Q3 2023 Market Update
Market Snapshot
*As of 09/29/2023
By the Numbers
  • The S&P 500 retreated 3.3% in Q3, leaving a YTD gain of 13.1% (with reinvested dividends). The NASDAQ lost 4% in Q3, dropping to a gain of 27% for the year, while the Dow gave up nearly half its more nominal gains: losing 2.1% leaving a YTD gain of 2.8%.
  • The unemployment rate remains at 3.8%, with the September jobs report revealing more new jobs than expected (336,000 vs expectation of 170,000 for the month). Wage growth is near 4.5%.
  • The Consumer Price Index (e.g. inflation) has decelerated to 3.7% on a year-over-year basis, far below its June 2022 high of 9.1%, while core CPI has slowed to 4.3%.
  • The US 10-year Treasury rate rose to 4.59% over the third quarter from 3.81%.
  • The European Central Bank’s core inflation measurement revealed declining prices, reaching 3.6% annualized in Q3. This suggests the ECB’s 0.25% September rate increase could be the last, placing them in a similar wait-and-see position to that of the US Federal Reserve.

Higher for Longer

There are many headlines of late competing for your attention, and rather tragically a new one appeared while penning this letter: The Israeli Attacks. While we strongly condemn this violence, our focus here is on our normal monthly and quarter-end commentary. We remain vigilant over your investments and are prepared to provide additional commentary as the situation develops.

Prior to the attacks the major headlines have been impactful: Government Shutdown. Congressional Chaos. Union Strikes. Ukraine. When it comes to investing, however, the one that really matters today comes from the Federal Reserve: Rates Will Stay Higher for Longer.

Throughout much of 2023 the expectation has been for the Fed to level off interest rates and begin decreasing them either late 2023 or early 2024. At the September, 2023 meeting of the Federal Open Market Committee (FOMC) the revised expectations revealed a potential final 0.25% rate increase in 2023, and of more impact, trimmed the targeted four rate cuts in 2024 down to just two – higher for longer.

This caught investors off-guard and has caused some short-term stress in the bond markets as interest rate expectations adjust and ripple through the investing world. In more technical terms, the longer end of the yield curve (longer dated bonds) has finally started to see rates rising after a period of offering lower yields than shorter dated bonds. In a ‘normal’ environment longer term bonds pay higher yields than shorter term bonds but this relationship has been inverted since July 2022; today we are seeing the clumsy, but inevitable, return towards ‘normal’. 

In the short term this has hurt bond valuations, erasing some gains found earlier in 2023, but potentially opening the door to even more attractive return profiles for bonds than we’ve seen in some time. This is a particular area of focus for us today as we evaluate, and potentially adjust, the broader investment allocations for investors.

The impact of the Fed’s decisions is significant.  Their mandate is simple: price stability (e.g. low inflation) and maximum employment. On the employment front, the jobs report on Friday, October 6, 2023 revealed a whopping 336,000 new jobs in September, shattering expectations – unemployment remains at 3.8%. Core inflation numbers are approaching Fed targets, so we’re not convinced the Fed will really defy gravity into 2024 and 2025 quite as much as they are saying, since they are close to achieving their mandates.

Government Shutdown

It is worth mentioning that, as disappointed as we may all be with our political leaders, we generally advise limiting political fears from overly influencing investing decisions. As unsettling as this leadership instability is, the markets typically see through them with limited impact. The only measurable risk to consider would be further downgrades of US debt by credit reporting agencies. Otherwise investor focus should be on the Fed and traditional economic data.

All eyes are on the expectations of the Federal Open Markets Committee – the interest-rate decision makers at the Federal Reserve.

Sources: Clearnomics, Federal Reserve
© 2023 Clearnomics, Inc

The views expressed represent the opinions of Tiller Private Wealth as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. 

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. Past performance is not a guarantee of future results.

The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The market index is unmanaged.

The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

Data sources: YCharts, US Treasury Dept, Clearnomics, Bankrate.