Sevens Report Quarterly Letter

Better Communication.  Stronger Client Relationships.  

More Time for Your Business and Family.  

“My advisor saw it coming.”

If a client can make that statement to their friends, not only does it likely mean you’ve likely got a client for life, but I’ll guess it means you may be getting a potential referral too. 

I believe environments like this one are prime opportunities to provide market commentary and analysis that will allow clients to say “My advisor saw it coming” in the next several months.

Why do I say that? 


Because the market consensus is so one-sidedly bullish, it’s left investors vulnerable to any disappointment. And providing a balanced message on market opportunities and risks before any volatility is a great way to show you “saw it coming” if we do see a return to normal volatility in 2024.

Consider:

  • The S&P 500 will finish the first quarter up more than 10%. That’s a historically unsustainable pace and implies a 40%+ annual return! A pullback of some sort wouldn’t be a shock.

  • Investor sentiment is wildly bullish, as earlier this month more than 50% of the respondents in the AAII survey were bullish. That’s way over the 37% historical average bullish sentiment has been above the historical average for 20 straight weeks! 

  • The CNN Fear/Greed Index has been in “greed” territory for months. 

  • Numerous technical market indicators like the put/call ratio and others are showing the market is overbought and stretched. 
It’s as though investors have forgotten that 1) An economic slowdown can still happen, 2) Inflation can bounce back, 3) The Fed may not cut rates as much as expected and 4) AI technology may not be the second coming of the internet! 
Taking an opportunity to highlight the strong quarterly performance while at the same time acknowledging the current risks is a low-risk way to have them say “My advisor saw it coming” when volatility returns (and it always does).
The trick, of course, is to do that in a succinct, engaging and well-written way that helps demonstrate your market knowledge and commitment to achieving their financial goals.

Yes, if you’re at a bigger firm you can send your clients a generic market outlook from your firm’s CIO, but they’ve likely never met him and it’s the same letter every other client is receiving.

Or, if you’re at a smaller firm, you can write your own quarterly letter. But, as we covered, writing a quarterly letter is both time-consuming and difficult. On average, the advisors we spoke to said they spent between six and 10 hours researching, writing, editing, and proofing their quarterly letters. If you’re as busy as most of the advisors I know, that’s way too much time and stress to devote to a quarterly letter.

That’s why many advisors don’t seize this opportunity to effectively communicate with their clients and show that they are on top of markets and monitoring risks to portfolios.

The Sevens Report Quarterly Letter solves this problem.

On the first business day of every quarter (the upcoming quarterly letter will be sent on Monday, April 1st) we email current quarterly letter subscribers:

  1. A complete, edited and finished client letter, delivered in a word document so it can easily be edited.

  2. Instructions on how we think you should submit the letter to increase compliance approval.

  3. A comprehensive back-up sheet to send to compliance along with your letter that cites any statements and verifies all return data.
We know getting the letter through compliance can seem like a daunting challenge, but the overwhelming majority of our quarterly letter subscribers have their letters approved by compliance.
And, to provide you with extra peace of mind, we offer a full refund if compliance rejects the letter for any reason!
We write a quarterly letter in the voice of an advisor, directed towards clients (and prospects), that our subscribers can edit (if they choose to) and send along as their own.
That means you can:

  1. Use it “as is.” Meaning put it on your letterhead, get the approval, sign it, and ship it right out the door.

  2. Edit it as you see fit, using the content in conjunction with your own takes.

  3. Send it to anyone you like: clients, prospects, family and friends.
And, since we send you the content, it can be approved by compliance because it is coming from YOU.
On Monday, April 1st we will be sending our Sevens Report Quarterly Letter for Q1 2024 to our paid subscribers so they can have their letter sent (or ready to be sent) within the first few trading days of Q2.
Sevens Report Quarterly Letter template will contain:

  • A macro “look back” at the most-recent quarter that will explain what factors drove the markets.

  • Important performance data for major asset classes and various indexes.

  • A look ahead in the coming quarter including general analysis of risks and opportunities (but, no predictions).

  • And, like the Sevens Report, it’ll be well-written, simplified, and brief.
But we can only explain the letter so much. To get the real value of our letter, you need to see it for yourself.

So, we’ve included our Q4 2023 Sevens Report Quarterly letter that was sent to paid subscribers on Tuesday, January 2nd so you can see exactly what the product looks and feels like:
Quarterly Insights – January 2024

Optional Title #1:  AI Enthusiasm and Rate Cut Expectations Power Stocks Higher in 2023

Optional Title #2:  Large-Cap Tech Stocks Push the S&P 500 Sharply Higher in 2023

Optional Title #3:  Stocks Rebound and Post the Best Return Since 2021

Or

Dear Client,

Markets staged an impressive reversal in the fourth quarter thanks to a surprise dovish pivot by the Federal Reserve, which combined with solid economic activity and declining inflation to push stocks sharply higher and send the S&P 500 to two-plus-year highs, resulting in the best annual return since 2021.

The strong fourth quarter performance somewhat obscures the fact that stocks and bonds started the fourth quarter under significant pressure. First, Treasury yields continued to move higher in early October which weighed on stocks and bonds, just like in the third quarter. Then on October 7th, Hamas soldiers infiltrated settlements in Israel, killing and kidnapping more than 1,200 Israelis in the worst attack on Israel in decades. The market fallout was immediate, as oil prices spiked on fears a broader regional war would ensue between Israel, Hamas, Lebanon and, potentially, Iran. Higher oil prices fueled a further increase in Treasury yields as investors priced in a possible oil-driven bounce back in inflation. Those factors, combined with a lackluster earnings season, resulted in the S&P 500 falling to the lowest levels since mid-May while the 10-year Treasury yield touched 5.00% for the first time since the mid-2000s. However, markets reversed when Fed Governor Chris Waller made comments that implied rate hikes were over and rate cuts may be coming in 2024. The market reaction was immediately positive as stocks and bonds rallied hard into month-end to finish well off the lows and with just a 2% decline.

That positive momentum continued in November as the S&P 500 posted its best monthly return of 2023, rising more than 9%. There were several factors that fueled this rally. First, numerous Fed officials echoed Waller’s commentary and investors priced in rate cuts as early as May, substantially earlier than previously expected. Additionally, the Israel/Hamas conflict did not spread and remained contained between Israel and Hamas and oil prices declined as a result, easing inflation concerns. Finally, inflation metrics continued to decline. The year-over-year increase in the Consumer Price Index dropped to 3.14% and that further fueled investor expectations that rate cuts would come in the first half of 2024. Those factors combined with generally favorable seasonality to fuel a welcomed “Santa Claus Rally.”

The Santa rally continued and accelerated in December courtesy of the Fed. At the December 13th FOMC meeting, Fed officials clearly signaled that rate hikes were over and forecasted three rate cuts in 2024, one more than previously forecasted. Additionally, Fed Chair Powell did little to push back against the markets’ expectations for rate cuts. Put plainly, the Fed surprisingly pivoted to a more dovish policy stance and that fueled a continuation of the rally that started in late October. The S&P 500 rose to the highest level since January 2022 while the Dow Industrials hit a new all-time high. 

In sum, 2023 was a year of surprises for the markets as the expectations for a recession never materialized, inflation fell faster than forecasts, corporate earnings proved resilient and the Fed surprised markets by pivoting to a more dovish future policy. The result was substantial gains for the major averages. 

