The third quarter of 2023 saw a pause in what had been several months of steady market gains. This reversal was primarily sparked by a surge in long-term rates, as the markets contemplated economic data indicating inflation may still be sticky, and that higher rates would persist for longer. This renewed concern around inflation and the Fed’s hawkish stance shifted investor sentiment from riskier assets, like stocks, to short-term bonds and cash in a flight to safety with the added attraction of relatively high yields.
Name
3rd Quarter(07/01/23-9/30/23)
Year-to-date(01/01/23-09/30/23)
1 Year(10/1/22-9/30/23)
S&P 500 Index
-3.3%
13.1%
21.6%
Russell 2000 Index
-5.1%
2.5%
8.9%
MSCI EAFE Index
-4.1%
7.1%
25.7%
MSCI Emerging Markets Index
-2.9%
1.8%
11.7%
Bloomberg US Aggregate Bond Index
-3.2%
-1.2%
0.6%
For informational purposes only Source: YCharts
Despite these declines, as of the third quarter’s end, U.S. large-cap, U.S. small cap, international developed and emerging market stocks all remained in positive territory year to date. On the other hand, bonds, in aggregate, continued to struggle in the rising rate environment with no clear signal from the Fed they are finished raising rates. That said, short-term bonds and money market funds, unlike their intermediate/long-term counterparts, are delivering positive returns on the year, as the inverted yield curve favors the short end for bond investors.
Geopolitical Events and the Markets
To say there is turmoil in the world is an understatement. We recognize the complexities of the Israel-Hamas conflict and hope for a peaceful resolution that prioritizes the well-being of civilians on both sides. Additionally, the ongoing conflict between Russia and Ukraine continues to impact regional stability and international relations. Domestically, we are dealing with persistent government stalemates and political chaos in the House of Representatives. Before long, we will be in full re-election mode, which is bound to be a colorful tug-of-war between parties and factions.
In an interconnected world, global geopolitical events can have a significant impact on financial markets. From political unrest to trade disputes and natural disasters, these events can create uncertainty and volatility, leaving investors anxious about the future.
These can include:
Market Volatility: Geopolitical events often lead to increased market volatility.
Flight to Safe Havens: During times of geopolitical uncertainty, investors tend to seek safe-haven assets that are perceived as more stable and less affected by geopolitical risks, such as high-quality bonds or cash.
Sector-Specific Impacts: Different sectors may be impacted differently based on geopolitical developments, like oil and gas.
Global geopolitical events are complex and multifaceted, often involving political, economic, and social factors. These circumstances can trigger market fluctuations, causing short-term turbulence. While these events can be concerning, it is important to recognize that markets have historically managed through them without disrupting long-term performance. Reacting hastily to these short-term market fluctuations can lead to impulsive decision-making, typically causing more harm than good.
The following chart demonstrates the correlation of global events over the past 30+ years with the S&P 500. As you can see, in the context of time, the downside volatility in the face of terrorist attacks, financial crises, environmental disasters, government shutdowns, etc. has not deterred the S&P from climbing this “wall of worry.” We are certainly not minimizing the angst we all feel in periods of uncertainty, but we have steadfast conviction in staying the course, while rebalancing along the way seeking opportunistic entry points for the long term.
Our Strategy in a Complex World
While the chart above only highlights U.S. large cap companies, as measured by the S&P 500, we would see similar results for global stocks as well. We believe diversifying within each asset class is important, and we construct our client portfolios accordingly. For instance, within the stock market, diversifying across sectors, industries, and geographical regions can mitigate risk. Different sectors respond differently to geopolitical events; a diverse portfolio seeks to minimize the impact of a negative event on one sector by counter balancing with the others.
At Wealth Dimensions Group, we emphasize patience as our long-term investment strategy allows investors to weather short-term storms while seeking to realize historical expected returns. As the chart implies, the key is not to react impulsively, but to make well-informed decisions that align with your investment objectives and risk tolerance.
As we head into the yearend, we are focused on positioning our clients’ portfolios to mitigate volatility and taking advantage of swings in various asset classes through rebalancing. While we do so periodically throughout the year, the fourth quarter gives us another chance to review positions in our taxable accounts for tax loss harvesting opportunities where we capture tax losses in certain securities, reposition the proceeds to maintain exposure while banking these losses to offset capital gains both now and in the future.
Another area of particular attention is the path of interest rates and our adaptations to it in our fixed income allocation. When the Fed raises rates, it affects the short end of the curve, thus boosting yield on money markets and short-term fixed income instruments. As rates rise, longer term bond prices are more negatively impacted while providing less yield than shorter term vehicles. Capturing these higher yields is attractive at certain stages of the rate cycle, however, there will come a time when the Fed stops raising rates, or even begins lowering them again based on economic circumstances. We are monitoring these circumstances, seeking to eventually extend maturities with potential for capital gains, but more importantly to lock in higher yields for a longer period.
News at Wealth Dimensions
We have successfully completed our move downstairs to Suite 210. While we have accomplished a great deal in getting settled, we still have a few finishing touches in store. We look forward to greeting you in our new space!
