It's many folks' favorite season! Fall brings apple cider, donuts, football, and of particular importance to the Carter family- hunting season. The changing of the seasons on the calendar mirrors the changing of the figurative seasons we have witnessed here at FSG.
As most of you know, we have recently moved out of our Flint Township office and moved to a beautiful new building in Fenton. We opened our Flint township office in 2016 originally as a satellite meeting location, and since then, we have been blessed with growth in the number of happy clients and reliable employees. This led to our search for a larger and more permanent location. We plan on being in our new Fenton building for many years to come and look forward to showing you the new locale!
The third quarter also experienced a changing of market seasons. Market “seasons'' or cycles are not nearly as predictable as the calendar but are prevalent nonetheless. Whereas Q1 and Q2 presented strong, broad market gains, Q3 was a mild step backward. The quarter started out decent, with markets reaching their year high around the end of July, but August and September presented a different result.
As you can see, July started with a nice bump, but ultimately, all major indexes pulled back in August and September.
Looking over the longer term, stocks are still up dramatically over the rolling one year. These types of pullbacks are to be expected, and despite my analogical statements above, I don’t see this past quarter as a major shift for markets going forward. We still believe markets will finish the year up, and if the data is promising regarding inflation, we could see stocks finish the year notably higher than where they are today. One further point of interest here is that you will notice growth stocks were hurt more than value stocks in the past quarter. In this type of environment (rising rates), growth stocks will underperform value, as I have stated in previous market updates.
So What Caused The Sell Off?
Several factors, but the most prominent is the Fed. On July 26th, Jerome Powell of the illustrious Federal Reserve announced that they were raising rates once again. This rate hike was not a surprise, but one statement he made during the press conference seemed to have landed hard for investors:
“So we intend, again, to keep policy restrictive until we’re confident that inflation is coming down sustainably to our 2 percent target, and we’re prepared to further tighten if that is appropriate.”
That statement is Fed speak for “we are going to keep rates high for a lot longer than anybody wants because we believe that the only thing that matters right now is inflation.” In fact, to hammer home how hyper-focused on inflation the Fed is, Mr. Powell said the word inflation 115 times in his speech!
Look, don’t get me wrong, inflation is a problem, but in my view, it has moderated dramatically, and our monetary policy should take a wait-and-see approach. They have declared war on inflation for the past 18 months by aggressively raising interest rates. Now, let's wait and see how that improves the data. Frankly, the Fed was late to the party, and I’ve been skeptical they can manage this situation since late 2020, but their actions have created other opportunities.
The constant interest rate increases (despite hurting the stock market recently) have allowed our portfolios and clients to take advantage of high fixed interest rates in various bonds, treasury bills, and fixed annuities.
On August 29th, in light of the high short-term interest rate environment, we initiated a position in a shorter-term treasury fund in most of our models. We funded this purchase by selling an equity linked fund and selling our gold fund. We believe in this environment, the portfolios benefit more from a fixed income portfolio that is very conservative but pays an attractive yield. The fund we purchased is IBTE (Ishares Ibonds December 2024 Term Treasury fund). The current SEC yield on this fund is 5.45%, and it has ultra low fees of just .07%.
As always, should you have any questions or concerns, please don’t hesitate to reach out to your financial advisor. Take care and enjoy the changing seasons!
Written by: Brice Carter
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