Forget the Bull, the Honey Badger is Loose: 1Q2024 Market and Asset Class Insights

April 23, 2024

In the vast expanse of the African savannah there roams a creature that embodies resilience and fearlessness—the honey badger. Despite its modest size, this tenacious animal fearlessly confronts apex predators and braves bee-infested honeycombs without hesitation. Similarly, the stock market has recently shown similar resilience, overcoming obstacles and scaling new heights despite economic challenges. This blog post attempts to explore the parallels between the indomitable spirit of the honey badger and the seemingly steadfast nature of today’s market, as well as potential strategies for navigating uncertain times.

The Honey Badger Mentality

The honey badger’s capability to thrive in harsh environments serves as a metaphor for the stock market’s resilience. Just as the honey badger boldly confronts challenges, the market has continued to climb, showing tenacity that would make any honey badger proud.

Stubborn Inflation

    • Persistent Highs: Despite efforts to contain inflation, it remains stubbornly above the Fed’s 2% target. The consumer price index (CPI) for March came in at 3.5% overall, hotter than expected.
    • Rising Costs: With increasing energy prices, higher insurance premiums, and shrinking product sizes, consumers increasingly feel they’re getting less bang for their buck.
    • The Long-term Costs: Persistent inflation above targets could erode consumer confidence, threaten the value of the dollar and punish savers.
    • Unfazed Market: Nevertheless, the stock market remains unfazed, reflecting investor confidence in the economy’s resilience like a honey badger wearing a bee-stung snout as a badge of honor.

Higher Interest Rates

    • Fed’s Response: With mounting inflationary pressures, the Fed is less likely to cut rates, leading to higher consumer and business loan costs.
    • Challenging Adjustment: After over a decade of historically low interest rates, the inflation we experienced post COVID-19 sent rates meaningfully higher. A 30-year mortgage that three years ago charged interest at 2.8% (annually), now costs nearly 7%.  
    • Market Resilience: Despite this, the stock market maintains its momentum, buoyed by strong economic fundamentals and ample liquidity.

Reasons for Optimism

    • Economic Growth: The economy is growing, corporate profits are up, and the labor market is flexing its muscles.
    • Confident Outlook: High consumer and business sentiment signals growing confidence in the economic outlook.
    • Robust Housing Market:  Like it or not, (depending on your role as a seller or buyer), house prices remain elevated even in the face of interest rates that increasingly argue for renting instead of buying.
    • Stock Performance: Year-to-date global stocks have surged by 7.72% with a remarkable 24.12% jump since the beginning of 2023.

Navigating Uncertainty

While the honey badger market remains resilient, we believe it’s essential to exercise caution and remain vigilant in the face of evolving economic conditions.

Implementing Discipline

    • Strategic Rebalancing: We believe BSW’s recent portfolio rebalancing adds a layer of discipline and process to investment management and, at the margins, should help us to deliver on the elusive adage of buy low, sell high.
    • Diversification: The strong performance in the stock market has allowed us to reallocate resources, diversifying into real estate where repricing has been occurring across equity and credit, in fixed income where investors can now earn 4.6% (as of 4/15/2024) lending to the federal government, and private equity investments where capital raising has declined in each of the last two years.

Embracing Contrarian Moves

    • Calculated Risks: Emphasizing calculated contrarian moves helps navigate market volatility and mitigate potential downside risks. Some of the areas this is happening in our portfolios is longer term bond portfolios where we can lock in higher rates for several years, inclusion of cheaper segments of the stock market like value, small cap, and international, finding value in commercial real estate credit trading at discounts, and multifamily assets sold from exhausted value-add owners.
    • Risk Management: By adhering to predefined risk levels, exercising discipline and process, and carefully curating opportunities where value may exceed price, our goal is to safeguard portfolios while seizing growth opportunities.

Looking Ahead

Despite current economic challenges, the market’s resilience suggests it may weather the storm. However, increasing inflation expectations and the likely higher borrowing costs for longer likely warrant caution and proactive risk management. In our opinion, maintaining a calm approach and a long-term vision is essential for navigating market fluctuations and achieving investment goals.

Asset Class Updates

Having examined the broader economic landscape and the market’s resilient response, let’s now get into detailed updates from our Asset Class Managers, who provide a closer look at the current dynamics and future outlooks.

Fixed Income Update by Olivia O’Toole
At the end of 2023, bond yields decreased as analysts were expecting as many as six rate cuts from the Federal Reserve (the Fed) in 2024. However, inflation remains stubbornly above the Fed’s target (2%) and the labor market continues to exceed expectations. As such, the outlook for rate cuts in 2024 has shifted and it appears that rates will be higher for longer. The bond market is now pricing in three rate cuts this year, but if inflation and employment remain persistent, it is possible we will not see any change in rates until 2025.

We believe the current rate environment presents an attractive opportunity for entry into the bond market. The US Aggregate Index – an index representing the broad U.S. bond market – returned -0.78% in the first quarter 2024 as prices fell due to the rise in yields (bond prices and yields have an inverse relationship). We continue to be steadfast in deploying cash and reinvesting to target into laddered bond strategies at current attractive prices to lock in higher yields.