In October, we had a change of ownership at the firm. Our valued partner, Mike McCaw, decided he was ready to spend more time with his growing family, as well as pursuing a few of his other passions in life. Mike has been an instrumental part of the growth of our firm, and we wish him all the best in his future pursuits. We are pleased that our partner, Dan Vogelpohl, has acquired Mike’s shares to continue our plan to remain an independent firm seeking to develop future leadership primarily from within.
Patience, knowledge, and strategic planning are the cornerstones of financial success, even in the face of global geopolitical challenges. Stay the course!
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
Quarterly Commentary: Third Quarter Update
The third quarter of 2023 saw a pause in what had been several months of steady market gains. This reversal was primarily sparked by a surge in long-term rates, as the markets contemplated economic data indicating inflation may still be sticky, and that higher rates would persist for longer. This renewed concern around inflation and the Fed’s hawkish stance shifted investor sentiment from riskier assets, like stocks, to short-term bonds and cash in a flight to safety with the added attraction of relatively high yields.
Source: YCharts
Despite these declines, as of the third quarter’s end, U.S. large-cap, U.S. small cap, international developed and emerging market stocks all remained in positive territory year to date. On the other hand, bonds, in aggregate, continued to struggle in the rising rate environment with no clear signal from the Fed they are finished raising rates. That said, short-term bonds and money market funds, unlike their intermediate/long-term counterparts, are delivering positive returns on the year, as the inverted yield curve favors the short end for bond investors.
Geopolitical Events and the Markets
To say there is turmoil in the world is an understatement. We recognize the complexities of the Israel-Hamas conflict and hope for a peaceful resolution that prioritizes the well-being of civilians on both sides. Additionally, the ongoing conflict between Russia and Ukraine continues to impact regional stability and international relations. Domestically, we are dealing with persistent government stalemates and political chaos in the House of Representatives. Before long, we will be in full re-election mode, which is bound to be a colorful tug-of-war between parties and factions.
In an interconnected world, global geopolitical events can have a significant impact on financial markets. From political unrest to trade disputes and natural disasters, these events can create uncertainty and volatility, leaving investors anxious about the future.
These can include:
Global geopolitical events are complex and multifaceted, often involving political, economic, and social factors. These circumstances can trigger market fluctuations, causing short-term turbulence. While these events can be concerning, it is important to recognize that markets have historically managed through them without disrupting long-term performance. Reacting hastily to these short-term market fluctuations can lead to impulsive decision-making, typically causing more harm than good.
The following chart demonstrates the correlation of global events over the past 30+ years with the S&P 500. As you can see, in the context of time, the downside volatility in the face of terrorist attacks, financial crises, environmental disasters, government shutdowns, etc. has not deterred the S&P from climbing this “wall of worry.” We are certainly not minimizing the angst we all feel in periods of uncertainty, but we have steadfast conviction in staying the course, while rebalancing along the way seeking opportunistic entry points for the long term.
Our Strategy in a Complex World
While the chart above only highlights U.S. large cap companies, as measured by the S&P 500, we would see similar results for global stocks as well. We believe diversifying within each asset class is important, and we construct our client portfolios accordingly. For instance, within the stock market, diversifying across sectors, industries, and geographical regions can mitigate risk. Different sectors respond differently to geopolitical events; a diverse portfolio seeks to minimize the impact of a negative event on one sector by counter balancing with the others.
At Wealth Dimensions Group, we emphasize patience as our long-term investment strategy allows investors to weather short-term storms while seeking to realize historical expected returns. As the chart implies, the key is not to react impulsively, but to make well-informed decisions that align with your investment objectives and risk tolerance.
As we head into the yearend, we are focused on positioning our clients’ portfolios to mitigate volatility and taking advantage of swings in various asset classes through rebalancing. While we do so periodically throughout the year, the fourth quarter gives us another chance to review positions in our taxable accounts for tax loss harvesting opportunities where we capture tax losses in certain securities, reposition the proceeds to maintain exposure while banking these losses to offset capital gains both now and in the future.
Another area of particular attention is the path of interest rates and our adaptations to it in our fixed income allocation. When the Fed raises rates, it affects the short end of the curve, thus boosting yield on money markets and short-term fixed income instruments. As rates rise, longer term bond prices are more negatively impacted while providing less yield than shorter term vehicles. Capturing these higher yields is attractive at certain stages of the rate cycle, however, there will come a time when the Fed stops raising rates, or even begins lowering them again based on economic circumstances. We are monitoring these circumstances, seeking to eventually extend maturities with potential for capital gains, but more importantly to lock in higher yields for a longer period.
News at Wealth Dimensions
We have successfully completed our move downstairs to Suite 210. While we have accomplished a great deal in getting settled, we still have a few finishing touches in store. We look forward to greeting you in our new space!
In October, we had a change of ownership at the firm. Our valued partner, Mike McCaw, decided he was ready to spend more time with his growing family, as well as pursuing a few of his other passions in life. Mike has been an instrumental part of the growth of our firm, and we wish him all the best in his future pursuits. We are pleased that our partner, Dan Vogelpohl, has acquired Mike’s shares to continue our plan to remain an independent firm seeking to develop future leadership primarily from within.
Patience, knowledge, and strategic planning are the cornerstones of financial success, even in the face of global geopolitical challenges. Stay the course!
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.