As we transition into the final quarter of the year, it's important to reflect on the recent market movements, understand the underlying factors, and anticipate the potential shifts in the coming months. Here's a look back at 3rd Quarter 2023 and our mindset for the rest of the year.
Reflecting on Recent Movements
As we had anticipated, the months of August and September witnessed a pullback, with the S&P 500 declining by approximately 6.5%. Historically, these months have been the most challenging for the market. However, October typically marks a turning point, setting the stage for a potential 4th quarter rally.
The recent selloff in bonds, driven by expectations of another rate hike by the Federal Reserve, has also influenced the equity market. The anticipation of higher rates has contributed to the market's pullback.
Anticipating Federal Reserve's Moves
At this point, we estimate a less than 50% chance that the Federal Reserve will opt for one more rate hike. If they do happen to raise it will likely be the final time, potentially catalyzing a rally in both stocks and bonds. While we foresee the possibility of a mild recession in the upcoming year, the robust labor market, underscored by 9.5 million open jobs, is likely to cushion its impact. This strength suggests a shorter-than-average recession duration.
Higher levels of job creation and low unemployment continue to buffer the economy. Furthermore, inflation, which peaked in June 2022 at 9.1%, has been on a decline. We anticipate this downward trend in inflation to persist over the next year.
Investment Strategy and Outlook
Given the current market dynamics, our stance on equities remains defensive. However, the fixed-income segment presents an attractive proposition at these levels. Our projections indicate a potential rate cut by the Federal Reserve in 2024. Such a move would again likely bolster both equities and fixed-income markets.
Reinforcing our previous analysis, we maintain that October 12, 2022, represented the most probable low in this market cycle. We advocate for high-quality stocks over their low-quality counterparts. Geographically, we lean towards the US market, given the economic slowdown in China and persistent inflationary concerns in the UK. Additionally, our strategy favors our strategy favors larger corporations over smaller entities, though small caps are becoming increasingly attractive.
The upcoming election year in 2024 does not raise significant concerns for us. Historically, markets have exhibited an upward trajectory irrespective of the election outcome.
Please know we are committed to offering you quality insights and advice to steer through the ever-changing market environment. Should you have any questions or wish to speak with an advisor, please feel free to contact our team.
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