by Richard Cull
September Market Recap & Commentary
September was a rough period for investments as almost all asset class returns were negative. Interestingly, returns for the last 4 Septembers have been meaningfully negative. With the exception of large cap tech stocks, the last two months have virtually wiped out all of 2023’s gain for the average equity.
There was very little news and really only one event in the investment arena…the Federal Reserves regularly scheduled meeting in late September.
The central bank held interest rates steady, but comments made the afternoon of the 20th echoed those at the Jackson Hole symposium in August. The Central bank is encouraged by the resilience of the consumer but challenged by the stickiness of inflation. Parsing through the Fed speak, the markets interpreted this to mean borrowing costs may need to rise further and remain elevated for longer.
That message sent stocks falling and bond yields surging. The yield on the 10-year Treasury note—the U.S. mortgage benchmark—has risen to more than 4.6%, marking the highest levels since 2007.
Other concerns for the markets entering the fourth quarter include elevated oil prices, the restart of student loan payments, ongoing union strikes, and a government shutdown…all of which will affect consumer confidence and spending.
A brief aside on the potential government shutdown that has been pushed back to November; the last shutdown was over Christmas and New Year’s in 2018-19, when then-President Trump was at an impasse with Congress over whether to fund his border wall between the U.S. and Mexico (the funds were never appropriated; the only money going to partially build the wall was repurposed from other government coffers). The last time there was a government shutdown in the manner threatened today happened back in 2011, with the same federal makeup: a Democratic president and a congress led by Republicans. The government has shut down 14 times since 1980 and provides some theater for politicians but has no material effect on the financial markets.
A growing number of market pundits are convinced the tough days (mostly in 2022) are behind us and the Fed will successfully engineer a “Soft Landing.” The next three months will likely follow the previous nine months script…watch the Fed and watch the consumer, and that will go a long way to determining if they are right.
The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them. The following graphic shows the risk of various asset classes as measured on a scale of 1-99 (1 being the most conservative and 99 being the most aggressive) as of the date above.
We start with a Risk Number, a measurable way to pinpoint how much risk you want, need, and already have. Then, your wealth advisor will optimally allocate our investments to help you reach your financial goals. Along the way, you will receive transparency of information, seamless proactive service and the trust and accountability you need to stay on track. All of this will lead to your personal comprehensive investment strategy that is powerful, disciplined, responsive.
Centric’s Market Assumption Disclosures: This information is not intended as a recommendation to invest in any particular asset class or strategy or product or as a promise of future performance. Note that these asset class assumptions are passive, and do not consider the impact of active management. All estimates in this document are in US dollar terms unless noted otherwise. Given the complex risk-reward trade-offs involved, we advise clients to rely on their own judgment as well as quantitative optimization approaches in setting strategic allocations to all the asset classes and strategies. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell securities. Forecasts of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. If the reader chooses to rely on the information, it is at its own risk. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. The outputs of the assumptions are provided for illustration purposes only and are subject to significant limitations. “Expected” return estimates are subject to uncertainty and error. Expected returns for each asset class can be conditional on economic scenarios; in the event a particular scenario comes to pass, actual returns could be significantly higher or lower than forecasted. Because of the inherent limitations of all models, potential investors should not rely exclusively on the model when making an investment decision. The model cannot account for the impact that economic, market, and other factors may have on the implementation and ongoing management of an actual investment portfolio. Unlike actual portfolio outcomes, the model outcomes do not reflect actual trading, liquidity constraints, fees, expenses, taxes and other factors that could impact future returns. Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss.
Index Disclosures: Index returns are for illustrative purposes only and do not represent any actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
Riskalyze Disclosure: The Risk Number® is a proprietary scaled index developed by Riskalyze to reflect risk for both advisors and their clients. The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each client has, and demonstrate their alignment with the portfolios built for them.
Shaped like a speed limit sign, the Risk Number gives advisors and investors a common language to use when setting expectations, recognizing risk and making portfolio selections. Just like driving faster increases hazards, a higher Risk Number equates with higher levels of risk.
General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks.