Third Quarter 2023 - Market Talk

Equities took a much-needed breather during the 3rd Quarter of 2023. The S&P 500 was down -3.3% during the period but as the chart illustrates, remains up +13.1% for the year-to-date period. 

Large companies continue to outperform their smaller counterparts. Indeed, the Russell 2000, a well-known index of small companies, was down-5.5% in the 3rd quarter. Although the chart at left indicates the index is up +2.2% on a year-to-date basis, as of the time of writing, the index is down -0.9%.

Bond market volatility continued in the 3rd Quarter of 2023. Investors hoping the Federal Reserve would signal an end to their tightening campaign at the September Committee Meeting were dis- appointed to learn that the committee intends on keeping interest rates elevated for an extended period of time. Indeed, although the committee kept their benchmark interest rate unchanged, their 2024 outlook, which countenanced only two rate cuts, came as a surprise to many. The result was a move upward in bond yields – which move inversely to prices. The 10-year bond, which two days prior to the meeting yielded 4.32%, is now yielding 4.8%. A move of 0.50% doesn’t seem like much, but it equates to an upward move in bond yield of over 10% and this results in a large downward move in bond price.

We continue to favor bonds maturing between 1 month and 7 years and have almost no exposure to bonds that mature at later dates. It is these longer-dated maturities that are particularly volatile. Following the September Federal Reserve meeting, the yield and price of the 2-year bond barely budged. Investors in those bonds are currently earning anywhere from 5% to 5.6% (annualized) and have much less to worry about in the way of price-risk.