Q4 and Full Year 2023 Performance Review
Stocks enjoyed a broad and powerful rally in the fourth quarter as all four major U.S. stock indices posted strong quarterly gains. Investor expectations for rate cuts in 2024 were a major influence on markets in the fourth quarter as the Russell 2000 and Nasdaq 100 outperformed the S&P 500 over the past three months, as companies in those two indices are expected to benefit most from a sustainable decline in interest rates. For the full year, however, the dual influences of 1) Artificial Intelligence (AI) enthusiasm and 2) Rate cut expectations drove performance as the tech-heavy Nasdaq 100 massively outperformed the other major stock indices, surging more than 50%. The S&P 500 also logged a substantial gain of over 20% thanks mostly to the large weighting of technology stocks in the index. The less-tech-stock-sensitive Dow Industrials and Russell 2000 also enjoyed strong returns in 2023, but relatively underperformed the Nasdaq and S&P 500. Notably, the index performance for the full year 2023 was the opposite of 2022, where we saw the Nasdaq and small caps decline substantially more than the S&P 500 and Dow Jones Industrial Average.  
By market capitalization, small caps outperformed large caps in the fourth quarter thanks to those surging rate cut expectations, as lower rates are typically most beneficial for smaller companies. For the full year, however, large caps handily outperformed small caps thanks to the strength in large-cap tech stocks and as the higher rates in the first three quarters of 2023 weighed on small cap performance earlier in the year. 
From an investment-style standpoint, growth significantly outperformed value both in the fourth quarter and for the full year. The reasons were familiar ones: Artificial intelligence enthusiasm powered tech-heavy growth funds early in 2023 while in the fourth quarter expectations for rate cuts were seen as positive for growth stocks. Growth outperforming value is also the opposite of 2022, where higher rates and recession fears resulted in value outperforming growth. 
On a sector level, 10 of the 11 S&P 500 sectors finished the fourth quarter with a positive return, while eight of the 11 sectors ended 2023 with gains. Not surprisingly, the dual influences of artificial intelligence enthusiasm and expectations for rate cuts drove sector trading in the fourth quarter and throughout the year. In the fourth quarter, the influence of expected lower rates was dominant as REITs were the best performing sector, followed by tech. Both stand to benefit from falling interest rates. Cyclical sectors also outperformed over the past three months as expectations for stable economic growth rose as the Fed telegraphed future rate cuts. For the full year, however, the influence of AI enthusiasm was clearly the dominant influence on sector trading, as the three most “AI sensitive” sectors (tech, consumer discretionary and communications services) massively outperformed the remaining eight S&P 500 sectors.
Looking at sector laggards for the fourth quarter and for the full year, defensive sectors including consumer staples and utilities lagged as economic growth was more resilient than expected while higher rates (for most of 2023) reduced the demand for high dividend yielding sectors. Consumer staples and utilities posted negative returns for 2023 after being the best relative performers in 2022.   
Internationally, foreign markets lagged the S&P 500 in the fourth quarter thanks mostly to muted gains in the emerging markets following increased geopolitical tensions in the Middle East and on continued lackluster Chinese economic growth. Foreign developed markets outperformed emerging markets in Q4 on better-than-expected inflation readings and rising expectations other major central banks will follow the Fed’s lead and cut rates in 2024. For the full-year 2023, foreign developed markets registered solidly positive returns but handily underperformed the S&P 500 thanks primarily to the large gains in U.S. tech stocks. 
Commodities declined broadly in the fourth quarter as weakness in oil, which was driven by reduced geopolitical fears and rising global economic growth worries, offset a solid gain in gold. Gold rallied on a falling falling U.S. dollar and hit a new all-time high in early December. For 2023, commodities saw modestly negative returns as concerns about economic growth, especially from China and parts of Europe, weighed on commodity demand expectations. Gold, however, did finish the year with a solidly positive return thanks to the fourth quarter dollar decline.    
Switching to fixed income markets, the leading benchmark for bonds (Bloomberg Barclays US Aggregate Bond Index) realized a positive return for the fourth quarter and for the full year as falling inflation and expectations for rate cuts in 2024 pushed bonds higher. 

