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2023 10 Client Letter Quarter in Review - Seasonal Doldrums Thumbnail

2023 10 Client Letter Quarter in Review - Seasonal Doldrums

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As the season transitions to the cool evenings of fall, we increasingly face a world of unknowns. Budget and dysfunction concerns in Congress, the ongoing conflict in Ukraine, and now the terrifying terrorist attacks in Israel and the equally horrifying plight of civilians in Gaza. 

Despite these concerns, we continue to be short-term pessimistic and long-term optimistic in both our worldview and investment outlook. 

Quarter in review - seasonal doldrums

Historically, August and September have provided disappointing returns for investors, according to monthly S&P 500 data from the St. Louis Federal Reserve. This isn’t a new trend. Since 1970, the S&P 500 has averaged a 1.0% dip in September, which is also the worst-performing month during the period surveyed.

September has finished higher six times since 2010. But last month, September didn’t buck the averages. The S&P 500 Index finished lower for the fourth straight year.

Key Index Returns
Index Name As of Sep 30, 2023 This Quarter Change YTD Change
S&P 500 4,288 -3.3% 13.1%
Nasdaq Composite 13,219 -3.9% 27.1%
Dow Jones Composite Average 11,120 -3.3% 3.1%
Russell 2000 1,785 -5.1% 2.5%
MSCI World Ex USA 2,049 -4.0% 7.3%
MSCI Emerging Markets 953 -2.8% 2.2%
Bloomberg US Aggregate 2,024 -3.2% -1.2%
Effective Federal Funds Rate 5.33% 25 bps 100 bps
10 Year Treasury Rate 4.59% 78 bps 71 bps
Source: YCharts. All values represent Total Return, which includes dividend reinvestment. The data series end date is Sep 30, 2023. Data was accessed and calculated on Oct 20, 2023. Note: you cannot invest directly in an index.

Last month’s market decline cannot be attributed to economic weakness. In fact, the economy has been surprisingly resilient. There hasn’t been a significant increase in the rate of inflation either. Although gasoline prices have recently risen, the price hikes for most goods and services have moderated. Moreover, unexpected economic resilience may translate into stronger-than-expected corporate profits when Q3 reporting begins this month.

Instead, a jump in Treasury yields and a hawkish tilt by the Federal Reserve generated stiffer headwinds for markets. The Fed held its key rate, the fed funds rate, at 5.25%‐5.50% in September. While prior projections have indicated the possibility of rate cuts next year, the Fed penciled in fewer reductions, according to recent statements. 

It really boils down to economic performance and inflation. The rate of inflation has slowed, but inflation remains roughly double the Fed’s 2% annual target.

The Fed is walking a tightrope. It hasn’t let up on its tough anti-inflation rhetoric, and it hopes to lower the rate of inflation without tipping the economy into a recession.

Fed Chief Jerome Powell repeated the Fed’s 2% annual goal eight times in the opening remarks at the press conference that followed the Fed’s recent meeting.

In contrast, investors had been betting that the Federal Reserve was finished raising interest rates while anticipating a more accommodative stance next year.

Without diving into the minutia and academic theory behind interest rates and stock prices, let’s keep it simple. Rising interest rates make for a more challenging environment for investment dollars across all asset classes.

FTX in the news

For the investment nerds and the crypto-curious, there is a fascinating story that is continuing to unfold around the collapse in the fall of 2022 of the crypto trading exchange FTX. The founder Sam Bankman-Fried (known as SBB) is currently on trial for his involvement in the collapse. 

As I have followed the case, it has become clear that the allegations do NOT represent a case of crypto gone wrong. Rather the allegations in this case point to a case of classic fraud, that customer deposits were accessed, used, and spent in ways that would have horrified account holders if they had been disclosed. 

The other interesting takeaway is that this only happened because of a vacuum of regulatory oversight (FTX was founded in Hong Kong, and later moved to the Crypto friendly and the very regulatory hands-off Bahamas). In that regulatory void, SBF and his cohorts were able to cook the books, lie to customers, and misappropriate funds without anyone looking over their shoulder. The only thing that tripped up FTX in the end was negative information coming out through media outlets and social media. 

The investment industry is one of the most regulated industries in the United States. At times the SEC may be portrayed as slow to adapt and clumsy. The regulations can lead to externalities such as confusing rules, 40-page disclosure documents, and small mountains of paperwork required to open investment accounts. 

On the whole, this case has made me appreciate the regulatory environment that we operate in. It may be clumsy and hard to understand at times. That said, it gives me greater confidence in our system to know that the FTX collapse would have unfolded in a very different way had it been domiciled in the United States and been subject to regulation and oversight.  

Investor’s Corner

Successful investors look past seasonal anomalies.

While exercises that pinpoint general seasonal patterns make for an interesting discussion and may help uncover some of September’s weakness, we know that market timing and implementing strategies based on timing aren’t a realistic approach.

We prefer to focus on what we can control. We cannot control returns, but we can control your investment strategy and plan. Successful long-term investors recognize that a disciplined approach is the shortest path to achieving financial objectives.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any concerns, please don’t hesitate to contact me or any member of my team.

As always, it’s a privilege and a humbling experience to know that you have chosen us as your financial advisor. Thank you for the trust you have placed in us.


This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. The views expressed are those of Chris Duke and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates

Investment advisory services are offered through Mutual Advisors, LLC, DBA Context Wealth, an SEC-registered investment adviser.