MARKET UPDATE OCTOBER 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.

• Price trends since August have been negative.

• Small cap stocks have not rebounded as much and are still well below their all-time highs.

• The major stories are still the same – interest rates, inflation, and recession concerns.

• The trend in interest rates and the fact that stocks are approaching a key resistance level (all-time highs) means that we can expect a lot more volatility in the markets in the short term.

The market rally of 2023 has stalled out since the beginning of August. As of the market close on Friday October 13th, the S&P 500 is down about 9% from its previous peak at the start of the 2022. The Nasdaq is down about 15% from its all-time high and the Russell 2000 is still down around 30%. In the graph below, you can see the nice bounce off the October 2022 lows. Stubbornly high interest rates, global economic concerns and the market digesting the big run-up since late 2022 have us in a bit of a holding pattern right now.

The Nasdaq and the S&P 500 have climbed 21% from the lows in October of last year. The Russell 2000 (small and mid-cap stocks) has only gained about 2% since October. 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 resultant impact on interest rates. While the Fed seems to be nearing the end of its rate raising cycle, the debt markets are still struggling.

When we look at the recent trends in the Nasdaq and the S&P 500, prices have been moving down since the beginning of August. We are watching this trend carefully and will keep you updated on how to position your investments via our Market Signals newsletter.

We remain in a period of volatility and instability in most financial markets. We expect this to continue in the near term.

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. Followers of our Market Signals newsletter are positioned to benefit if the market keeps moving higher and will be able to limit losses if the market turns down from here. 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.