The purpose of this update is to inform our investors regarding the following subjects:
1. Discuss the key economic events that occurred during the 3rd quarter of 2024 2. A look ahead at the U.S. economy and the global markets 3. Updates regarding Dash Investments portfolios
The Economy
To the surprise of many, the economy in the third quarter ended on a solid note, adding 254,000 jobs in September versus a consensus expectation of 150,000. Wage growth remained solid and sticky, and on top of a modest decline in unemployment, job openings continued to tick up.
Seasonally Adjusted Payroll Gains
Even better for sustainable economic growth is the continued growth of workforce participation across all ages.
As more evidence of the economy’s resilience, third quarter GDP grew at an annualized rate of 2.8%, slightly lower than the 3.0% recorded in the second quarter. This growth was primarily fueled by consumer spending, increased exports, and federal government expenditures. The U.S. economy has also received significant assistance from massive AI spending and an AI tailwind boosting the profitability of companies at the forefront of the digital revolution.
Inflation pressures showed signs of easing. The personal consumption expenditures (PCE) price index, a key inflation measure, rose by 1.5% in the third quarter, down from 2.5% in Q2. Core PCE inflation grew 2.2%, compared to the previous quarter’s 2.8% increase, excluding food and energy. This cooling inflationary trend aligns with moderated disposable personal income growth, which increased by 1.6% in real terms compared to 2.4% in the prior quarter.
However, the economy faced some challenges as well. The deceleration in GDP from the previous quarter can be attributed to a slowdown in inventory investment and a continued decline in housing investment, reflecting a cooling in the real estate market. Meanwhile, imports rose, which offset GDP calculations by counting as a subtraction.
While economic growth remains positive, there are emerging headwinds, including slower investment in key sectors and continued pressure on consumer savings. However, easing inflationary pressures may provide some relief for consumers and policymakers going into the year’s final quarter.
Note: October jobs data reported after the end of the third quarter showed a marked slowdown in the labor market. The Bureau of Labor Statistics reported that just 12,000 jobs were added by employers in October, substantially off from consensus expectations of 113,000, even with Hurricane Helene and the Boeing strike already factored in. Additionally, jobs data have been revised downward in 8 of the last 12 months, signaling an easing of demand.
The Markets
U.S. stock markets saw modest gains overall while fighting through some significant volatility. Sector-wise, utilities were the standout performers driven by growth in demand for electricity due to the expanding AI sector. Real estate and industrials also saw gains, benefiting from Federal Reserve interest rate cuts aimed at easing market pressures. On the other hand, the energy sector lagged, impacted by China’s economic slowdown, which reduced oil demand.
Much of that volatility was driven by pre-election jitters, causing a steep decline in the days leading up to the election. However, from election eve through the night of the election, the market found the clarity it needed with a record advance not seen in two years.
Investment Portfolio Update
As a reminder, we don’t make macro calls. That said, we cannot entirely ignore the “macro,” as there will inevitably be some signal within the sea of noise. We believe the best macro analysis doesn’t come from a macroeconomist but from the aggregation of the micro. What’s key is paying close attention to what’s happening now—not getting overly concerned about what could happen, but focusing on what is happening with the businesses we own and those within our coverage universe.
Other than a few isolated areas of weakness, our portfolio businesses continue to perform roughly in line with our growth expectations. Overall, we are encouraged by the current performance of our companies and even more so by their long-term resilience and ability to drive faster growth with less risk, even through thick and thin.
While market narratives and sentiment can change rapidly, as we’ve observed, we remain focused on factors within our control, which don’t change quickly or substantially, allowing us to trust our forecasting over the long term. This explains our long-standing commitment to own a concentrated portfolio of high-quality, competitively advantaged businesses that can grow earnings per share at 10% or higher. If we pay a fair price for these businesses, we believe their stock prices and returns should follow the earnings growth over the long term.
Furthermore, we think businesses with solid balance sheets, durable demand and advantages, and honest, competent management generally perform well in good times and bad. Combined with our safety holdings, such attributes contribute to creating an “all-weather” portfolio. Our emphasis on quality, durable earnings growth, strong balance sheets, and balanced portfolios has served us well throughout Dash Investments’ history.
