November is often a time to reflect and offer thanks. And while economic and geopolitical uncertainty can overshadow the positives, there are things to be thankful for. But before we look forward to Thanksgiving let’s look back at the last month and review the volatility felt by investors.

For much of October, and most of the recent two weeks, stocks were weak and often showed the negative sentiment in even weaker late day trading as we moved through the month.  However, this sentiment has shifted over the past few trading sessions as the month ended and November began, as stocks showed strength as markets were ending each trading day.  Therefore, we analyze whether the selling is exhausted and if a late year rally could be in the cards.

  • Since the year began, historical trends took fold and 2023 has been one that followed in lock step. Seasonality in September and October, which we historically viewed as the most volatile months did not disappoint.  However, recently we have observed the sharp move downward in the Volatility index pointing to lower volatility in the near term.
  • We also see a Federal Reserve slowly shifting language in their communications pointing to lower future inflation expectations. There efforts in 2022 and 2023 are felt throughout most areas of the economy as they fought rising prices.

Here is just some of what we are thankful for, now that we are coming down the home stretch of 2023.

  • Resilient U.S. economy. Coming into 2023, the dreaded R word, recession, seemed a near certainty. But the most recent data showed our economy grew at a strong 4.9% annualized clip during the third quarter, the fastest rate since the initial COVID-19 recovery. Even though borrowing costs are rising, the consumer remains in good shape, bolstered by a strong job market and rising wages. While the economy is likely to slow in coming quarters, it is unlikely to slow enough to concern stock markets, given the health of consumers and corporate America.
  • End of the earnings recession. Solid third-quarter earnings vs. expectations mean the earnings recession is almost certainly over. The market’s reaction to results has been mixed at best amid all the uncertainty. But a 5% year over year increase in S&P 500 earnings is a distinct possibility—perhaps higher if we are excluding the energy sector.
  • Easing inflation pressures. Surging inflation and the Federal Reserve’s aggressive response were the big stories of 2022 and most of 2023. But it seems inflation has eased enough to keep the Fed on hold at its next couple meetings, and potentially move in the other direction, of cutting rates in 2024. Historically, stock and bond markets have tended to perform well after rate-hiking campaigns.
  • Fixed income is an attractive asset class again, despite recent bond bumpiness. After nearly a decade of very modest returns, yields for many fixed income investments are the highest they have been since 2007. Starting yields are the best predictors of future long-term returns, so at these higher yield levels, fixed income returns may be higher too. Moreover, yields for some of the highest quality fixed income sectors are offering attractive income again—which reduces the need dramatically to invest in low quality bonds to generate income.

There is no doubt this year has been challenging, given increased economic and geopolitical uncertainty. But taking a balanced view on the economy and the markets, we believe there are some positives that may help stocks finish the year higher. Even in the face of potential volatility, focusing on longer-term goals while tuning out short-term noise continues to be highly recommended.

Please reach out to me if you have any questions.  Stay safe and stay the course.

Subscribe to our newsletter

Get BASH Perspectives
in Your Inbox