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Giving Thanks

Giving Thanks

November 22, 2023

This stretch of time between Thanksgiving and New Year’s Day is my favorite time of year. It’s a time to enjoy the company of my family and friends and indulge in food and drink that I wouldn’t normally indulge in. A time to slow down and take stock of everything and everyone I’m thankful for, a time to reflect on things I’ve done well and things I can do better, and a time of preparation for the year to come. However, it’s also a time of added stress and hecticness (as I write this on the Wednesday before Thanksgiving, I can’t help but think of the 18-pound turkey I have brining in a tub of lemons and beer that I have to help prepare when I get home). After all, we all still have to work, there are gifts to buy, parties to plan, and traffic to deal with. It’s an oxymoron, much like investing in the market can be. See what I did there? How’s that for a segway…

During the 3rd quarter of this year, the U.S. economy grew by an annualized 4.9% according to the Bureau of Economic Analysis; however, for much of that quarter, investors were not happy about it. In fact, investors were responding to the dramatic increase in economic activity by selling off stocks for much of August to October. I know that seems like it’s counterintuitive, but sometimes good news is perceived as bad news for investors.

Simply put, investors were concerned that the economy was still too strong and worried that the Federal Reserve was going to have to increase interest rates further, and possibly break something in the economy in the process. This (among other things) drove up interest rates on 10-year Treasury bonds, and since much of the stock market is priced off of the 10-year Treasury yield, it drove investors to sell shares of stocks, which lowers the values of those stocks.

Since the end of October, we’ve received a better-than-expected inflation report, the Federal Reserve did not raise rates again, and economic growth in the 4th quarter is trending a much more normal 2.1% as of now. This has caused investors to get re-energized and pour back into stocks. From Oct 27th until Nov 21st, the S&P 500 has returned 10.22%, almost back to the highs of the year, and bond yields have backed down as well.

Truth be told, much of the stock market is reactionary in nature in the short term. Always focusing on the most recent headlines coming out of the business news media outlets. That’s not the right way to invest and can lead to unnecessary investment losses, in my humble opinion. Investing is hard enough without trying to predict the next headline. Investing must have a long-term view in order to be successful, and not be so easily swayed by the short-term news cycles.

Anyone could have dug into the Q3 GDP report estimates and seen that most of the growth in the economy was coming from consumer spending. In my opinion, the massive growth in consumer spending was still a leftover symptom of COVID-19 stimulus and restrictions and will be hard to replicate in future quarters. As the economy continues to normalize post-COVID, economic output will also normalize back to the long-term trend of the 2%-ish growth. That should be positive for both stocks and bonds, and something we can all be thankful for.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that the strategies promoted will be successful.