Fall Into Fall
First negative quarter of stock returns in 2023.
S & P 500 index down 3.27% in Q3, but up 13.07% in the first three quarters of 2023.
Russell 2000 small cap index declined 5.13% in Q3, but up 5.24% through the first three quarters.
International index, MSCI EAFE, dropped 4.71% in Q3, yet it is up 4.49% through first three quarters of 2023.
Markets: First Negative Quarter of 2023
After three consecutive quarters of positive returns the S&P 500 index fell -3.27% in Q3. The index, however, still had positive double digit returns of 13.07% for the first nine months of 2023. The stocks frequently referred to as “The Magnificent Seven,” Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla accounted for approximately 85% of the gain. Without the “Seven” mega-cap growth stocks, the S&P 500 would be up less than 2% for the first three quarters of this year.
Small cap growth stocks also outpaced their small cap value brethren this year. The Russell 2000 Growth Index was up 5.24% while the Russell 2000 Value Index declined -0.53% since the start of the year. In Q3, the Russell 2000 Growth Index dropped -7.32% while the Russell 2000 Value Index was negative by -2.96%.
International markets were negative, too, in Q3. The MSCI EAFE international index declined -4.71% in the quarter, but it is up 4.49% through the first three quarters of 2023. The Fed raised rates 4 times in 2023. As a result, the Bloomberg US Aggregate Bond Index was down -1.21% for the first 9 months of 2023.
The Fed: Pause Amid “Higher for Longer” Narrative
Remarks by Fed Chairman Jerome Powell of “higher for longer” rates sent bond traders scurrying. Bond yields first dropped in anticipation of a slowing economy, but yields then rose as inflation numbers of 3.7% were reported. The Fed left rates unchanged, however, at its September meeting, with a current range of 5.25% to 5.5%. At the end of the quarter it was nearly an even bet that there would be one more rate increase before the end of the year. In just the past few weeks the likelihood of another increase has decreased to less than a one-in-three chance according to interest-rate futures pricing. The Fed also projected two rate cuts in 2024, but this is much less than the previous 4 cuts it anticipated at its June meeting
The Economy: Resilient
After all the rate hikes, the economy continues to expand as GDP for Q3 is projected near 5% according to GDPNow of the Atlanta Federal Reserve. Although not an official forecast of the Atlanta Fed, it is merely a model based on current economic data with no subjective adjustments. Unemployment ticked up from 3.7% to 3.8%. A low enough rate, that is evidence of a resilient economy still keeping a recession at bay.
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Inflation: Resilient, Too
We continue to believe that the easy part of dampening inflation has occurred. Inflation has gone from 9.1% in June of 2022 to 3.7% in September of 2023, but unchanged from the previous month. The Fed target of a 2% inflation rate is now projected for 2025.
Short-term, risk-free treasuries continue to yield over 5%. This is enticing for both fixed-income investors and equity investors who are concerned with stock market volatility. As we’ve stated previously, long-term investors who build and maintain portfolio asset allocations appropriate for their time horizon and risk tolerance may still come out ahead in the long-run.
WE ARE HERE FOR YOU
The New Year provides many great opportunities to get a financial plan in place or reevaluate your risk profile. The Platt Wealth Management team is here for you to discuss any changes or new milestones in your life. We are always available to assist you with any financial matters and we look forward to continue to serve you along your financial journey.
Warmest regards,
Platt Wealth Management