It’s also why we have generally maintained our position during bull markets, while most of our outperformance has been generated during prolonged economic downturns. Although we do not optimize for lower volatility or enhanced downside protection, nor do we promise these outcomes in any given period, the quality of our businesses tends to shine most when the days are darkest. As the saying goes, only when the tide goes out do you see who’s swimming naked.
History shows that this patient, methodical approach to compounding earnings growth can lead to the best long-term outcomes for investors. While our approach tends to crawl with the tortoise rather than scamper with the hare, we view volatility as an ally and an opportunity to go on offense when possible.
This more predictable, durable 10% earnings growth has led to the robust track record of our strategy for over 20 years. Since our founding in 2004, we have remained steadfast in our unwavering focus as we strive to deliver long-term value for our clients.
In Closing
As always, we thank you for your continued trust and partnership with Dash Investments.
Please note that our next written communication will be via the Q4 2024 update. However, if you have any questions or need information before that time, please contact us directly.
“The stock market is there to serve you, not to command you.”
— Benjamin Graham
Respectfully,
Jonathan Dash CEO & Chief Investment Officer
Forward-Looking Statement Disclosure
The discussion of our investments represents the views of the Company’s portfolio manager at the
time of this report and is subject to change without notice. References to individual securities are for informational purposes only and should not be construed as recommendations to purchase or sell individual securities. As portfolio managers, one of our responsibilities is to communicate with clients in an open and direct manner. Insofar as some of our opinions and comments in our letters to our partners are based on current management expectations, they are considered “forward-looking statements,” which may or may not be accurate over the long term. While we believe we have a reasonable basis for our comments and we have confidence in our opinions, actual results may differ materially from those we anticipate. You can identify forward-looking statements by words such as “believe,” “expect,” “may,” “anticipate,” and other similar expressions when discussing prospects for particular portfolio holdings and/or the markets, generally. We cannot, however, assure future results and disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Further, information provided in this report should not be construed as a recommendation to purchase or sell any particular security.
MARKET COMMENTARY
by Jonathan Dash
Good Evening, May 17, 2023
Overview
The purpose of this update is to inform our investors regarding the following subjects:
1. Discuss the key economic events that occurred during the 3rd quarter of 2024
2. A look ahead at the U.S. economy and the global markets
3. Updates regarding Dash Investments portfolios
The Economy
To the surprise of many, the economy in the third quarter ended on a solid note, adding 254,000 jobs in September versus a consensus expectation of 150,000. Wage growth remained solid and sticky, and on top of a modest decline in unemployment, job openings continued to tick up.
Seasonally Adjusted Payroll Gains
Even better for sustainable economic growth is the continued growth of workforce participation across all ages.
As more evidence of the economy’s resilience, third quarter GDP grew at an annualized rate of 2.8%, slightly lower than the 3.0% recorded in the second quarter. This growth was primarily fueled by consumer spending, increased exports, and federal government expenditures. The U.S. economy has also received significant assistance from massive AI spending and an AI tailwind boosting the profitability of companies at the forefront of the digital revolution.
Inflation pressures showed signs of easing. The personal consumption expenditures (PCE) price index, a key inflation measure, rose by 1.5% in the third quarter, down from 2.5% in Q2. Core PCE inflation grew 2.2%, compared to the previous quarter’s 2.8% increase, excluding food and energy. This cooling inflationary trend aligns with moderated disposable personal income growth, which increased by 1.6% in real terms compared to 2.4% in the prior quarter.
However, the economy faced some challenges as well. The deceleration in GDP from the previous quarter can be attributed to a slowdown in inventory investment and a continued decline in housing investment, reflecting a cooling in the real estate market. Meanwhile, imports rose, which offset GDP calculations by counting as a subtraction.
While economic growth remains positive, there are emerging headwinds, including slower investment in key sectors and continued pressure on consumer savings. However, easing inflationary pressures may provide some relief for consumers and policymakers going into the year’s final quarter.
