MARKET UPDATE NOVEMBER 2023

SUMMARY:

• The stock market is still struggling to get back to the pre-crash highs of early 2022.

• But we are still sitting well above the lows reached in October of 2022.

• Prices have moved strongly higher in the last three weeks after a steady drop since the beginning of August.

• The major stories are still the same – interest rates, inflation, and recession concerns. The inflation reports have been positive lately. If inflation data continues to show improvement, the concern will then become recession. Can the Fed achieve a “soft landing”?

• We expect the volatility to continue until it looks like the inflation battle has been won and a recession has been avoided.

We remain in a period of volatility and instability in most financial markets. The past six months have been extremely volatile as shown in the chart below.

We saw a strong move higher in May, June, and July only to be followed by a steady decline in August, September, and October. But we have seen a sharp move higher since the end of October. Both the S&P 500 and the Nasdaq are currently sitting just below the recent highs reached at the end of July. This has been a real roller coaster ride.

When we step back and take a look at the entire bear market that began at the beginning of 2022, we see a two-year period of high volatility. We see both the S&P 500 and the Nasdaq struggling to get back to the all-time highs reached at the beginning of 2022. As of the market close on Friday November 17th, the S&P 500 is down about 5% from its previous peak at the start of the 2022. The Nasdaq is down about 10% from its all-time high. Notice how the small-cap stocks (the Russell 2000) are still way below their January 2022 highs – still down 26%. In the graph below, you can see the nice bounce off the October 2022 lows.

This is more evidence of why you don’t want to own small-cap and mid-cap funds. They underperform the large cap index funds over longer time periods, and they get hit just as hard if not harder in bear markets. Advisors recommend small and mid-cap stocks for diversification, but this strategy doesn’t work.

This bear market has been driven by inflationary pressures and its impact on interest rates. While the Fed seems to be nearing the end of its rate raising cycle, the debt markets are still struggling.

The reality is that no one knows if the worst is over or not. Because of the uncertainty, it is important to follow a disciplined approach to investing. It is critical to have an investing strategy that wins no matter which way the market moves. No one can predict which way things will move in the short term. But we all know that in the long term, the direction of the stock market will be higher. Stay disciplined, my friends.

Happy Investing,

Phil

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Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.