Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2024

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By Will Hubbard

My wife, Abby, and I are in the market for a new car to accommodate us and our awesome 2-year-old and 4-year-old girls.

Kids are like tornadoes. They amass so much stuff that our midsized SUV, which was great for Abby and me, is now feeling cramped with two car seats, a stroller, and our miniature Aussie, Lizzie, stuffed in the middle. So we’re looking for a car that fits our family’s needs for trips to the west side of Michigan where my in-laws live.

If you’re like us, you’ve probably noticed that cars have become ridiculously expensive. Monthly payments seem like they’re getting as high as monthly mortgage payments—and, in our case, they are.

The average new vehicle sold in the third quarter of 2023 had a monthly payment of $726, a 3.6% increase from 2022, according to LendingTree. That is more than the mortgage payment for our first home purchased in 2015, and we didn’t put a ton of money down. We can blame rising interest rates, but LendingTree notes that car prices are also going up, increasing 1.9% year over year.

As we dive into this quest, navigating the waters of high prices and overwhelming choices, it struck me how similar this journey is to managing an investment portfolio. Just as our family's needs and budget dictate our car options, investors must navigate the market’s highs and lows, making strategic decisions to safeguard their investments against future uncertainties.

Stocks are on the rise—but so is risk

Car prices aren’t the only things rising. Analysts are calling for the S&P 500 to hit new highs this year, with Bank of America’s quantitative specialist Savita Subramanian raising her year-end target from 5,000 to 5,400.

We’ve covered the narrow breadth of the market that is behind the current run-up in previous articles. If the 499 stocks other than Nvidia within the S&P 500 post a 0% return for the remainder of the year, and Nvidia increases another 100%, then Subramanian will hit her price target of 5,400. That may sound outlandish, but the stock is already up 75% year to date, so another 100% doesn’t sound unreasonable.

Although this sounds like good news for equity investors, looking at history, many signs suggest that now might be a good time to review your portfolio’s risk management.

For example, the Shiller price-to-earnings (PE) ratio—also known as the cyclically adjusted price-to-earnings ratio, or CAPE ratio—has risen to 34.56 as of this writing, with a long-term median of 15.96 and a mean of 17.09.

Why is this notable? According to Forbes, “The Shiller P/E gives investors a read on whether the stock market—as represented by the S&P 500—is overvalued or undervalued. The higher the Shiller P/E ratio, the more overvalued a market.

“For context, over more than 100 years, the average and median Shiller P/E ratio has been around 15 or 16, spiking up significantly higher often before market crashes.”

A lot of the recent elevation in the ratio is likely due to technology, innovation, and lower interest rates. However, the long-term suggests that rational investors would rather pay less for a single dollar of earnings.

We’re clearly not at the all-time highs in the chart, but it may be prudent for investors to take a step back and ask what else they could do to diversify their portfolio and minimize downside risk.


Another example was big news last week: The price of gold hit all-time highs Friday (March 1) after two straight weeks of gains, despite slowing flows.

The following chart compares the price of gold (the orange line) to flows (the white line). This chart can be interpreted in either a bullish or bearish way. Bulls might say gold’s recent spike hasn’t received much attention, so investors may not notice that the yellow metal is indicating a risk-on environment. Bears might say gold prices have persistently marched higher, even though flows have slowed, indicating continued inflation or investor fear of volatility.

Don’t wait for the party to stop to manage your risk

The purpose of this week’s article isn’t to pull the fire alarm and tell everyone to run for the exits. It’s to encourage some introspection.

The market “party” will continue until it stops—maybe abruptly. Remember, no one plans to fail. They just fail to plan. Review your financial plan, asset allocation, and strategy makeup so that you can be confident that you can continue to participate in the parts of the market that are working while also being protected.

As Abby and I weigh our options for a new family car, making sure it serves our needs without straining our budget, it's a reminder of the delicate balance required in managing our investments. In both arenas, the wisdom lies in planning for the future, being mindful of risks, and making choices that keep us on the path to our goals. Just as finding the right car requires careful consideration, so does navigating the market's uncertainties. Let's ensure our financial plans are as thoughtfully constructed as our choices in the showroom—pragmatic, prepared, and ready for the road ahead.


Comments are closed.