Quarterly Commentary – The Real Story Behind Q3, 2023

Market Index Returns

Q3 2023

Index 1 month 3 months YTD
DJIA -3.50 -2.62 1.09
NASDAQ Composite -5.81 -4.12 26.30
Russell 2000 -6.03 -5.49 1.35
S&P 500 -4.87 -3.65 11.68
S&P 500 Equal Weighted -5.26 -5.38 0.27


Well, the chart above is pretty self-explanatory. However, if I stopped writing here, this would be the shortest recorded quarterly commentary in history. 

So, let’s dig into the quarter a little bit: first, the short-term data reflects how sluggish the market has been lately. Inflation is still very much on the minds of the Federal Reserve, which has indicated that they remain committed to raising interest rates if they believe it necessary. However, we don’t believe that there will be an increase in December, because rates have inched up due to the current global and U.S. political instability, which effectively has done the work of raising rates for them. Second, there is the “new” war between Israel and Hamas, which no one seemed to expect. The uncertainty that a war brings today is huge, and can have significant consequences politically, economically, and psychologically. Third, and finally for this quarter, I would say that the firing of the House Speaker without a planned successor was incredibly short-sighted, possibly leading bad actors globally to view the U.S. and its allies as weaker “targets”. 

The longer-term year-to-date story tells us what we really want to know: if you factor out the “Magnificent Seven” stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms), the true equal weighted return of the S&P 500 index is barely above zero. Therefore, most of the large capitalization stocks that support the market have done very little this year, and some are lower in price. These are the consequences of stubborn inflation and geopolitical problems. Having said that, there will be bargains, as these companies are still earning at a decent pace, and the consumer looks resilient. Our nation, our markets, and our people just need a rest. The Israel-Hamas war has been a big market negative; otherwise, I think the Federal Reserve’s decision to hold off raising rates would’ve had a more positive effect on the market. Also, the 10-year Treasury has been flirting with the 5% level for some time. While you might ask, What is the big difference between 4.9% and 5%?, it is a psychological hurdle to break through to a 5% yield on the 10 yr Treasury. Finally, the CBOE’s volatility index has been moving up, which is often associated with market pullbacks. The bottom line is that there has been an erosion of stock prices, even though an index, such as the S&P500, is up year-to-date.

What do we do about all this negativity? We look to what has worked in the past. We maintain sufficient liquidity, while investing in companies we know well and believe to represent a good value. History has shown that when investors who try to time the market by deciding when or when not to go to cash, are usually sorry over the longer term. We see no reason to believe that the current environment is a lot different, after all, good companies are still good companies, and earnings are still earnings.

Hold on, and don’t give in to your emotions. We will all get through this time together. 

Warmest Regards,

Zandy Campbell.