BY STRATEGIC ADVISERS INVESTMENT TEAM - NOVEMBER 17, 2023
Market conditions
- October unemployment ticked up to 3.9% but is still near historic lows.1 The job market remains a source of strength for consumers and the economy.
- Consumer spending rose 0.7% in September. Spending grew from July through September by an annualized rate of 4.0% on the back of a strong job market.2 But while consumers spending is on the rise, consumer sentiment is on the decline. October consumer sentiment came in at 63.8 (vs. 67.9 in September).3
- Inflation fell to 3.2% in October. Inflation numbers are falling closer to the 100-year average of the U.S. consumer price index, which is 3%. While inflation has come down meaningfully from its peak of about 9% last year, further drops in inflation may be more gradual and uneven.4
- As expected, the Fed held off on an additional interest rate hike in November. Further signs of cooling inflation may keep the Fed from further raising interest rates.
We believe that recent economic conditions indicate that the U.S. economy remains in a late cycle expansion. This is a phase of the business cycle in which stocks and bonds have historically risen. But during late cycle, the pace of economic growth typically slows down and interest rates usually rise, so markets may experience some volatility.
What it may mean for your portfolio
- Despite a decline in how consumers feel about the U.S. economy, it grew almost 5% during the third quarter.5 Corporate profits also generally rose over the same timeframe.6 This backdrop has led to a rally in stocks over the last few weeks and double-digit gains over the last year.
- Although investors have experienced healthy gains, some risks to the economy remain. Interest rates are still high, as inflation remains above pre-pandemic levels. These high interest rates may affect borrowing and spending by consumers and businesses. As such, we continue to manage client accounts by having less exposure to risk than we typically do.
- We are seeking to manage risk by having less exposure to stocks and more exposure to bonds. Within stocks and bonds, we are seeking to further manage risk by diversifying exposures to different styles, disciplines and industries. We also have exposure to high-yield bonds, commodities, and alternative investments to help further diversify client accounts from stock market volatility.
Outlook
As we have done throughout the late-cycle expansion, which began in the summer of 2022, we will continue to closely research and analyze the current position of the U.S. economy within the business cycle. As the need arises, we will seek to reduce the level of risk within clients’ accounts. And just as importantly, we will seek to rapidly add back to long-term growth opportunities when we start to see early signs of economic stability. We believe these actions may help deliver strong risk-adjusted returns for our clients.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied even as news headlines may have felt discouraging. We want clients to benefit from market rallies like the one that has taken place over the last several months. As a result, we have maintained healthy exposure to stocks even through bouts of market volatility. We believe that getting invested and staying invested can help you reach your financial goals over the long term.
