Market Update: The Three R’s

By Morgan Christen


No, I am not talking about what we learned in school, I am talking about the three themes we thought would define 2023 for investors.

As we enter the final month of this year, we wanted to see how they played out. I am talking about recession, rates (inflation) and regret.



Let’s start with recession. This was the buzz word as we entered the year. Talking about recession made sense as the Fed was raising rates to stomp on the economic brakes.

Traditionally, the actions the Fed took would lead to job losses and recession. At least for 2023, it appears that Jay Powell pulled off immaculate disinflation. GDP, a measure of economic output has continued to climb and is projected at 5.2% for the third quarter, the fastest in two years… not a recession-like number.


Let’s talk about inflation. Inflation is a silent killer and by all accounts needs to be tamed. After peaking in late 2022, it has been on a steady run lower. By the way, this is inflation as defined by the Consumer Price Index (CPI).

We all know that prices have moved up and have stayed there, however, CPI has come down, meaning the rate of increase is slowing. A reduction in CPI will direct Fed policy such as interest rates. If the Fed believes they have skewered the beast, we may see rates decrease.

How is CPI Compiled?

If you see the graph with the blocks in green, you will notice “shelter” is by far the largest component. Shelter measures rent, and for owners of homes, Owners Equivalent Rent (OER). Shelter does not measure the increase in the value of your house.

What happened over the last couple of years: we had a pandemic and we dramatically changed our living patterns. One big thing we did was work from home (work remotely), which caused many to move to have a home office, as well as get our own place to distance from roommates.

Housing demand puts pressure on rents and as we know, we generally sign a one-year lease, so the numbers are a lagging indicator. Now that the pandemic is over, rents have levelled off, causing a major chunk of CPI to retreat.


The final R is regret. 2023 has (as of this writing) turned into a good year in the markets. Many saw the threat of a recession and pulled into the safe harbor of Treasury bill and money markets. As you will see in the chart, funds flowed into money markets as investors chose to invest in the safety of these instruments.

Will they regret it? Possibly. When you are looking to get a good average return, you can’t have years that are below average. That doesn’t mean bonds shouldn’t be a part of your investment allocation, but in most cases, a balanced allocation does not mean all T-bills.

What is driving the markets?

Interest rates.

When looking at where the Fed (according to their Dot Plot) see rates in the future, the bias is lower.

Lower rates are exciting investors and have helped push the indexes to solid gains for November.

What can we learn from the past? Some of the predictions at the beginning of 2023 caused investors to shun stocks and head to the safety of money markets and T-bills. The outcome (so far) is not looking that great.

What can we anticipate in markets, the economy and life? There will always be uncertainty, learn to embrace it. Control what you can control. Meaning, how much do you spend? How much do you save? Investment allocations? Those can be controlled, predicting market outcomes cannot.

Finally, put together a good long-term plan and stick to it.

Looking Forward

We hope you all enjoy the holidays. As you work on your resolutions for the new year, make sure you think about your financial plan.

If you have not updated or completed yours, please contact us and we will be happy to assist you.

We look forward to speaking with you. Also, ever the optimist, please see the 200 best inventions of 2023.

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Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice. Information may be dated material. Charts notated with source.

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