October 2023 Monthly Recap
Market Snapshot
*As of 10/31/2023
By the Numbers
  • The major indices fell again in October, with a late-month slide triggered by interest rate fears from Federal Reserve commentary.  However, the first three trading days of November have more than recovered the drops of October.
  • The 7 largest members of the S&P 500, dubbed the Magnificent Seven, comprise nearly 28% of the value of the entire index and have produced most of the 2023 gains in the S&P 500.  Use care, however: many of these darlings of 2023 were the dogs of 2022 and contributed measurably to last year’s declines.
  • The latest GDP report for the third quarter revealed that not only did the economy grow 4.9% at a quarter-over-quarter annualized rate, after accounting for inflation, but growth was also broad across consumer purchases of goods and services, business investment, and government spending.
  • In a curious twist of the US housing market, the vast majority of mortgages in existence today have originated or been refinanced in the last decade at ultra-low rates – the average rate across all mortgages held today is 3.75%. Current homeowners are highly resistant to selling because they don’t want to incur today’s rates on a new home.  This has led to the lowest inventory of homes in 15 years, supporting elevated home values

Don’t Fight the Fed

As we shared in our Q3 commentary, the Federal Reserve remains the elephant in the room. So long as the Fed keeps the door open to short term rate changes, all economic news is filtered through a single question: How will it impact the Fed’s interest rate policy? This can lead to, at times, opposing market reactions to what would otherwise be ‘good’ economic news. More new jobs created?  Could be inflationary, and diminishes expectations of relief from today’s high rates, triggering a stock market swoon. GDP weakness? Supports the Fed’s goal of ‘slowing’ the inflationary economy, so the markets rally. Investors will be forgiven for confusion over these at-first-glance head scratchers.

On October 19, 2023, Tiller’s Senior Analyst & Trader, Chris Barr, attended Federal Reserve Chairman Jerome Powell’s speech at the Economic Club of New York. Powell’s comments reinforced our thesis above. “We are attentive to recent data showing the resilience of economic growth and demand for labor. Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.” His speech rattled the bond markets, pushing yields higher and triggering a pullback in the S&P 500 of 4.8% over the following seven trading days. October’s market close would see the evaporation of much of 2023’s previous gains.

On November 1, 2023 the Federal Open Market Committee (FOMC – the voting body of the Federal Reserve that sets interest rates) revealed a mildly softer stance. In Powell’s press conference he acknowledged that rising long-term interest rates may be doing some of the Fed’s job in combatting inflation. Investors took this as an encouraging signal of a perhaps less aggressive Fed.  Markets rallied, with the S&P 500 jumping 5.8% in just three trading days.

Our focus today is squarely on interest rates and the fixed income (bond) portions of your portfolios. Until ~18 months ago bonds had been a diminished asset class for nearly a decade with low dividend rates and elevated interest rate risk. Today the narrative has flipped, and we are seeking to capitalize on the opportunities in the bond market. Yields are higher, finally rewarding investors appropriately, and older bonds can be purchased today at deep discounts. Rather than fighting the Fed, we seek to capitalize on their impacts.

The Magnificent Seven

It is worth pointing out the lopsided nature of the S&P 500 today. The index represents the 500 largest companies in America. However, the largest 7 of them, dubbed the Magnificent Seven, represent 28% of the total size of the index in terms of market capitalization. They are familiar names:  Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta & Tesla. These seven stocks have almost single-handedly delivered the year-to-date positive performance of the S&P 500. It makes sense to wonder why not just buy these seven and forget the rest. Looking at the chart below you’ll notice these seven were also the culprits of much of the pain felt in 2022. They certainly have a home in your portfolio, and they have delivered impressive returns to our investors, but they have a volatility and risk profile that reminds us not to be over-exposed to them.

Sources: Clearnomics, Standard & Poors, Nasdaq, Refinitiv
© 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 an unmanaged, price-weighted index of 30 blue-chip stocks. You cannot directly invest in this index.

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. You cannot directly invest in this index.

Data sources: Clearnomics, Morningstar, Yahoo finance, BankRate, Carlysle, US Federal Reserve and US Treasury Dept