What Should We Think About Recent Returns of Small Company Stocks?

Prior to this month’s Consumer Price Index release on July 11th, the expectation was that inflation would reflect a 0.1% monthly increase in the rate of price changes. Surprise! The rate at which prices have been increasing actually decreased by 0.1%. Why does this matter?

1. It’s the first time since May of 2020 that the rate of change of the average cost of goods and services decreased month-over-month.
2. It ensured that the trailing 12-month inflation figure would fall below 3% for the first time in years (2.97%, in line with the 3.0% reading a year ago, which means prices have been increasing at a steady rate for two years).
3. It further solidified the argument for an interest rate cut in the near term.

If you’ve been watching markets over the past week, you may have noticed that markets have, er, taken notice of this information (and the signaling from the Fed about rate cuts) and have started to price in cheaper costs of capital (read: lower interest rates). And that’s been a significant tailwind for the investments in our portfolio. Three more nuggets for your consideration:

1. Given recent returns, US small company stocks have made history and outperformed the S&P500 this week by the largest margin ever.
2. With the recent surge in small company stocks, and given our tilt towards said stocks, the Yeske Buie equity portfolio has doubled its year-to-date returns in the past two weeks, up to nearly 11% on the year thus far.
3. Aside from US and international small company stocks (the best performers this month), the other high flyer is Global Real Estate (an investment directly affected by interest rates), with returns strong enough to flip the year-to-date figure from negative to positive (-2.8% to 3.5% in two weeks).

So, what do we make of this?

Nothing.

Well, nothing other than this:

All this shared, where do we go from here? Short-term performance (even when it’s “good” performance) doesn’t really mean much. What’s more important to us is that our approach reflects an evidence-based philosophy that our Clients can depend on. And it’s with that sentiment that we share the video below, a piece Dimensional put out recently that describes how their team thinks about how investors feel. We enjoyed the whole bit (~3 min), and we’ve highlighted a few quotes below that we think are both timely and timeless.

• “None of us can predict the future.”

  • And this is why we diversify in so many ways, across asset classes (stocks, bonds, real estate, and cash) and within asset classes (US and international stocks, large and small stocks, growth and value stocks). It’s a proven method to harness possible returns given the risk of the combination of investments in your portfolio.

• “You don’t have to outguess the market to have a good experience; you can get the market to work for you.”

  • We humbly submit that since we can’t predict the future, we don’t even try to compete against the millions of investors executing billions of trades each day. Rather, we try to harness that activity to serve our Clients’ goals. And we do that with a portfolio that carries more than 10,000 companies’ stocks, positioned to capture growth from wherever it emerges in the world.

• “The temptation to do something in the face of a situation that seems scary, where there’s a lot of uncertainty, we’re all susceptible to that…investing, [however], should be quite boring. That’s not what you hear about, that’s not what you read about, when it comes to the financial media.”

  • Even professionals like the members of our team can fall victim to the temptation to “do something” in response to what we’re seeing in markets. And that’s exactly why we have policies that govern our decisions. We don’t trade on hunches. We don’t allocate portfolios based on gut feelings or hot tips. We execute policy-based decisions that are informed by our fiduciary duty to our Clients.

• “Every trade has a face. Every account has a family. Never forget that.”

  • We keep our Clients and their families at the forefront of our minds when we’re managing their portfolios. It’s one of the reasons why we haven’t outsourced that responsibility like many other financial planners. We know our Clients better than any third-party investor out there, and we use our knowledge to ensure our Clients’ best interests are being served when we’re investing their money.

• “We want people to feel like they’re going to be ok. If [we] can get you to a point where you feel like you are ok, the psychological benefit is massive. If we do our job well, people are more comfortable…confident…empowered.”

  • This aligns with Yeske Buie’s purpose statement – we exist to empower people to pursue their Live Big lives. This is what we’re about – taking on the responsibilities of building and implementing a financial plan for our Clients (which includes an investment plan) that enables them to focus on that which they are most passionate about. Our aim is to do our job so well that it opens up capacity for our Clients to live bigger lives.

So as the year continues to unfold, sit back and enjoy the show markets and economies around the world will undoubtedly put on. Or don’t watch if you’d rather not, as you can trust that we will be all over the latest developments. And, as ever, we’ll continue to execute our process with discipline and consistency.

The Yeske Buie Financial Planning Team

Please click here for disclosures related to performance reporting and benchmarks.