3Q23 Market Letters

Francis J. Perfetuo, Jr., CFA 
Managing Partner 
Portfolio Manager 

Fall Greetings from all of us here at Veritas!

As we enter the 4th quarter of 2023, here is the latest news, ongoing developments, and the 3Q23 and YTD 2023 financial markets performance results:

• In the news:
  • The Federal Reserve (The Fed) slowed the amount of rate increases in 2Q and even paused (no hike) at one meeting.  Current market expectations are for one more 0.25% rate hike this year.  This comes after the most recent CPI (Consumer Price Index) inflation reading came in at 3%, a remarkable improvement from the year ago peak of 9.1%.  The Fed has pledged to keep raising rates to keep combating inflation while hoping to avoid a prolonged economic recession.  There is still work to be done because Core CPI (which excludes food and energy) has been more stubborn and currently sits at 4.8%.
  • Congress was able to successfully raise the debt ceiling, avoiding unnecessary stress on the economy and the financial markets
  • 1Q earnings were quite healthy with 78% of the S&P 500 reporting a positive earnings surprise
  • In 2023 markets continue to recover as inflation numbers keep coming down, giving confidence that the Fed’s rate increases are working and may be coming close to an end.  Markets are also enthusiastic about developments in Artificial Intelligence (AI).  This is helping drive the performance of Big Tech stocks.
• Developments to monitor:
  • The Fed and Inflation – investors are closely monitoring the Fed for any signs that they will stop raising rates, and eventually reverse course when they feel inflation is under control.
  • Recession concerns – if the economy slows too much we could enter a longer than expected recession.  With the economy showing resilience in many areas, it is expected that we can “handle” a short or mild recession.
  • 2Q Earnings – Although earnings have been revised lower to reflect a slowing economy, 2nd quarter earnings just kicked off with a solid start.  There are a lot of companies still to report, so we will be looking for signs if the resulting earnings can support a continuation of YTD 2023’s market strength.
• Market Performance for 2Q23 / YTD23:
  • Equity Benchmarks 1
    • S&P 500 (US Large Caps): 2Q23 +8.7% / YTD 2023 +16.9%
    • Russell 2000 (US Small Caps): 2Q23 +5.2% / YTD 2023 +8.1%
    • MSCI EAFE (International Developed): 2Q23 +3.0% / YTD 2023 +11.7%
  • Fixed Income Benchmarks 1,2
    • ICE BofAML US Corp & Govt 1-10 Yr A-Rated (Bonds): 2Q23 -0.9% / YTD 2023 +1.3%
    • Barclays US Aggregate Bond Index (Bonds): 2Q23 -0.8% / YTD 2023 +2.1%
  • Alternative Investment Benchmark 3
    • HFRX Global Hedge Fund Index (Alternative Investments): 2Q23 +0.6% / YTD 2023 +0.6%

We are encouraged to see stronger and broad-based market performance to start 2023. Looking ahead, I will continue to monitor all market and economic developments with a particular focus on the Fed and inflation levels, and adjust as needed.
 
As always, thank you for your trust and confidence in our Team!

FRANCIS J. PERFETUO JR., CFA ® 
Managing Partner & Portfolio Manager