2023 has been one of the more difficult years to navigate. For example, if you chose the wrong stocks, sectors or simply decided to hide in cash – you didn’t fare well. However, what’s also made it hard has been the various shifts in sentiment the past ~9 months. These shifts have ‘whipped’ traders around. Today, with the US 10-year yield challenging almost 5.0% – the “R” word is back in the vernacular. Much of this can be explained by understanding where we are in the economic cycle… and today it’s “late cycle”. The challenge is navigating this phase is the most difficult of any… as it will often last longer than many expect.
Macro / Economy
Actionable market insights delivered to your inbox weekly
Where Do We Go From Here?
Major averages pulled back this week on fears rates could remain higher for longer. Makes sense – with the US 10-year above 4.25% – that’s a reasonable assumption. But here’s the thing: get used to it. Whilst rates might feel ‘tighter’… rates are still not historically high. Not even close. What was not normal was rates being artificially suppressed to near zero for 15 years. And that might prove to be a difficult adjustment for some people. So where to from here? The honest answer is none of us know. What follows are some of the assumptions being made; and perhaps gaps in the market’s thinking… it starts by asking quality questions.
For Now… Bad News is Good News
August has proven to be a bumpy month for equities. And if the Trader’s Almanac is any guide – it’s not surprising. August and September are typically weaker months for stocks. For example, over the past decade, the S&P 500 has managed an average gain of 0.1% for August. Dismal. If you go back two decades, it becomes an average loss of 0.1%. Why? Maybe it’s due to most of Wall Street taking summer vacation in The Hamptons – meaning trading volumes are low. Or it could be some traders locking in profits ahead of September – which boasts the worst record of any month in the calendar. For example, the S&P 500 has lost an average of 1% each September over the past 10 years.