Market Update
The positive momentum of the first two quarters of the year did not carry over to the third quarter. Inflation continued to prove stubborn throughout the third quarter, moderating somewhat, but not enough to curb the Federal Reserve's hawkish monetary policy. Crude oil and gasoline prices soared during the summer. Job gains, while steady, declined throughout the third quarter. The housing sector slowed on rising mortgage rates and dwindling inventory. The third quarter saw most of the market sectors decline from the second quarter. Utilities, real estate, information technology, consumer staples, and consumer discretionary fell the furthest, while energy rose by more than 16.0%.
On the last day of the third quarter, each of the benchmark indexes lost value compared to their second quarter performances. The small caps of the Russell 2000, sensitive to current economic changes, fell the furthest, followed by the Nasdaq, the S&P 500, the Global Dow, and the Dow. Rising interest rates have impacted bond prices, yields, and the U.S. dollar. Ten-year Government bond yields rose in the third quarter, reaching the highest level since 2007, as long-term bond prices slid lower. The U.S. dollar also rose in the third quarter, hitting its highest level since last November. With rising bond yields, foreign investors buy dollars to buy bonds, which helps contribute to the increasing dollar. Gold prices declined in the third quarter, nearing a seven-month low.
September continued the bear run for stocks. Each of the benchmark indexes listed here fell between 3.0% and more than 6.0%. Inflationary pressures showed signs of cooling, with core prices for the PCE price index and the CPI decreasing for the 12-months ended in August. The Federal Reserve elected not to increase interest rates in June, opting, instead, to step back and assess additional information and its implications for monetary policy. Gross domestic product advanced at an annualized rate of 2.1%, according to the third and final estimate. Crude oil prices continued to increase as did the yield on 10-year Treasuries. Gold prices declined more than 5.0%.
International Markets
Russia's economy is expected to grow. Despite Western sanctions against Russia in response to the invasion of Ukraine, including a price cap on its oil exports, Moscow has apparently been able to offset that cap by increasing oil prices and exporting to new markets. Elsewhere, after 14 consecutive monthly increases, the Bank of England decided to leave the Bank Rate at its current 5.25% counter to the anticipated 25.0-basis point increase that was widely expected. Price inflation remained steady in Japan as higher food and gasoline prices offset decreases in utilities. Japan's Consumer Price Index rose 2.8% for the 12 months ended in September, a decrease of 0.1 percentage point from the August annual figure. China saw industrial profits fall 11.7% for the year ended in July. This is in line with China's industrial production, which rose 4.5% for the year ended in August, higher than the 3.7% estimate for the year ended in July. Overall, China saw its economy stall somewhat in September with retail sales, pricing power, and loan growth weaker compared to August. For September, the STOXX Europe 600 Index decreased 0.9%; the United Kingdom's FTSE rose 2.5%; Japan's Nikkei 225 Index fell 2.6%; and China's Shanghai Composite Index dipped 0.3%.
On A Personal Note
Jeff started another Photography class at UC and is looking forward to getting better with a camera. September for Drew and his family meant back to school was in full swing. Both of Drew's daughters had a memorable start to the year; one making the varsity soccer team, the other getting a great score on her ACT. Chris and his family were able to attend the United States Women's National soccer match at TQL Stadium. It was only a friendly game, but it was a great evening all around...and the US team won! Lisa and her family did the 5k Teal Power Walk at Summit Park in Blue Ash to benefit ovarian cancer research and awareness. A cause that is very near and dear to their hearts. Lisa and David also celebrated their 29th wedding anniversary last month. Sam was excited to see football back and spent September rooting for his alma mater, the Bearcats. He's hoping the season will start to look up. Taylor and Peter attended the wedding of their best friends at the Monastery in Mount Adams. It felt nice to get dressed up and have a night out, even though they much prefer comfy clothes and staying in!
Limited Breadth of the 2023 US Market Rally
Following a poor 2022, 2023 has been a good year for most US equity market indexes. However, most of the positive S&P 500 index return can be attributed to the top seven megacaps, including Nvidia, Meta, Tesla, Amazon, Alphabet, Apple, & Microsoft.
The S&P 500 index is what is known as a market cap weighted index. Over time, if a company experiences substantial growth, they will become a larger part of the index. These seven companies are now collectively more than 25% of the S&P 500 index. They each experienced double digit positive returns YTD in 2023, while also experiencing double digit negative returns in 2022. The S&P 500 Equal Weight index assigns all companies in the index an equal weight. Each quarter, the weighting to each company is rebalanced, leading to better diversification across market segments. Outside of the seven megacaps, the majority of US stocks are flat or even negative so far this year, creating a divergence between the S&P 500 and S&P 500 Equal Weight indexes returns. As of 9/30/2023, each index returned 13.1% and 1.3% respectively year to date.
While the S&P 500 has outperformed the S&P 500 Equal Weight so far in 2023, the S&P 500 Equal Weight index has outperformed the S&P 500 index on average since inception in 2003. We believe there is a strong case for diversification across companies with varying market capitalizations to help reduce portfolio volatility. Please reach out to us if you’d like to discuss the equity positioning within your portfolio, and what value we are seeing right now.
"Not So Silent Night" Cancer Free Kids Charity Event
On Friday December 1st, MDM will be hosting a “Not So Silent Night” charity event at the Redmoor in Mount Lookout Square from 7-11PM. We are not charging admission for this exciting evening, so please invite your friends and family. The agenda will include a visit from Santa Claus, crafts for kids, a live band, food, drinks, and a fabulous silent auction. If you have any specific requests for silent auction items or have items you would like to donate (for example: event tickets, memorabilia, rare bottles of bourbon and wine, or vacation rentals) to benefit this worthy cause, we would love to discuss it with you, and there may even be a tax benefit for you.
If you would like to attend, please email Lisa at lwillhoite@janney.com or give us a call at 513-914-2320.
