Broker Check
Third Quarter 2023 Market Commentary

Third Quarter 2023 Market Commentary

October 11, 2023

We hope that everyone had a great summer and is settling back into their regular routines this fall. 


In a reversal of the trend that persisted for much of the first half of the year, markets struggled over the summer months.  Specifically, domestic large cap stocks fell by -3.3%, domestic small cap stocks decreased by -5.1%, international stocks were down -4.0% while the US bond market decreased by -3.2%.1   The one trend that has continued throughout the third quarter is concentrated market leadership and is only being led by a handful of names.  Specifically, the “Magnificent Seven” (Apple, Microsoft, Amazon, Google, Nvidia, Tesla and Meta) have contributed 65% of the S&P 500 Index year to date return while only making up 28% of the indexes weight.2


The Federal Reserve continued to dominate headlines during the quarter, pushing the Federal Funds Rate to its highest level in 22 years at their July meeting.  A variety of factors contributed to this move but none more than persistent inflation, which increased for the second consecutive month to a rate of 3.7% (Headline CPI) over the past year.  Current inflation levels continue to be higher than the Feds yearly preferred target of +2.0%.  At their September meeting, the Federal Reserve revealed to markets in their summary of economic projections that they expect to increase interest rates one more time before the end of the year and then expect to start cutting rates at some point before the end of 2024. 


Given the continued increase of interest rates and that rates could be “higher for longer” the ten-year treasury has started resuming its ascent closing at 4.58% at the end of September.  In the first few days of the fourth quarter, the climb continued with the ten-year treasury currently sitting around +4.80%, which is the highest level the ten-year treasury has been at since 2007.  To give further context, the ten-year treasury was sitting at +3.81% at the end of June which is about 100 basis points less than it is trading today.  


Despite higher rates, the job market and the consumer have been resilient with the unemployment rate sitting at 3.8% and consumer spending in line with pre-pandemic levels.  Unfortunately, these numbers have been slowing over the past few months as monthly job gains have decreased (apart from the September jobs report) and consumers are relying more on debt and borrowing to maintain spending. 


Given these underlying economic trends, an unknown terminal rate for interest rates, market concentration and continued unease in Washington, we expect markets to remain choppy for the balance of the year.  One the positive side, once we get through these challenges, we will have bond markets with normalized interest rates and stocks at more reasonable valuations which should position both asset classes well for the future. 


As always, we appreciate your trust and confidence in all of us at MSA Financial. Should you have any questions or if you would like to schedule time to review your portfolio or discuss the economic environment, do not hesitate to contact us.


1Market segment (index representation) as follows: Domestic Large Company Stocks (S&P 500), Domestic Small Company Stocks (Russell 2000) International Stocks (MSCI EAFE) and Domestic Bonds (Bloomberg Barclays US Aggregate Bond Index)

 2As of September 1, 2023 -


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