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Review the latest portfolio strategy commentary from Mike Gibbs.

Market resiliency, albeit on weak participation, remains the theme with recent performance still dominated by mega-cap Technology-oriented and defensive areas. While narrow leadership is not an ideal backdrop for short-term trends, rotation is more positive than broad-based weakness. Fed actions are likely playing into the mixed market signals, as the Committee both tightens (rate hikes) and loosens (supports bank liquidity issues) at the same time. On the one hand, we do not believe that equities are ready for a sustainable climb higher yet. But on the other hand, we believe a mild recession was likely priced in at the October lows. In our opinion, choppiness is the highest probability for short-term trends and we have a range-bound bias for the S&P 500 (potentially between ~3600-4200).

Technically, the S&P 500 is still hung in the same range, as investors wait on inflation, the economy (what sort of damage will be done), and whether there is another shoe to drop. The market grind requires patience for investors, as we may be stuck in this range for a while. Nonetheless, there are plenty of things to do for the active investor. The overall playbook remains to not chase the rallies and buy the pullbacks- and they are out there at the individual stock level. Headwinds leave equities not ready to get back to highs soon- have to let time pass and the data to get out there. In the meantime, we expect back-and-forth economic data, sentiment, and markets. We see this as the process of a market in a waiting game to learn more about the issues at hand, which include:

• Inflation- leading indicators point to inflation coming down, but we need to see it do
• Economy- the lag effect of higher interest rates puts high odds on weakness
• Fed policy- bond market indicating that Fed hikes are done, and the Fed should be lowering rates late this year or early next year as a recession takes place and inflation recedes.
• Debt ceiling- headline volatility can impact markets, but both sides know something has to get done. Our base case is a deal or extension after plenty of political posturing.

We believe the market has likely priced in a mild recession. If more severe, equities will probably move to the October lows (or worse) but it may not do too much damage to long-term investor portfolios. We can make the case for limited losses by the time earnings hit lows, which will be a precursor before the market eventually prints a new high. It is important to keep this bear market in perspective- it is already 16 months long and -27% at the lows (vs. recessionary bear markets -33% over 13 months historically). The bottom line is investors need to exercise patience a bit longer, deal with back-and-forth motion that probably occurs for a while, and pick opportunities to accumulate favored stocks along the way.

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The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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