September 2023 Market Commentary: Remaining Patient Through a Jittery Fall
September 18, 2023
Big Picture
Warren Buffet offered this bit of salient advice to investors: “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
It is the disciplined investor who, staying patient in the face of a rush to action by other market participants, earns the rewards that accrue to investors over time. Despite the solid start to 2023, markets retreated during the summer, and many investors are looking ahead to the fall with some concern. Congress seems likely to careen into a government shutdown as the parties argue over government funding. At the same time, trade tensions with China, another possible rate increase, and a grinding war in Ukraine add to worries. This apprehension was reflected during August when all three major indexes had a rough go. After dropping almost -8% at one point, the Nasdaq managed to claw back enough to finish down -2.05%, the S&P 500 finished -1.6%, and the Dow closed the month -2.01%. [1]
Soft Landing or Recession?
The Federal Reserve appears close to achieving the long-anticipated “soft landing” of the economy many have hoped for. Recent economic data at the end of August indicate that the U.S. gross domestic product in the first half of the year was slightly above 2%. Inflation expectations are nearly back to 2%, and home prices have finally started to reflect the Fed’s rate activity, with the Case-Shiller index of the 20 largest housing markets declining -1.2% in June, compared to the prior year. [2]
Concerns of a tight labor market feeding wage pressure through inflation have also dissipated. Employers added 187,000 jobs in August. [3] While that is a steady pace of hiring, it’s a respite from the torrid rate of job creation during much of the past two years. It’s more in line with the pace of pre-pandemic job growth as seen in the chart below, suggesting that job growth is slowing down to more typical levels.
2 https://www.wsj.com/economy/jobs/jobs-report-august-today-unemployment-economy-de847415?
3 https://www.wsj.com/economy/jobs/jobs-report-august-today-unemployment-economy-de847415?
There remains the chance that as the higher interest rates work their way through the economy, consumers and businesses may still hit the brakes too hard and precipitate a recession. Indeed, the business cycle certainly is not dead, and if not this year, at some point it is possible that excesses (or even a prolonged autoworker strike) will lead to some level of contraction. Notably, investors are not skilled at predicting the next recession – the market contraction in 2022 seemed to be reflecting a recession that has yet failed to materialize. Still, the early fall is often a time of lackluster markets, whether due to budget discussions, post-summer malaise or some other seasonal factor.
Source: https://www.yardeni.com/pub/stmktreturns.pdf
Through August 2023
But as Warren Buffet sagely advises, the wise investor remains disciplined and patient during the inevitable periods of market turmoil and even uses the opportunity to build on long term positions.
Disclosures
Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.
S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.
Dow Jones Industrial Average (DJIA) Is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
The Nasdaq Composite Index (NASDAQ) measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies.
MSCI World Ex USA GR USD Index captures large and mid-cap representation across 22 of 23 developed markets countries, excluding the US. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes.
Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.
Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixedrate bonds from both developed and emerging market issuers. Index is USD hedged.
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