Market Commentary – October 2023

Fall is our favorite time of year. Leaves starting to turn, crisp sunny days, and the return of football always add up to a “life is good” feeling. Just when you settle in and embrace that euphoric mood, you turn on the news or read the financial section of the paper and realize the stock market does not feel the same way about this season. Most of our clients have heard us state at one time or another that if September doesn’t get you, October will. Well … September got us. Everything got hit, including technology and AI stocks, this year’s market darlings.

There are plenty of reasons for the recent selloff. There always are. Looming government shutdown, a jump in bond yields, rising oil prices, and the Republicans seemingly trying to cut off their own heads¹ (the title of a recent WSJ Opinion, not my words) all contributed to negative investment sentiment. Investor emotions tend to amplify market reactions and many times are disproportionate.

Are we due for an upward bounce? History would indicate yes.

According to the Stifel CIO Office, one-month periods where stocks do nothing but go down, such as September, usually see a bounce back effect in the period that follows. Examining the lows experienced last month, the S&P 500 hit an intraday low, below the prior day’s low, 15 times during September. Ouch! Those types of statistics have only occurred 16 times since 1993, and according to the Stifel CIO Office, the index was higher 69% of the time three months later when this occurred. According to a recent American Association of Individual Investors Sentiment Survey, when asked what direction they felt the stock market would be in the next six months, only 27.8% of respondents described themselves as bullish, a four-month low.² From a contrarian standpoint, that is a positive reading. You know the general rule, at some point those doubters turn positive, which propels the market higher.

Those of you that know us could almost write the next paragraph. As value investors, this type of environment is attractive. In our view, prices for many great companies have become a bargain in a hurry. If you’ve been stuffing money under a mattress, we believe it is time to pull a portion of it out and put it to work!

Please don’t misinterpret our optimism. There is always risk. That is why you invest your hard-earned money in stages because emotion can drive stock prices both up and down further than anyone might imagine. Risk or perceived risk is a funny thing. The real risk comes from something news organizations or social medial accounts aren’t talking about or can’t imagine. Everything we see and hear today has already happened and is most likely priced in the markets. Future events can’t be forecasted. Could there be some positive event out there we can’t see yet? In negative emotion times like the present, history suggests that is a distinct possibility.

Will there be a recession? Possibly, and given the current interest rate environment, probably. However, what we don’t know is how much of that is already priced into the markets. The probability of a recession is quite well advertised. In the meantime, we will continue taking advantage of attractive stock prices while they are available. We are long-term investors and have faith current issues will work themselves out.

As always, we appreciate your business and look forward to talking soon.

Mark A. McClure, AIF® Managing Director, Branch Manager	Michael J. Harkins, AIF® First Vice President/Investments	Nicole Hansen Branch Operations Manager