REVENGE OF THE LARGE CAPS

Hallelujah!  Finally.  Taking its cue directly from the Fed, the market caught fire and gained +5.7% (after dividends) for the 3Q.  The Fed twice decided to take a pause and not hike short term rates.  Investors interpreted that as a sign that the peak of inflation was nigh.  Yet the rally did not lift all boats.  While the Dow index, comprised of large cap names, neared its historic high, the S&P 500 index remained -12% below its high.  The NASDAQ index lingered -55% below its high.  Given the overall weakness of the market, it was genuinely a revenge of the large caps.  All returns are after dividends.

Still, it's not a time to look a gift horse in the mouth.  The healthcare sector was up +10.3%.  Info tech and financials posted gains of +8.3% and +8.0%, respectively.  Consumer staples hurt the most by losing -1.8% for the Q.  Bonds rallied as the 10 year Treasury fell to 4.63% from 5.15% three months earlier.  All returns are after dividends.

Gold Leaf is an independent Registered Investment Advisor that buys stock in cash positive companies with sustainable competitive advantages.  Gold Leaf's goal is to provide objective investment management and to protect client assets on the downside while participating in most of the market's upside.  On September 30th, portfolio attributes were:

Our biggest winners for the Q were Pfizer and Gilead, both drug companies.  Our banks and other interest sensitive stocks also performed well.  Like last Q, Watsco and Simpson Manufacturing, with exposures to the housing market, were down.

We bought shares in a company that produces 3D software which dominates the market for building and manufacturing design.  With over 7 million users, switching costs are high - a wide economic moat.  The company is transitioning from the purchase of licenses to the subscription model which stabilizes revenues and profits.  The stock had become weak on concerns about option granting, but we concluded that the upside potential outweighed downside risk.  In our income oriented accounts, we've added to positions to capitalize on the higher rate environment and the prospects of a slowing economy.