October 2023 Market Commentary

In September, the Federal Reserve paused rates for the month and maintained its cautious stance but is considering one last hike in 2023.  This decision reflects the central bank’s balancing act of managing inflation while supporting economic growth.  Inflation has eased somewhat, but general caution lingers as oil prices are on the rise again.  The stability of home prices is a notable trend, driven by existing homeowners with locked-in low mortgage rates opting to hold onto their properties.  This has reduced the supply of homes for sale during a period with higher demand, leading to healthy and higher prices. 

The “economic hurricane” predicted by some market experts for 2023 has not materialized.  In fact, the economy has shown resilience and even accelerated its growth during the third quarter.  The consensus is that while a recession may be on the horizon, the odds of one occurring have dropped and, if one occurs, it may be relatively mild. This is in part to the liquidity injected into the global economy by the Federal Reserve and other central banks worldwide. 

The gains in the stock market through the third quarter of 2023 have been concentrated in just a handful of stocks.  It is possible that these leaders may take a breather while the rest of the market catches up. The hype surrounding Artificial Intelligence (AI) is considered warranted, but there is a sense that it may have been overdone in the stock market in the near-term. 

We study a fair number of market patterns both in stocks and economic data.  2023 has held true to several historical patterns thus far this year.  One specific pattern is that years with double-digit market gains in the first half often see a softening during the August to October months however, November through the end of the year tends to be strong.  Given that 2023 has followed this historical trend so far, there is little reason to doubt that the year will finish on a positive note.  

Throughout the next year, politics are expected to take center stage in the news.  Both political parties are likely to emphasize talking points and emotional pressure points as they gear up for an election.  Despite the political noise, the economy and markets are expected to remain relatively calm. Two key factors support this outlook: first, the party in power seeking re-election aims to keep voters and investors calm and confident; and secondly, there is over $5 trillion in cash waiting to be deployed. In our opinion, this substantial pool of cash is poised to act as a cushion against any significant market correction and will likely fuel market gains as it gets invested. 

We take pride in our strategy, which departs from an industry trend of chasing after new tech or investment themes and, therefore, has stood the test of many market and economic cycles in our 37 years.  We remain steadfast in our commitment to a diversified core of defensive, consistent earnings growth company stocks spanning nearly all sectors.