Q4 2023 Quarterly Market Commentary

Q4 2023 Market Commentary

Financial markets produced strong returns in the fourth quarter. Treasury yields, which spiked during the third quarter, reversed, and started to decline due to easing inflation and the Federal Reserve hinting at interest rate cuts in 2024. The decline in interest rates was the primary catalyst for both stocks and bonds, with bonds producing their best quarterly return since the second quarter of 1989.

Treasury Yields Reverse Lower in Fourth Quarter

During the fourth quarter, longer-term yields reversed sharply and erased nearly all the increase from the previous quarter. This quick and sharp reversal in long-term yields is likely due to a significant change in expectations heading into 2024.

During the third quarter, Investors had two key concerns, both of which contributed to the sharp rise in Treasury yields. First, the U.S. economy continued to outperform expectations, which raised concerns that the Federal Reserve might need to keep interest rates high for an extended period to continue fighting inflation. Second, the fiscal deficit was growing quickly as government spending increased. Investors were concerned the U.S.

Treasury would finance the growing deficit but that there wouldn’t be enough buyers for the new bonds, potentially causing yields to rise if supply outweighed demand.

A notable shift occurred in November, leading to a sharp reversal in Treasury yields. Investor worries about increased Treasury bond issuance were alleviated as the U.S. Treasury revealed plans to slow the pace of bond issuance. The market felt there would be enough demand to absorb the new bonds, lowering the probability that too much bond supply would cause yields to rise. Additionally, economic data indicated that inflation continued to decline even as economic growth continued to exceed expectations. Investors’ fears about persistent inflation and high interest rates started to fade, and yields declined.

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Important Disclosures: The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The information contained herein is based on technical and/or fundamental market analysis and may be based on data obtained from recognizable statistical services, issuer reports or communications or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Index returns are not fund returns. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Yields are given as of 10/1/2023.Bonds are subject to price and availability.

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index
with each stock’s weight in the Index proportionate to its market value. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. The NASDAQ 100 Index is an unmanaged group of the 100 biggest companies listed on the NASDAQ Composite Index. The list is updated quarterly and companies on this Index are typically representative of technology-related industries, such as computer hardware and software products, telecommunications, biotechnology and retail/wholesale trade. The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada. The MSCI Emerging Markets Index is designed to represent the performance of large- and mid-cap securities in 24 Emerging Markets. Bloomberg U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.

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