To Washington Park Advisors Clients:

Enclosed please find your summary of Investment Results for the quarter ending March 31, 2024.

This year has been one filled with a multitude of questions; some will be answered and others, likely not. Will we see a change of leadership at the highest political office in the country? Will the Federal Reserve undo some of the 11 interest rate increases that they sanctioned during 2022-2023? Assuming the answer is yes, will it be in response to inflationary pressures declining, or will it be a function of the slowdown in consumer spending, a rise in unemployment, or more hopefully because the Fed is satisfied that inflationary forces are in retreat? This would include lower prices for gas and groceries, accompanied by a still satisfactory level of job creation in the economy.

As the year commenced, many market watchers expected the Fed could reduce rates by as many as six times in 2024 (generally 25 basis points or ¼ of one percent at a time). At Washington Park, we were and still remain slightly more cautious on the Fed’s interest rate reduction policy. At this point we expect that one to three interest rate reductions would be more likely this year. Only if the economy falls into a meaningful recession would we expect a more aggressive response from the Fed.

However, notwithstanding the above, there remains a plethora of unknowns that could also affect the Fed’s thinking. Do the military battles between Ukraine and Russia, and Israel and Hamas, remain localized or do they spread into adjacent territories? If so, how badly do the military escalations begin to impact regional and ultimately international markets? Another question, is whether our country will see a smooth transition of power in November, or will there be groups that do not accept the results of Federal, State, or County elections? 

While we have seen times in the past when election results were questioned, and other times when countries were at war, and periods when inflation was not declining at a rate that most would want, the private sector has generally adjusted satisfactorily to the backdrop of problems. Sometimes it has meant employee layoffs, other times altering supply chains, or holding off on costly capital expenditures for a quarter or two, or at other times fast tracking innovation to push forward. We feel the companies in our portfolios are taking into consideration the problems confronting our and other mature international economies and have planned for disruptions, slowdowns, and international conflict. We all ultimately hope that things do not go awry. Ideally, we could have prices moving back toward levels we had before Covid, some semblance of peace may be reached, we could have a political process that works, and a return to lower levels of interest rates. Economies through the years have proved to be flexible and have overcome (for the most part) the negatives that could have disrupted commerce. We believe most if not all our companies are prepared for whatever risks and events arise, and that especially the American economy will do so again as we move through 2024.

The equity markets in the U.S. have begun to broaden out over the last few months. We believe our positioning and asset allocation is appropriate for both the risks and rewards that we expect to see for remainder of the year. Our view is that inflation will continue to come down, the Fed will in fact lower rates, and we will avert some type of political chaos in November. Presently we are invested 60% – 70% in equities, 25% – 30% in short-term (1-3 years) U.S. Treasuries, and 1% – 5% in cash and cash equivalents. We are flexible and depending on the conditions are prepared to move our positions as real-world events occur. We do not feel that most of the stocks we review and own in our portfolios are overly expensive, and with our fixed income investment returning at or near 5%, we believe 2024 despite uncertainties can be a positive year from an investment perspective.

If you have questions, please do not hesitate to call.

Warm regards,

Washington Park Advisors