September closed out a poor quarter for most investments resulting in the first negative quarter in the last four. It may help to recall that just one year ago we endured an awful September (déjà vu?) before October delivered one of the best months in market history. What I find noteworthy is that the double digit returns of last October came on no meaningful news or with any discernable catalyst. I mention this only because it’s natural to wonder if bad months in the market – like the one we just experienced – portend more bad months ahead.
Market and economic events continue to reinforce the notion that no one can reliably forecast the economy, nor can they time the market. In my view, the only reliable way to enjoy the long-term returns is to be invested when they occur.
In lieu of market timing or forecasting the economy, I would instead focus on what is observable today and adjust accordingly. What follows are my current observations:
- The market, which simply prices companies every day, continues to act capriciously. This is nothing out of the ordinary. Sometimes it is euphoric, and other times it’s manically depressed. As of this writing, it certainly isn’t euphoric.
- Short-term interest rates are still at attractive levels, with yields north of 5% for U.S. treasury bills. These investments can be a terrific parking spot for dollars you need in the near term. But at a 1.3% yield after accounting for inflation, treasury bills and the like are a not-so-terrific option for longer term goals.
- Profitable, enduring businesses continue to generate profits and return those profits to shareholders, regardless of what their share price trades for on any given day in the above-mentioned, manic market.
- Many growth companies continue to trade at lofty premiums relative not just to the rest of the market but even to their own historic levels. As the German adage says, trees don’t grow to the sky.
- Many smaller companies, as well as mature companies that happen to receive their mail overseas, are currently priced at attractive discounts to their respective historic levels.
- Intermediate-term, investment grade bonds – those with maturities between three and 10 years – are yielding north of 6% in some cases and are thus compelling investments for the right investor. In comparison, longer-term bonds offer similar yields but, in my view, come with much more risk
- Many tax-free bonds are yielding roughly 9% as compared to an equivalent taxable bond. These yields are increasingly attractive for investors in high income tax states such as California and New York.
- Unemployment is still near record lows, inflation continues to moderate, per capita net worth continues to increase, and most of all, consumers continue to consume (based on my reading, the consumer is approximately 70% of our country’s economic engine).
Admittedly, I don’t know what the remaining months of 2023 have in store for the markets, but I encourage you to consider some of the attractive yields for your short-term dollars, and to stay invested in successful businesses with your longer-term dollars. And while we can’t know when the market will turn from depressed to euphoric, I have no doubt that it will, and likely, without advance warning.
Thank you for reading, but most of all, for your continued trust, confidence, and friendship.
Disclosures
The foregoing information is for educational purposes and is not intended to be investment advice. Information herein has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jeff DeLarme and not necessarily those of Raymond James. Past performance may not be indicative of future results. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.
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