Note: October jobs data reported after the end of the third quarter showed a marked slowdown in the labor market. The Bureau of Labor Statistics reported that just 12,000 jobs were added by employers in October, substantially off from consensus expectations of 113,000, even with Hurricane Helene and the Boeing strike already factored in. Additionally, jobs data have been revised downward in 8 of the last 12 months, signaling an easing of demand.
The Markets
U.S. stock markets saw modest gains overall while fighting through some significant volatility. Sector-wise, utilities were the standout performers driven by growth in demand for electricity due to the expanding AI sector. Real estate and industrials also saw gains, benefiting from Federal Reserve interest rate cuts aimed at easing market pressures. On the other hand, the energy sector lagged, impacted by China’s economic slowdown, which reduced oil demand.
Much of that volatility was driven by pre-election jitters, causing a steep decline in the days leading up to the election. However, from election eve through the night of the election, the market found the clarity it needed with a record advance not seen in two years.
Investment Portfolio Update
As a reminder, we don’t make macro calls. That said, we cannot entirely ignore the “macro,” as there will inevitably be some signal within the sea of noise. We believe the best macro analysis doesn’t come from a macroeconomist but from the aggregation of the micro. What’s key is paying close attention to what’s happening now—not getting overly concerned about what could happen, but focusing on what is happening with the businesses we own and those within our coverage universe.
Other than a few isolated areas of weakness, our portfolio businesses continue to perform roughly in line with our growth expectations. Overall, we are encouraged by the current performance of our companies and even more so by their long-term resilience and ability to drive faster growth with less risk, even through thick and thin.
While market narratives and sentiment can change rapidly, as we’ve observed, we remain focused on factors within our control, which don’t change quickly or substantially, allowing us to trust our forecasting over the long term. This explains our long-standing commitment to own a concentrated portfolio of high-quality, competitively advantaged businesses that can grow earnings per share at 10% or higher. If we pay a fair price for these businesses, we believe their stock prices and returns should follow the earnings growth over the long term.
Furthermore, we think businesses with solid balance sheets, durable demand and advantages, and honest, competent management generally perform well in good times and bad. Combined with our safety holdings, such attributes contribute to creating an “all-weather” portfolio. Our emphasis on quality, durable earnings growth, strong balance sheets, and balanced portfolios has served us well throughout Dash Investments’ history.
It’s also why we have generally maintained our position during bull markets, while most of our outperformance has been generated during prolonged economic downturns. Although we do not optimize for lower volatility or enhanced downside protection, nor do we promise these outcomes in any given period, the quality of our businesses tends to shine most when the days are darkest. As the saying goes, only when the tide goes out do you see who’s swimming naked.
History shows that this patient, methodical approach to compounding earnings growth can lead to the best long-term outcomes for investors. While our approach tends to crawl with the tortoise rather than scamper with the hare, we view volatility as an ally and an opportunity to go on offense when possible.
This more predictable, durable 10% earnings growth has led to the robust track record of our strategy for over 20 years. Since our founding in 2004, we have remained steadfast in our unwavering focus as we strive to deliver long-term value for our clients.
In Closing
As always, we thank you for your continued trust and partnership with Dash Investments.
Please note that our next written communication will be via the Q4 2024 update. However, if you have any questions or need information before that time, please contact us directly.
— Benjamin Graham
Respectfully,
Jonathan Dash
CEO & Chief Investment Officer
Forward-Looking Statement Disclosure
The discussion of our investments represents the views of the Company’s portfolio manager at the
time of this report and is subject to change without notice. References to individual securities are for informational purposes only and should not be construed as recommendations to purchase or sell individual securities. As portfolio managers, one of our responsibilities is to communicate with clients in an open and direct manner. Insofar as some of our opinions and comments in our letters to our partners are based on current management expectations, they are considered “forward-looking statements,” which may or may not be accurate over the long term. While we believe we have a reasonable basis for our comments and we have confidence in our opinions, actual results may differ materially from those we anticipate. You can identify forward-looking statements by words such as “believe,” “expect,” “may,” “anticipate,” and other similar expressions when discussing prospects for particular portfolio holdings and/or the markets, generally. We cannot, however, assure future results and disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Further, information provided in this report should not be construed as a recommendation to purchase or sell any particular security.