Market Musings 10/6/2023

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

The Fed poured cold water on the #Goldilocks soft landing in September, but hope reigns eternal as optimism is building again…

Markets tumbled in September as the Fed poured cold water on hopes for the ideal #Goldilocks soft landing scenario. The S&P 500 ended September down -5%.

It was a very volatile month as investors continued to scrutinize macro data to support the #Goldilocks soft landing optimism. Unfortunately, #LaborMarkets remained strong and oil prices continued to climb leading to a mixed CPI print. While the core metric continues to moderate, August CPI showed overall inflation climbing again largely due to energy.

Then, the Fed meeting hit. While rates were held flat as expected, it was a very hawkish pause with longer-term forecasts expecting another hike and for elevated #RisingYields to last longer. In addition, Powell warned that while a soft landing was possible, it should not be considered the baseline scenario. Markets tumbled following the meeting as investors recalibrated #Goldilocks expectations for a “higher for longer” environment.

September was a challenging month, but our portfolios weathered the market’s momentum shift well. We saw broad outperformance across all sectors except Industrials benefiting the most from our #RecessionResilient Healthcare tilt and #Flight2Safety Value defense.

While just slightly up so far, October has continued September’s volatility. Small daily bits of macro data is driving large market swings as investor expectations continue to shift on #RisingYields and the #Goldilocks soft landing odds. With the Q3 earnings season about to start, we don’t expect things to settle down soon.

As we noted last month, investors were and continue to be too bullish on the “Goldilocks” soft landing. Investor hope reigns eternal as we are starting to see signs of that optimism rebuilding as well. While we’re still cautiously optimistic for it, we still see many near-term headwinds that can derail a soft landing including a potential US government shutdown in November, student debt resumption’s impact on spending and slowing inflation progress due to #LaborMarkets and surging energy prices. Regardless, we believe the markets are likely to regroup here rather than correcting further as #RisingYields reaches its peak and the economic landing clarifies.

We would take advantage of the market pullback to add to portfolios. While markets are likely to remain volatile near-term, we recommend long-term investors to start building positions more aggressively here.

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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.

Original Photo by Julie Aagaard.