Quarterly Market Update - 2023

Ah, another quarter is in the books and that means it is time for a quarterly update of the market and market-related items. It has definitely been an interesting one. Let’s cover some highlights.

• September is traditionally a rough month for the markets. Not sure if all the traders returning from their summers on the Hamptons, but the track record is bad. At least the last few years. Here is some data.
1. Each of the last four Septembers for the S&P500 have been negative. Returns have ranged from -3.92 to -9.34%. This September it was down 4.77%.
2. The 4th quarters the last three years have all been positive though. Quarterly returns averaged 9.81%.
3. As Green Day sang – wake me when September ends. Or maybe that should just be the traders who are allowed to let the month pass by.
• Year to Date, the S&P500 is up just under 12%. Not shabby. We are still down about 10.6% from the all-time high set last year.
• Also, do you even remember the S&P was down 8% at one point this year?
• If you prefer bad news, skip over this one. Don’t look now, but the yield on the 5-year US Treasury Inflation note is showing the strong economy from the last few years continuing. Basically, this is not projecting higher inflation but a continued hotter economy. This may not be great news for commercial real estate, banks with bad lending, and even residential home buyers, but it could portend a continued strong economy.
• A couple of quick notes with home buying. First, I read something a few weeks back that 60,000 residential real estate agents have left the industry this year. Yikes. Next, 3% of homes are sold each year. Of those homes, 32% are all-cash buys, so the real numbers of people taking out residential mortgages is even lower. Just something to chew on.
• Final notes on homes. 30-year mortgages hit a 23-year high of 7.31% last week. At the same time, home prices are up 40% the last three years. The median American family would have to spend roughly 43% of their monthly income to buy the median-priced home. That percentage is way too high and we need more inventory.
• Large Cap Growth is the best performing of the main US asset classes year-to-date as it is up 25%. Small Cap Value once again brings up the rear at -.5%. This is the only of these classes down for the year.
• The futures market is saying there is an 85% chance the Fed pauses at their November meeting. It is also reading 67% for a December pause.
• Since the start of 2001, there have only been three years where more than half of Large Cap mutual fund managers have outperformed the S&P500. The best year it was 55% of them. This year isn’t looking so good as only 40% are outperforming the S&P500. A big driver for their constant underperformance is their higher fees. And I won’t even get started on their tax inefficiency.
• The best performing main asset class last year was Commodities with a return of just over 16%. This year’s return so far is -3.4%. The best performing asset class this year is Large Cap equities, which are up 13.1%. Last year this same asset class was down 18.1%. Please add in your own comments about the power of diversification.

Finally, while knowing what the markets did this quarter is interesting, it is not where success with investing comes from for most people. Instead of how a specific asset class did the last 90 days you may want to focus on things like tax efficiency, savings rates, fees, time in the market, and your overall behavior. I will get off my soapbox now.