- November 16, 2023
- Posted by: Terry Jack
- Category: Uncategorized
Much has changed since the writing of our last market commentary. Volatility is back; however, we suspect over the coming weeks, it will be true volatility with gyrations in both directions.
During the third quarter of 2023, the S&P 500 was down 3.27% and the Barclays Aggregate Bond Index was down 3.23%. Additionally, the broader markets struggled with the Russell 1000 down 3.15%, the Russell 2000 down 5.13% and the MSCI EAFE Index (international) down 4.11%.
The equity markets appear to have had a bit of a reality check and woken up from their AI stupor. They appear to be focusing on mixed economic signals for guidance regarding market direction. Additionally, the bond market is attempting to adjust to life with the 10-year treasury yield sitting at around 5%. The decline of stocks and bonds over the third quarter reminds some investors of 2022. Economically driven data throughout the quarter outlined a deterioration in the general market’s growth outlook. There were reports of services activity declining and beginning to reflect the data shown in the already weak manufacturing sector. When taking into consideration lowered inflationary pressures, investors are beginning to think that the Federal Reserve may be nearing a peak in the hiking cycle. Deficit spending and our nation’s growing national debt has become an even larger concern for bond investors, with the U.S. Treasury market being hit by concerns over the amount of issuance and interest payments that will be required to sustain a large debt load.
Moreover, Geo-political concerns have heated-up. Israel has begun a ground invasion of Gaza and several nations from around the world are lining-up to defend their interests in the region. Additionally, the war in Ukraine is still an unfortunate mess with no end in sight.
So, what does this all mean for you? In times of uncertainty, it is important to remain disciplined and focus on asset allocation. Although the market and geo-political news is relatively worrisome, we have seen times like these before – “there is nothing new under the sun.” At this point, our investment models focus on high-quality equities and shorter-duration bonds is key to preserving capital during this volatility. Additionally, exposure to commodities, especially gold, helps bring stability during the market volatility. This way the portfolio stays invested and in the game for the inevitable rebound.