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By Morgan Christen
Birth control, Ho Chi Minh |
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History may not repeat, but it tends to rhyme. Certainly, all of the issues Billy spoke of back in 1989 are not prevalent today, but you could write a new song with all of the uncertainty that has crept into our minds. War in the middle east, Ukraine, elections, floods, and excessive debt to name a few…we didn’t start the fire. As humans, we desire certainty and predictability. We need it to make sense of the world around us. Most of us gravitate towards options that offer predictable outcomes. Uncertainty triggers our brain’s fear response, which leads to stress and unease. But craving certainty isn’t always good for us. It can lead us to resist change, which is essential in our ever-evolving world. Cognitive biases are also born from from certainty, such as confirmation bias, which can skew our perceptions of reality and sometimes lead to poor decision-making. We need a balance of both; managing the give and take of certainty and uncertainty is the key to success. |
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Look at the chart entitled “no news is good news,” markets enjoy certainty. Weeks without “macro data” releases have beat those weeks that had data. Makes sense. But also, as you look at the chart entitle “S&P 500 price and pullbacks,” you will see that there was a lot of rough patches along the climb. From the Global Financial Crisis bottom on March 9, 2009, the market returned roughly 900% despite roughly 28 pullbacks of at least 5%. The old idiom holds, one step forward two steps back. Although luckily it is not that dramatic on the steps back. There were a lot of points where the brain could have forced you out of the markets, giving way to the fear response. And that would have been poor decision-making. |
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Stocks The U.S. equity markets posted positive returns across the board for the quarter. Small cap companies bested their large counterparts and value outperformed growth. Seems to be a changing of the guard. Developed international stocks slightly outperformed US counterparts for the quarter, with small cap stocks taking the number one position, while value also outperformed growth. Year to date, the tech-leaning S&P 500 is leading both the Nasdaq and the Dow Jones. |
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Gold So far, gold is having a spectacular year. Up almost 30% for the year is impressive for the gilded metal. My concern is, what does gold see? Do gold buyers see the Fed making a mistake in lowering rates? Are we looking down the barrel of an inflationary period? Is gold worried about all of the US debt? Is gold worried about both candidates for President talking about tariffs (inflationary)? I am not sure we have the answers yet, but this is a story worth watching. |
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Bonds Interest rates decreased along the entire treasury curve, with the 1-year treasury bill decreasing 111bps (basis points) to 3.98%. Not entirely surprising as the Fed lowered rates 50 bps. We track the 2-year treasury rate and as you will see in the chart, yields are well below the Fed Funds rate. This week we will have access to the Fed minutes, market participants will be delving into the Feds’ rationale for the recent 50 bps drop in rates. What does the Fed see that we may not? Are they more concerned about the economy? The employment data that came out at the beginning of October looked very encouraging as we added 254,000 jobs versus a consensus estimate of only adding 150,000. Also, we saw the unemployment rate tick down to 4.1% from 4.2%. Doesn’t look like a slowing economy. |
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Conclusion The port strike ended quickly, taking a bit of uncertainty out. Jobs are plentiful and that is good for individuals and the economy. Oil is up a bit on the tension in the Middle East; we will see what all of this means to the markets and future Fed rate decision. The election will be over by the time we talk (within the newsletter) next month. This year is looking to close on a nice positive note. But what about the future? The chart on the US Presidential Cycles, tells the story of the S&P 500 behavior during the first term since 1929. Take from it what you will, but the implication is to stay invested. There will be volatility and there will be uncertainty. We didn’t start the fire. Thank you for your continued support and we are here to support your financial goals. If you have any questions or concerns, please contact your Spinnaker advisor, we would love to hear from you. |
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DISCLOSURES: 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. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Value (Russell 1000 Value Index), Large Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Value (Russell 2000 Value Index), and Small Growth (Russell 2000 Growth Index). Dow Jones US Select REIT Index used as proxy for the US REIT market. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2022, all rights reserved. Stock return Charts from Dimensional Fund Advisors. Inflation is typically defined as the change in the non-seasonally adjusted, all-items Consumer Price Index (CPI) for all urban consumers. CPI data are available from the US Bureau of Labor Statistics. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government’s full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. 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.Truist Keith Lerner - Since March 9, 2009, where stocks bottomed following the Global Financial Crisis, we count 28 previous pullbacks of at least 5% for the S&P 500. Impressively, despite these setbacks, stocks are up 644% on price basis and 900% including dividends over that entire period.” |