After a relatively strong first half of the year, both stocks and bonds fell during the third quarter and into October. As of this writing, the Dow Jones Industrials are flat year to date, the S&P 500 is up 11% and the aggregate bond market is down 2%. The S&P 500’s outperformance is slightly misleading as virtually all of the return came from less than ten stocks; the Equal Weighted S&P 500 is down 1.5% for the year (i.e. the average stock is down). Why the recent selloff in both stocks and bonds? Interest rates rose during the quarter and the Fed has signaled that they will keep rates “higher for longer”: the 10 year Treasury note approached 5% and mortgage rates are getting close to 8%. Increasing interest rates are generally negative for both stock and bond prices. The markets are grappling with adjusting to the notion of higher for longer interest rates and their effect on both the economy and asset prices. Most economists predict that the economy will slow down into 2024 with some, but not all, calling for a mild recession.
What’s the outlook? Despite the recent selloff and increasingly negative sentiment, we see rays of light and opportunities for long-term investors. The stock market is still down more than 10% from its all-time high in early 2022 (that’s almost two years) and investment grade corporate bonds are now yielding 5-6%. Notwithstanding the short-term headwinds, those sound like buying opportunities for the patient, long-term investor. While they are unpleasant, corrections like we are currently experiencing are normal and healthy for markets.
We totally understand the discomfort that comes with falling stock and bond prices but encourage our clients to stay calm, patient and disciplined with regards to their investments. While we cannot predict anything in the short-term, we believe the odds are in our favor for healthier market returns going forward.
Follow then link below for more color on the 3rd quarter economy and financial markets:
Let us know if you have any questions or if we can do anything for you. As always, thanks for your support and encouragement.
Matt and Andrew