Greg Stewart’s Mid-Year Outlook

Aug 2, 2023 | Blog

By: Greg Stewart, CIO,

It is no secret that California has been hit with an enormous amount of flooding this year. We wrote about it back in January, and the waters continued to rise. In March, a levee failure on the Pajaro River (not far from our office in Monterey) flooded much that was low lying, including farms and homes.

Many of the citizens of the surrounding area pitched in to help. Cleaning out people’s homes with shovels, we tried to save what we could, but some of the homes had between 2 and 5 inches of mud, and up to 18 inches of water inside. Often, everything was lost.

A young girl, who had gone with her mother to lend a hand, discovered a teddy bear amidst the wreckage of one particular home. The toy was absolutely saturated with mud, but she took it home, washed it, restuffed it, and brought it back to the family.

It turned out, the teddy bear belonged not to a child, but to the family’s dog, and had been the dog’s favorite toy since puppyhood 10 years earlier. Everyone in the family (especially the dog) was delighted! 

In the months since, the family has been working hard. They replaced the floors, the kitchen, and the bathroom – and they did most of the work themselves. 

When the same young girl returned with her mother to see the renovation, the family told her that the day she arrived with that teddy bear, it  filled them with hope. Certainly, hope helped them through the hard work in the days that followed. 

Moments like those, when we support each other in meaningful ways, have a way of making even hard work a joy.

At Topturn, we may be charged with choosing the right security, or creating a tax planning solution, but we are most motivated by helping people realize their goals.

Whether that’s achieving financial independence, creating a legacy for the next generation, or just being able to enjoy life without worrying excessively about money. Being a part of the manifestation of those types of outcomes keeps us motivated, and in a very real way, brings us joy. 

We have also observed that although events outside of our control, whether environmental or financial, can be incredibly daunting, the fear of the event can have just as detrimental an impact. 

In an ideal world, floods would never occur. But that’s not the world we live in, and just like the farmers who make their living along the banks of the Pajaro River, it’s not going to make sense to just stop engaging. There are going to be flood years, there are going to be years when the markets just lose money. There are also years when the crops grow strongly, and the returns increase.

After a particularly tough 2022, this year started with a lot of negativity. Fears of recession, persistent inflation, and of course, rising interest rates, all plagued us right out of the gate. Add to those, the banking scare beginning with the Silicon Valley Bank fiasco, ongoing war in the Ukraine, AND the fear of our government defaulting on debt. 

Fear creates a desire for safety, and some investors chose to run to cash in the hopes of stemming what seemed to be an inevitable tide. Many people dropped out of tech stocks after they were beat up so badly last year – and some even decided to short the NASDAQ (NASDAQ is currently up over 30% YTD!). 

Money has been flowing out of mutual funds, especially those that hold stocks. If you look at the data from the markets, which have been very strong this year, that behavior has been counterproductive.

So why do people run?

Fear. Specifically, fear of more pain.

Last year hurt everyone. Some more badly than others. For many, the memory of that pain has hit deeper and lasted longer than the positivity of watching the markets surge upwards during the first six months of 2023.  

One of our biggest challenges has always been to help our clients stay invested through volatility. Rationally, we all know that staying invested, and thereby participating in the best market days of any given year, is the best way to positively impact long-term performance.

The worst action? To give up and go to the sidelines. But, it’s hard

The first half of 2023 has rewarded those who have done the hard work and stayed in, despite the recent memories of 2022’s pain. 

So far, a recession has not arrived, corporate earnings have been favorable, and layoffs are lower than expected. How much of this good news is already priced into the market is hard to say at this point, but barring anything unforeseen, we’re expecting a sideways trend for the balance of the year, with the potential for further gains.

Of course, short-term pullbacks will always be in the mix. We’ve had a few already this year, and they’re part of the cyclical, normal behavior of the markets. In fact, the volatility we’ve experienced in the past few years is far more typical than the lack of volatility we’d had during the several years preceding.

On a personal level, you may find that your ability to tolerate volatility has changed. As your life experience with investing increases, you might feel like you can emotionally manage more than you had previously thought, or by contrast, having been through some rough seas, less than you thought. 

Either way, mid-year is a great time to assess your tolerance. The tools we are using are far more robust than ever before, and that’s on purpose. We want to have a clearer understanding of how the last few years in the markets have impacted you, and your ability to sleep soundly at night. 

At Topturn, we are motivated by helping you get where you want to go, and by helping you achieve the life you want to live. The better we understand how the rocky times we’ve experienced in so many aspects of our lives have impacted you, the more capable we are of providing the guidance you need to achieve what’s most important in your life.

Please feel free to contact us, and to share.


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