As a kid growing up one of my favorite TV shows to watch was Wide World of Sports. Most of us who grew up watching the show recall the opening monologue, “Spanning the globe to bring you the constant variety of sport/The thrill of victory and the agony of defeat/The human drama of athletic competition/This is ABC’s Wide World of Sports." As I look back, I now realize how much of an impact this show had on me as it introduced me to so many different sports which I had not seen or experienced previously such as martial arts, speed skating, downhill slalom skiing, cliff diving, surfing, sumo wrestling and so many others. This provided the catalyst for me to try different sports rather than just the traditional ones I had played growing up. Over time I came to realize these new sports provided many complementary skills and trained new muscle groups which ironically made me better in the athletic programs I enjoyed playing the most.

At the end of October 2023, investors felt like they were also experiencing the agony of defeat as they had just witnessed three consecutive months of negative returns (Aug -1.77%, Sept -4.87%, Oct -2.2%) [1], yet by late December the capital markets were in a more festive mood and returned 8.92% in November and another 5.23% through December 27, 2023 [2]. As a self-described "stats geek", these positive returns at year-end were not very surprising to me as historically the fourth quarter has been the best quarter for equities over the last one hundred years [3]. To add to the positive momentum, in the year leading up to the last twenty presidential elections since 1944, the S&P 500 has been positive 18 of 20 times for an average of 9% [4]. What is it about the last three months of the year, as well as presidential election years, which provides such capital markets euphoria? From a less technical point of view, a few catalysts typically include:

• Historically the US government approves budgets in Q4 which provides capital markets with direction towards future monetary inflows (i.e. defense spending, infrastructure, healthcare, etc.).
• Year-end bonuses are paid which may be directed towards equity investments.
• The holiday season typically translates to consumer spending and businesses experiencing greater sales which leads to positive sentiment heading into the new year.
• In most presidential election years congress is focused on getting re-elected so very little is passed from a legislative perspective that provides certainty for the markets.

From a portfolio construct perspective, adding different investment solutions to a public equity portfolio is analogous to playing various sports programs which I alluded to earlier. By including strategies which provide non-correlative benefits (i.e. different return streams and lower volatility characteristics), one’s portfolio becomes stronger and better insulated (think of a shock absorber) against future unexpected risks.

Our family is heading to Bonaire over the year-end holiday break as it has been on my older son’s scuba dive bucket list. While viewing the itinerary I noticed the island offers many other activities including windsurfing, mountain biking, kayaking, underwater cave system explorations and kite surfing. You can be sure I will be signing up, especially for the ones I have yet to experience. I will finish this up with a quote from Bruce Lee, the most influential martial artist, and a Hollywood superstar before his unexpected passing in 1973, “You can never invite the wind, but you must leave the window open”.

[1] YCharts S&P 500 Monthly Returns (https://ycharts.com/indicators/sp_500_monthly_return)

[2] YCharts S&P 500 Total Return (https://ycharts.com/indices/%5ESPXTR/one_month_return)

[3] Bespoke Report, September 22, 2023.

[4] The Stat Sheet, Bespoke Investment Group, November, 2023.