Looking deeper into the fixed income markets, longer-duration bonds outperformed those with shorter durations in the fourth quarter as bond investors reacted to lower-than-expected inflation and priced in future Fed rate cuts. For the full year, however, shorter-duration debt outperformed longer-term bonds as high inflation readings through the first three quarters of 2024 weighed on the long end of the yield curve. 

Turning to the corporate bond market, both high yield and investment grade bonds posted sharply positive returns for the fourth quarter as investors embraced the idea of lower interest rates and reduced recession chances. For the full year, high yield corporate bonds posted a very strong return and outperformed investment grade corporate debt as the resilient economy pushed investors to embrace more risk in return for a higher yield. 
Q1 and 2024 Market Outlook

What a difference a year makes.

At this time last year, the S&P 500 had just logged its worst annual performance since the financial crisis, the Fed was in the midst of the most aggressive rate hike campaign in decades, inflation was above 6% and concerns about an imminent recession were pervasive across Wall Street. 

Now, as we begin 2024, the market outlook couldn’t be much more positive. The Fed is done with rate hikes and cuts are on the way, likely in early 2024. Economic growth has proven more resilient than most could have expected and fears of a recession are all but dead. Inflation dropped substantially in 2023 and is not far from the Fed’s target while corporate earnings growth is expected to resume in the coming year.

Undoubtedly, that’s a more positive environment for investors compared to the start of 2023, but just like overly pessimistic forecasts for 2023 proved incorrect, as we look ahead to 2024, we must guard against complacency because at current levels both stocks and bonds have priced in a lot of positives in the new year.

Starting with Fed policy, Fed officials are forecasting three rate cuts in 2024 but investors are currently pricing in six rate cuts in 2024 with the first one occurring in March or May. That’s a very aggressive assumption and if it is incorrect, we should expect an increase in volatility in both stocks and bonds. 

Regarding economic growth, it’s foolish to assume just because the economy was resilient in 2023 that it will stay resilient. Obviously, that’s the hope, but hope isn’t a strategy. The longer rates stay high (and they are still high) the more of a drag they create on the economy. Meanwhile, all the remnants of pandemic-era stimulus are gone and there is some economic data that’s starting to point towards reduced consumer spending. Point being, it is premature to believe the economy is “in the clear” and a slowing of growth is something we will be on alert for as we start the new year, because that would also increase market volatility. 

Inflation, meanwhile, has declined sharply but it still remains solidly above the Fed’s 2% target. Many investors expect inflation to continue to decline while economic growth stays resilient, a concept traders coined “Immaculate Disinflation.” However, while that’s possible, it’s important to point out it’s extremely rare as declines in inflation are usually accompanied by an economic slowdown. 

Finally, corporate earnings have proven resilient but companies are now facing margin compression as inflation declines and economic growth potentially slows. Earnings results and guidance in the fourth quarter were not as strong as earlier in 2023 and if earnings are weaker than expected, that will be another potential headwind on markets. 

Bottom line, while undoubtedly the outlook for markets is more positive this year than it was last year, we won’t allow that to breed a sense of complacency because as the past several years have shown, markets and the economy rarely behave according to Wall Street’s expectations. 

As such, while we are prepared for the positive outcome currently expected by investors, we are also focused on managing both risks and return potential because the past several years demonstrated that a well-planned, long-term focused and diversified financial plan can withstand virtually any market surprise and related bout of volatility, including multi-decade highs in inflation, historic Fed rate hikes, and geopolitical unrest.

At John Doe Advisors, we understand the opportunities and risks facing both the markets and the economy, and we are committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals.

Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.

We thank you for your ongoing confidence and trust and please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.
Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.

Sincerely,

Signature

John Doe

John Doe Advisors
1 Orange Street
Miami, FL 11111
(123) 123-1234
Let Us Do The Work
We view the start of the new quarter as a perfect opportunity to show clients that you’re not about to get blindsided by such as higher rates or economic slowdowns, and that a sound financial plan can weather any financial storm.

