Q3 2023 Recap
Indices YTD Performance (1/1/23- 9/28/23):
August snapped the 5-month winning streak for the S&P 500 and September lived up to its name for being the worst month of the year for the index going back to 1950:
Even with the downside volatility we saw in August and September, the S&P 500 is still up 20% from its October 12, 2022 closing low.
The markets may have gotten ahead of themselves through Q2, so Q3 quickly humbled everyone but now we are headed into the home stretch for 2023…
Interest Rates:
Current Fed funds rate: 5.25% to 5.50%.
The 30-year US Treasury bond briefly touched 5% in September, which is a 16-year high. The 10-year US Treasury Bond, which is a proxy for mortgage rates, hit 4.87%.
As a result, we’ve heard inklings of the 30-year mortgage rate racing towards 8%.
It’s no surprise we’ve seen mortgage demand crater.
The Federal Reserves message is that higher rates are here to stay. But we’ve seen time and time again how quickly that message can change should something “break” in the economy.
It doesn’t really matter if we get another rate hike at this point. What really matters is how long we’ll stay at these elevated levels.
Bonds:
The old adage of, “We buy stocks so we can eat well, but we buy bonds so we can sleep well”, is being put to the test.
The bond market is in a prolonged bear market and it can’t seem to shake it. We may even be on pace for the first ever three year downturn in bonds going back to 1926:
With that being said, we’ve been fielding questions about, “is now the time to dump bonds? They continue to be a drag on the portfolio.”
It’s a rational thought given their recent performance and the idea that rates could go even higher (thanks Jamie Dimon).
However, when you are investing, just when you think an asset class is out of favor, it typically surprises to the upside.
Not to mention bonds now look very attractive compared to equities (for some investors). Interest rates on most bonds are now paying 4%-6% (compared to 1% a couple of years ago), and we may be getting close to the end of the Federal Reserve raising rates.
Don’t Give Up on Stocks:
Keeping all of your money in cash, even if it’s a Treasury Bill or high yield savings (HYS) account, is not a strategy for long-term wealth building.
You may be tempted to sell out of stocks or just to stop buying them given the recent volatility and the interest rates you can earn elsewhere.
But stocks are the way you build wealth over the long-run and outpace inflation:
Not to mention Q4 has historically been the best for the S&P 500:
Source: Bespoke
Despite the headlines, the US still has more momentum and activity than just about anywhere else in the world. Go long baby.
Consumer Update:
While we are seeing signs that the job market is cooling, student loan payments have resumed, and interest rates remain elevated, consumer spending it still growing (albeit at a slower pace).
This is what drives the economy (consumer spending accounts for 70% of GDP).
The question will be how long can consumers keep up. The majority of Americans have locked in historically low rates on their larger debts. But with prices staying sticky at the grocery stores, gas pumps, etc. it will continue to eat into their savings.
We may just see a few less Instagram stories of trips to Italy and Greece 😊
Where Is Your Cash:
I am officially pounding the table for those that have a lot of cash sitting in your checking or savings account.
Your excess cash can be earning significant interest if you take action and put it to work.
Just look at the rates for T-Bills and money market funds compared to the bank savings and checking accounts:
Not to mention the current rates for HYS accounts are now around 4.40%.
As a reminder, HYS accounts typically are the best places for emergency savings because that money is available and you can move it around quickly.
Please evaluate your cash positions and reach out if I can help you take action.
Conclusion:
There will always be something to worry about when investing and the media wants you to worry!
These headline risks always exist.
We will continue to hear about this Government shutdown bullshit in the coming days.
But as an investor? Pretty meaningless.
There have been 20 shutdowns since 1976. The average length is 8 days with the longest being in December 2018. Yet the market rallied over 10% during that shutdown.
Focus on your goals, your savings, your planning - - not market forecasts or headlines.
Building expectations as an investor is paramount. The only guarantee with investing is dealing with volatility, the constant ups and downs.
Intra-year pullbacks are 100% normal and should be expected.
Let’s have a great Q4!
Charts That Caught my Eye:
Here are a few interesting graphics I found during the quarter:
Net worth for the top 1% by age group:
We constantly here about the magnificent seven and how only a few names drive the markets. Maybe that’s because these companies completely dominate and are absolute behemoths. Just look at Apple’s revenue for the AirPods:
Source: Blake Millard
The AirPods segment for Apple generates more revenue then Spotify, Airbnb, Shopify…
If you are into charts, follow
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing includes risks, including fluctuating prices and loss of principal.