3rd Quarter 2023

The 3rd Quarter began with equity markets near their highs for the year, led by the so- called Magnificent 7.  This consisted of Apple, Amazon, Alphabet, Facebook, Microsoft, Nvidia and Tesla.  These stocks made up a majority of the gains for the equity index for the year.  The remaining 493 stocks in the S&P 500 were slightly higher to lower for the year.  As a matter of fact, the equal weighted S&P 500 (each stock has the same weighting) was basically unchanged at the beginning of the quarter.  This is opposed to the Cap Weighted (weight in the index is influenced by the valuation of the company) S&P 500 which was up almost 17%

Despite the selloff over the last two months of the quarter, the broader markets are positive through three quarters of 2023. U.S., international, and emerging market indexes declined in August and September. The S&P 500 finished the third quarter with a 13% return year to date, down from almost 17% at the end of the second quarter.

The bullish sentiment that lifted stocks out of a bear market in 2022 has faded, and investors can thank a fresh selloff in the market for that turn of events. It transpired that some of the optimism that drove the first-half rally was misplaced, particularly expectations that the Federal Reserve would soon be pivoting to lowering rates. Instead, “higher for longer” has become the newest catchphrase on Wall Street. That has the bond market flirting with its third straight down year, even as fixed-income markets are offering their highest yields in over 15 years. At the same time, the household names among growth stocks (the Magnificent 7) that helped usher in what many called a new bull market in the first half of the year ran out of steam.

The 3rd quarter of 2023 was a challenging period for the bond market. The Federal Reserve’s “higher for longer” messaging sent waves through the bond market, causing yields on intermediate and long-term bonds to rise sharply, and bond funds focused on those maturities suffered. However, funds heavy on short-term bonds fared relatively well, with some managing to eke out gains for the quarter. The iShare Aggregate Bond Index lost nearly 4% in the third quarter, adding to its losses for the year.  That marks its worst performance since the 3rd quarter 2022 and set the tone for a 3rd straight year of losses.  That has rarely occurred but signals how aggressive the Federal Reserve has been in raising rates to combat inflation.

The Federal Reserve began signaling towards the end of the quarter that they may begin pausing the raising of rates and see how the economy is responding.  The 10yr bond yield rose to nearly 5% , its highest level since early 2006.  Along with raising rates, the Federal Reserve is also implementing Quantitative Tightening.  It’s allowing bonds in their portfolio to mature and are not reinvesting the proceeds back into the Treasury market.  This at a time that the debt of the United States reached over $32T (TRILLION) and the Treasury is increasing the amount of debt it is issuing.

Seasonality is somewhat bullish for the markets in the 4th Quarter.  IF the Federal Reserve ceases to raise rates any further then the equity and bond markets will probably respond by trading back into their range for the year.  Most Wall Street pundits have resistance in the S&P 500 at 4650 to 4750 and support around 4050 to 4150.for 10 yr yields, most see the range of 4.1% to 4.9%.

The opinions expressed herein are those of Riverbend Planning Group. The data and opinions are furnished for informational purposes only and should not be considered a solicitation for an investment decision. Although it is derived from sources believed to be accurate, Riverbend Planning Group makes no guarantee to the accuracy of the information

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