Diversified Growth Update by Dmitry Popov
Global stock markets had a great start to the year, with U.S. stocks leading the way. Despite ongoing inflation and high interest rates, analysts are optimistic about strong corporate profits for the first quarter. Most investors believed the Federal Reserve would begin lowering interest rates by now, however, the Fed has maintained a cautious stance in its fight against inflation, opting to keep rates steady for now and guiding for fewer rate cuts in 2024 than anticipated.

The S&P 500 Index returned 10.56% in the first quarter—a remarkable kickoff to the year. Ten out of eleven sectors saw positive performance numbers, particularly Communication Services and Energy which posted double-digit growth. While we are seeing the broadening of equity markets, the influence of the “Magnificent 7” tech giants was again evident, significantly impacting overall market performance. Notably, Nvidia and Meta had impressive returns of 82.46% and 37.18%, respectively. However, not all companies in this group fared well, with Apple and Tesla experiencing declines of 10.93% and almost 29.25%, respectively.

While the non-U.S. developed markets MSCI EAFE Index also saw gains, it did not match the performance of U.S. stocks, returning 5.78% in the first quarter of 2024. MSCI Emerging Markets Index advanced by 2.37% underperforming relative to their developed counterparts, with challenges in the Chinese equity market primarily hindering performance. Nevertheless, we are observing signs of increasing market strength in Europe, Japan, and certain emerging markets, indicating positive shifts in business sentiment that are likely to support future market returns.

Real Asset Update by Elias Bachmann
For this first update in 2024 on Real Assets, I thought it would be helpful to explain this asset class and how BSW utilizes it in client portfolios.  Real Assets are investments in fixed capital, usually land and equipment.  These assets have an available capacity that can be utilized in exchange for payment.  Cell towers renting space for antennae, farmland renting for cultivation, apartments, office space, retail properties, pipelines selling throughput, renewable energy selling kilowatt hours, forests producing lumber, batteries selling availability, airports selling gates, and the list goes on…

BSW’s primary categories of real assets are real estate (generally for human occupation), infrastructure and farmland.  We believe mixing these categories of investments provides income streams that are differentiated.  Some are more tied to the health of the economy, others are population driven, and some are better hedges of inflation than others. Our hope is to not have all our eggs in one basket of risk.

We seek to build our exposure to this asset class across both public and private investments.  We embrace illiquidity when it gives our managers the flexibility to execute their business plans and drive maximum impact for stakeholders.

The current market environment presents both challenges and opportunities for Real Asset investments. With rising interest rates, financing new projects has become more costly, dampening immediate yields.  However, the market’s response to this stress is to reprice assets such that yields increase and debt service is more manageable.  We believe this has created an opportunity for investors to enter the asset class at more attractive pricing with significant upside potential.

Private Equity Update by Aaron Deitz
Amidst the Fed’s tightening cycle starting in 2022, the Private Equity sector experienced a slowdown in both transaction volume and fundraising activity.  Transaction volume declined from its 2021 peak, while capital that private equity firms raised, but not yet invested, often referred to as dry powder soared to a record $2.59 trillion by the end of 2023.  Consequently, valuation multiples have faced downward pressure, making sellers reluctant to enter the market.

Despite these challenges, we believe our fund managers have demonstrated resilience by leveraging their unique playbooks to create value.  For example, our managers focus on direct investments in what they believe are market-leading businesses, attempting to strategically pinpoint optimal entry and exit points. Additionally, they attempt to capitalize on secondary transactions, which typically present attractive investment opportunities at a discount.  In our opinion, their ability to deploy various value creation levers, including fostering organic growth or executing buy-and-build strategies, has proven advantageous amid market challenges.

As 2024 unfolds, market participants patiently await signs that might indicate a rebound in transaction activity.  With a clearer outlook on interest rates, we anticipate a narrowing bid/ask spread between buyers and sellers may stimulate transaction momentum.  This increase in activity should drive increased distributions, allowing money to move throughout the ecosystem more freely.

Private Equity exits typically occur through Initial Public Offerings (IPOs), corporate acquisitions, or secondary buyouts. Although the IPO market has remained stagnant since 2022, corporate acquisitions have made up a significant portion of exits.  A recent highlight was the fourth largest private equity-backed exit in private equity history — the $18 billion acquisition of SRS Distribution by The Home Depot.


With these insights from our Asset Class Managers highlighting the nuances and opportunities across each sector, we can better appreciate the resilience of the ‘Honey Badger Market’ as a whole. Just like our furry role model, the market continues to thrive despite formidable challenges, reflecting investor confidence in the economy’s underlying strength. By implementing discipline, embracing contrarian strategies, and maintaining a long-term perspective, we believe investors can navigate uncertain times with confidence. As your trusted partners in this investment journey, we are dedicated to guiding your portfolios through choppy waters towards the hope of brighter days ahead. Amidst the noise and tumult of the market, rest assured—we’ve got the wheel, and yes, we’re driving it honey badger style.

Elias Bachmann,
Director of Private Investments, Senior Portfolio Manager








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