And, in doing so, you can remind them just how valuable your services have been as you helped them navigate a market that's stayed volatile and unpredictable.

Look, I know some of you are not planning on writing a quarterly letter at all.

If you’re in this camp, I’m worried you’re making a colossal mistake, especially with so much uncertainty out there. Potentially, you’re leaving yourself exposed to losing clients to advisors who may communicate more effectively! 

Whether you use our service, please consider writing a letter this year.

On the other hand, some of you are probably planning to write a letter, albeit begrudgingly. Crafting this kind of commentary could take a day, a few days, or even a week or more to fine-tune. Unlike the calm markets of the past, the trading environment has changed drastically in recent years, making it tricky and difficult to explain to investors.

Additionally, you may need to circulate it around the office for input and further refinement, with your compliance department likely needing to inspect it as well.

To top it off, you might still be unsure if it’s any good.

And the ultimate kick in the teeth is fearing what your clients think upon reading it.
No one likes this process, and that’s why we provide:
  • A high-quality letter. With strengthening the client relationship as the main goal, it will be written in a clear, concise, and plain-English format (similar to how we write Sevens Report and Sevens Report Alpha).

  • A timely letter. Sevens Report Quarterly Letter is always delivered to paid subscribers on the first trading day of the new quarter.

  • A turnkey solution. You can literally put your firm name, address, and logo on it, sign it, convert it to a PDF, and let it fly. Naturally, if you want to make any edits to it, feel free. That’s perfectly okay.
As I said earlier, this product has been a tremendous success, as it’s helping advisors: 1) Improve client communication, 2) Save Time, and 3) Reduce Stress.

And our quarterly letters have passed compliance at the biggest firms on Wall Street!

But, don’t take it from me, hear it directly from our subscribers (and your competition):

"Thank you for this quarterly letter service. This is my first one and it is very helpful for my practice, and not to mention extremely well written. You and your team have been a very beneficial partner since I use your sevens report daily in my discussions with clients, and now parlaying this quarterly letter has been a great asset.

Thanks Tom!"

M..J. RIA

“I really like this. I’m so glad I can lock this in and not have to worry about doing this in the future.”

W.V. UBS Advisor

“I love this.” 

B.C. Stifel Advisor 

Tom, 

“I'll give this a try. I value my time at $1000/hr. If this saves me ten hours...you can do the math.”

J.R. Raymond James Advisor

Now is the time to ensure you have a turnkey quarterly letter, ready to send to clients to help turn this historic volatility and uncertainty into an opportunity to create a strong client/advisor bond. 

Quality Research at a Compelling Value

In doing market research, we could only find one other firm that was writing a quarterly letter commentary for advisors.

The problem was you could only get it as part of a bundle of other products and the cost was $5,000/year!

I know for a fact that some advisors who use this particular group offered to pay $2,500 per year for the quarterly commentaries, separately. But, this firm hasn’t obliged.

Frankly, I think either of those amounts is outrageous.

So, I’m undercutting the competition on the cost by 80% per quarter. Or by 82%, annually.

Now, that’s a serious discount.

Sevens Report Quarterly Letter subscription costs just $250/quarter (cancel any time, but no refunds on the current quarter’s letter) or $915 if you pay annually (you save $85 with this option).

The way we see it, if we help you retain just one client or grab one additional allocation by sending these quarterly letters to clients, it will more than cover the cost!

I see this as a win-win because we use our strength (writing about the markets) to help you:

  • Save time (small survey of advisors averaged 6-10 hours working on their quarterly letters)

  • Show you’re on top of markets with impressive market analysis

  • Improve communication with clients and prospects

  • Strengthen relationships

  • Win additional assets from existing clients or prospects

And the best part is, it will be coming directly from you.

It will allow you to spend more time doing what you do best and doing what you want.

I look forward to welcoming you aboard and sharing our valuable research with you soon.

Best,

Tom Essaye
Editor
Sevens Report
[bot_catcher]