual rate has dropped to 3%, which is the lowest rate in more than two years. The federal reserve has recently slowed the pace of interest rate hikes, and they have indicated that one or two more .25% hikes will likely be all we’ll see in the near future. We feel the recent inflation news shows the rate hikes over the last year have been effective.

Producer prices, which at their peak in 2021 and 2022 were growing at nearly a 23% annualized rate, are now declining at about a 6% annualized rate. Generally, the producer price index is a good indicator of what to expect from the consumer price index. If history holds true, we could expect inflation to continue to subside.

In our March letter to you, we mentioned that the money supply in the economy (M2) was decreasing. That is still the case. This is another metric that leads us to believe inflation will continue to ease. The economy continues to create new jobs at a brisk pace and has created 1.67 million new jobs so far in 2023. The unemployment rate now stands at 3.6%.

We recently received good news about our first quarter gross domestic product (GDP). The estimate was revised up by .7% to 2%. It seems consumers are getting used to higher interest rates and sales of existing homes have bounced back a little while housing starts are showing signs of getting back on track.

Not everything is perfect, but the recent data showing the economy is growing more than expected and inflation is cooling faster than expected is not a bad combination. We’re optimistic.

Purchase and Sale Activity During Q-2

The second quarter had more activity than usual for our portfolios.

We bought Lincoln National, Bread Financial, Canadian Solar, Mednax Inc., Wintrust Financial, Generac Holdings, Verizon, M.D.C. Holdings, and Petmed Express.

We sold Neogen, Warner Brothers Discovery, Kaman, Organon & Co, ASGN Inc, China Automotive, New Orient Education, Consensus Cloud Solutions, Mueller IND, and Ziff Davis.

As always, do not hesitate to reach out to our offices at (765) 455-1554 to discuss this.

Thank you for your continued trust and support,

Sycamore Financial Group

*Data not audited
*Results reported gross fees
**Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Investment return and principal value of an investment will fluctuate. Investor value, when sold may be worth more or less than their original cost.