October 2023 - Market Update

Data Dashboard

Stock Market

In October, the global stock market declined by 2.54%, although the YTD performance remains positive at 7.14%. This slump was largely caused by geopolitical concerns over the conflict in Israel and the evolving expectation that interest rates will remain higher for longer. The S&P500 also reflected a decline of -2.10% in October, while maintained a YTD growth of 10.68%.

Within the U.S. equity landscape, the Mid-Cap & Small-Cap equities suffered a significant decline of -5.34% and 6.82% respectively. Amidst the eleven large-cap sectors, only two of them, Utilities and Technology ended the month in the positive territory. Gold increased by 7.43% during the month of October, as increased geopolitical concerns and the mounting U.S. debt drove investors towards this safe-haven asset class.

Heading into the end of the year, eyes will be on the consumers' willingness to spend given the combination of higher prices, higher cost of borrowing, and a slightly looser labor market. Credit Card delinquencies are still well-below pre-covid levels, but higher interest costs could strain the consumers ability to pay their month bills and make large holiday purchases.

October Monthly Returns (by US Sector)

Bond Market

The US Aggregate Bond Index declined by 1.58% in October as longer-term yields reached multi-year highs. The US 10-year treasury yield hit the 5% mark for the first time since 2007. This upward trend is again driven by strong economic data and expectations that the Federal Reserve will maintain the ‘higher-for longer’ stance. High-yield bonds experienced a second consecutive monthly decline of 1.07% in October. Municipals also declined by 0.81% month-over-month, for the third time in a row.

The current shape of the yield curve (see below) rewards investors for making short-term loans. Buying a CD or other short-term bonds less than 2 years can give you an annualized yield above 5%, which is very attractive in this current environment. The shape of the yield curve and the interest rate futures markets indicate the short-term rates will decline in the next 1-2 years. Buying a short-term instrument now will only be regrettable if rates decline dramatically in the next few years.

Economics

The American economy stayed resilient amid the Federal Reserve’s uncertainty of raising interest rates, with a strong GDP growth quarter-over-quarter from 2.1% to 4.9%. The primary catalyst for this growth was personal spending, accounting for more than half of this growth.

We saw a mixed performance in housing data, with positive trends observed in new home sales and housing starts. However, existing home sales and building permits declined. On a year-over-year basis, the pace of home prices, as indicated by the August Case Shiller 20-City Composite, increased by 2.16%. Meanwhile, the prices of used cars are down about 18% from their peak in early 2022.

Tactical Trades

For our Tactical Equity Stocks, we reduced our sector exposure to Consumer Staples and Real Estate and swapped to positions in the Financials and Energy sector. As for Tactical Equity ETF portfolios, we traded out of the Consumer Discretionary and Infrastructure positions to Cybersecurity and Indian equities.

For our Tactical Fixed Income portfolio, we remain invested in floating rates loans and ultra-short treasury bills.

General Client Considerations

Below is a table showing the change in contribution limits for 2023:

We look forward to hearing from you!

Thanks,

The Friedenthal Financial Team

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