top of page

Our Thoughts on fourth Quarter 2023

Matt Johnson, CFA® - Andy Nugent, CFA®


4th Quarter Market Recap, Portfolio Analysis, and Review


The market was up in the fourth quarter despite stumbling out of the gates in October. The stars seemed to align with the macroeconomic factors that people look at to determine where the economy and stock market are heading. Inflation continued its downward trend. This allowed the Fed to pause on rate hikes. The market is assuming that the rate increases are complete and that we can expect several rate cuts next year. Typically, when interest rates come down, the stock market moves higher. With these assumptions in place, the market began to trade higher ahead of actual news on the assumption of rate cuts in the coming year. Will these things happen? Possibly, but let’s take a deeper look at each component and how the market sectors themselves have been performing.

Inflation






The Consumer Price Index decreased almost 0.60% year over year from 3.71% in August to 3.12% in November. The Personal Consumption expense has dropped to just over 2.6%. Inflation is way off its peak in the middle of 2022 and getting closer to the Feds goal of 2%. This downward trend is positive, but we can expect to see a few bumps in the road on its journey towards the goal. Keep an eye on these numbers over the next few months. If they begin to rise consistently, it could cause the Fed to take additional action in the form of rate hikes, but as for now they are taking a wait and see approach.


Interest Rates





The Fed held steady on rates in the third quarter. The Fed Fund rate remains between 5.25% - 5.50%. This caused the market to believe the Fed is done hiking and that rates will be moving lower in 2024. The consensus is that the Fed will reduce rates three times in the next year, with some saying they will cut rates six times. The Fed has been noticeably clear about reaching their goal of 2% inflation. We do believe rate cuts may begin in the latter part of the year, but keep in mind, the Fed could hold rates steady or possibly raise them if inflation reverses its current trend.

The yield curve is inverted. This means that short-term bills are paying higher interest rates than long-term bonds. The spread between the 1-month T-Bill (yielding 5.2875%) and the 10-year note (yielding 3.88%) is widening. This is due to the difference on where yields are now (short-term) and where the market feels the yields will be further down the road (long-term). Many money market funds are still paying more than 5%, even though the 10-year bond yield is lower.

Home mortgage rates cooled in the last quarter of the year. After ending the third quarter at 7.77%, the average rate for a 30-year fixed rate mortgage sank to under 7% in the fourth quarter, per Bank Rate. Although most mortgage holders have rates much lower than current levels, the decline in rates could help the refinancing market for those who recently purchased homes.

As for investments, we are taking advantage of the higher returns that money markets are providing, as they are returning about the same as a six-month treasury, but the investor maintains their liquidity.



Sector Analysis







The S&P 500 was up 11.7% in the fourth quarter and up 24% on the year. The S&P Equal weight index was up about half of that on the year as the S&P 500 was buoyed by mega cap technology stocks that emphasized a difference in performance between the two indexes. In the fourth quarter, many sectors began to do well. As we can see above, many are at or near their 52-week highs.


Only Energy had negative performance in the fourth quarter. Keep in mind, it was one of only two sectors that was higher in the third quarter. All other sectors were higher in the quarter led by Real Estate (lower anticipated interest rates) and Information Technology (continued AI demand).


We did not trade very much in the quarter. We had no new purchases. We did add to three positions and continue to focus on high quality companies with good revenue and cash flows to add to the portfolio.


Consumer Staples – We added to our position in J.M. Smucker after a significant price pull back and increased our position in Pepsi after its price decreased.


Industrials – We added to our position in RTX Corp as the aerospace defense company is well positioned considering the current state of the world. There are two wars going on and tensions are escalating in the middle east. We are looking to add to our overall exposure to this sector and industry when opportunities present themselves.


Summary

The fourth quarter was full of optimism for the stock market. Consumer demand remained strong, even if it likely meant an increase in spending on credit cards. Inflation is moving in the right direction allowing the Fed to sit tight and not do anything. The market has determined that the increases are over and that cuts are on the way. A combination of all these things led to favorable fourth quarter returns. We remain cautiously optimistic, but not as euphoric as the market is currently. We will keep a close eye on the next few inflations reports to ensure the trend remains lower. We will listen closely to what the Fed says at the next meeting. We continue to buy quality companies over cheaper companies with problems. Any negative news or unexpected event can cause short-term market volatility. If the market does pull back, it will create buying opportunities in this stock pickers market. We remain committed to investing in quality companies and taking a long-term view. We again thank you for your continued support in allowing us to assist in reaching your financial goals.



Matt Johnson, CFA® - Andy Nugent, CFA®

Sage Capital Advisors, LLC is a Securities and Exchange Registered Investment Advisor. Sage Capital Advisors is headquartered in Sioux Falls, South Dakota. Advisory services are only offered to clients or prospective clients where representatives of Sage Capital Advisors are properly licensed or exempt from licensure. This market commentary is solely for informational purposes and should not be construed as investment advice, it is only intended to provide education about the financial industry. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of investment management fees, or the impact of taxes, all of which would have the effect of decreasing historical performance results. Indices are unmanaged and cannot be invested in directly. It should not be assumed that your account holdings correspond directly to any comparative indices. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered unless a client service agreement is in place.






Comentários


Featured Posts
Recent Posts
Archive
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
bottom of page