Economic & Market Update

It has been a generally positive year for the stock market.

Most analysts had entered the year forecasting a recession, but our economic and market updates show that the economy has been fairly strong overall as consumers have continued spending. Much of the gains this year can be attributed to a handful of large technology stocks and the enthusiasm around artificial intelligence (AI). The S&P 500 is up 13% through September 30th. International stocks have also performed well, with the MSCI EAFE up about 7% year-to-date. Larger companies have performed better than smaller ones and growth stocks have outperformed value stocks.

The Federal Reserve has raised interest rates eleven times in a tightening process that started in early 2022 to tame inflation. We’re approaching the end of the current rate hiking cycle, but the Fed has said that it still expects one more hike before year-end. The Federal Reserve has been making progress on lowering inflation, but it is still well above their 2% target. Inflation has continued to moderate though from the higher levels of the past two years. The Fed is determined to keep a tight rein on inflation and may keep rates higher for longer. Fixed income continues to look attractive with higher yields. Higher interest rates have created opportunities, both in the short term with money market funds, T-bills, and CDs, as well as the opportunity to lock in attractive yields for longer time periods. High quality core bonds (as measured by the Bloomberg US Aggregate Bond Index) are down about 1% for the year (as interest rates have moved higher and bond prices move inversely to yields).

The economy may slow during the rest of 2023 and into 2024. We’ll need to continue to keep an eye on the UAW strike. The longer it lasts, the greater the potential for ripple effects throughout the economy. Consumer credit card debt has hit $1 trillion for the first time, student loan payments are set to increase, and most of the pandemic excess savings have declined. The full impact of the Fed interest rate hikes is yet to be felt. On the other hand, consumers and businesses continue to have strong balance sheets and unemployment remains low. Corporate fundamentals overall remain on solid footing. Household net worth’s are also at all-time highs with a rebound in the stock market and higher real estate property values. As we saw with the debt ceiling drama that transpired several months ago, it is important to focus on the things that you can control, maintain perspective, and focus on the long-term.

Stock market pullbacks of 5% or more during a year are common and this typically happens three to four times annually. Prior to the recent decline in September, we have only experienced one other 5% or more pullback so far this year, which occurred back in March. To that end, we may see more market volatility ahead. It is important to have an emergency fund set aside for short-term needs and be cautious around spending, especially in retirement, during times of market uncertainty.

There has been much debate around whether the US will be in a recession over the next year. Many analysts that are forecasting a recession have pushed back the expected start date. However, there has also been a growing consensus that the US could experience a soft landing (a slowdown that avoids a recession), though many things will need to go right for that to happen.


We have been having many conversations with clients this year about ways to earn more interest on their cash. Several options currently exist to earn around 5% interest (on an annualized basis) on shorter-term cash alternative options. For those wanting an FDIC insured option above the typical limits, SWMG clients can also utilize StoneCastle, which offers up to $25 million in FDIC insurance at competitive rates. Please contact us if you would like to discuss your cash situation in further detail.

Series I Bonds

Many investors flocked to Series I bonds last year to lock in highly competitive rates as inflation reached 40-year highs. With inflation waning and the existence of other options for earning attractive yields, it is worth revisiting these holdings now. It’s important to remember that I bonds must be held for twelve months after purchase and you lose the last three months of interest when redeeming within the first five years. For those looking to cash in their bonds after the interest rate has reset to a lower one, it may make sense to hold your bonds for an additional three-month period. That way, the interest you lose would be at the lower rate instead of the higher one. I bonds also don’t earn interest for a partial month, so it is better to cash out at the start of a month instead of the end. If you own I bonds, please contact your SWMG Wealth Advisor to discuss your individual situation in further detail.

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