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Economic Update - Second Quarter 2023

Economic Update - Second Quarter 2023

July 20, 2023

I'm delighted to report on the events of the last six months.

But first, a reminder of the ideals that guide us at Westfield Financial Planning.

Our clients are goal-focused, plan-driven, long-term owners of broadly diversified portfolios of enduringly successful companies. This is why we act on our plan, instead of reacting to current events and conditions.

We're convinced the economy cannot be consistently forecast, nor can the market be consistently timed. From this, we infer that our best chance to capture something close to the full long-term return of equities is to ride out their frequent, but historically temporary, declines.

These continue to be the bedrock convictions that form our investment policy, as we pursue your financial goals together.

Current Commentary

After declining sharply for most of 2022, the S&P 500 ended the year at 3,840. As the year turned, it seemed as if the economy might be in a no-win situation. Would the Federal Reserve tighten credit conditions enough to stamp out inflation, plunging us into recession? Or would it relent, avoiding recession but permitting inflation to burn on? In either case much of the media assured us that corporate earnings were about to decline significantly, boding ill for “the stock market.”

To this apparently intractable situation, the first half of 2023 added three new and potentially critical uncertainties: the specter of U.S. sovereign default stemming from congressional deadlock over a debt ceiling deal, a wave of bank failures that seemed to threaten the banking system itself, and a renewed outbreak of fear surrounding the dollar's status as the world's reserve currency.

Yet after enduring that relentless onslaught of crises, real and imagined, the S&P 500 closed out the first half of 2023 at 4422, up 15% plus dividends. This brings to my mind Peter Lynch's timeless maxim: “The real key to making money in stocks is not to get scared out of them.”

In that sense, these six months represent for me—and I truly hope for you—a microcosm of a successful investing career. You and I did all that can be asked of us: amid well-nigh universal pessimism, we didn't get scared out.

Rather, we stayed focused on our goals and on our long-term plan, with confidence that the managements of the companies we own were handling our capital with diligence, while they sought out new and potentially greater opportunities amid the adversity.

Everything that happened (and didn't happen) in the first half of 2023 turned out not to matter much. What mattered was that together we chose not to react. Is it possible that a lifetime of patient, disciplined investment success is just that simple? I certainly believe it can be, and I sincerely hope you do too.