In the third quarter, stocks declined, and bonds were mixed. Markets came to an understanding that the Fed will continue its quest to bring inflation down with “higher for longer” interest rates and the threat of further increases. Consumer spending was strong, focusing on experiences such as Taylor Swift and Beyoncé concerts, the Barbie movie, sporting events, and vacation travel.

Stocks had a negative quarter. The S&P 500 was down 3.27%, the Russell 2000 small cap index declined 5.13%, and the international equity index (EAFE) finished down 4.11%. Small value stocks fared better than their growth counterparts. It is notable that EAFE is up 25.65% for the trailing 12 months, beating most indices.

The yield on the 10-year Treasury increased 78 basis points to 4.59%, driving mortgage rates and borrowing costs higher. While the yield on the three-month Treasury finished at 5.36%, up a marginal 17 basis points. Inventory of homes for sale are at a third of their historical average levels due to higher mortgage rates, above 7% now, keeping individuals from moving. Longer maturity bonds declined due to longer rates increasing, while shorter maturity bonds delivered positive returns by overcoming a small rate increase with income. The Bloomberg US Agg, reflecting all investment grade bonds in the U.S., was down 3.23%.

Stock valuations are higher than their 25-year average, however, value stocks are selling equal to a small discount compared to their history. Fixed income investors are getting paid 4%-5% to lend to the government and to high-quality corporations. U.S. unemployment is at record lows, and companies anticipate a solid holiday season. GDP growth in the third quarter is anticipated to accelerate from the previous quarter.

Consensus opinion and the Fed’s intention both indicate one to two more rate increases. Once the Fed ends tightening, we may see a relief rally as confidence in economic growth should increase.

Companies like JPMorgan Chase are focused on driving efficiencies by investing in artificial intelligence. Jamie Dimon, the CEO of JPMorgan Chase, believes AI could result in a higher quality of life and a 3.5-day work week. For a simple example, think of how electricity transformed household chores of cleaning dishes, clothes, and floors. It seems that AI may be transforming investing, which is something we’re keeping our eye on.

If you have any questions or would like to discuss, please call your Resource Consulting Group advisor.

Benchmark Returns for the Period Ended September 30, 2023

Quarter1 Year*5 Year*10 Year*
US Treasury Bills (0-3 months)1.33%4.63%1.72%1.10%
Bloomberg US Agg Bond-3.23%0.64%0.10%1.13%
Standard & Poor’s 500-3.27%21.62%9.92%11.91%
Russell 1000 Value (large cap value)-3.61%14.44%6.23%8.45%
Russell 2000 (small cap)-5.13%8.93%2.40%6.65%
Russell 2000 Value (small cap value)-2.967.84%2.59%6.19%
MSCI Europe, Australasia and Far East (EAFE)-4.11%25.65%3.24%3.82%
MSCI Europe, Australasia and Far East (EAFE) Small Cap-3.51%17.90%0.76%4.30%
MSCI Emerging Markets-2.93%11.70%0.55%2.07%
Wilshire REIT-6.41%3.94%2.87%6.01%
*1-, 5-, and 10-year returns annualized. Source for returns: Morningstar TM as of 09/30/2023.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The index returns above assume reinvestment of all distributions. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.