4Q23 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) did not raise rates at the September meeting. However, comments from the Fed were more hawkish than investors were expecting, causing bond yields to rise and the stock market to pull back in September.  The Fed has pledged to keep raising rates to reach their 2% inflation target while hoping to avoid a prolonged economic recession.
  • While normally good news, continued strength in the labor market and strong consumer spending are preventing the inflation figures from reaching the target  
  • Despite the soft market performance in September, the markets are still positive YTD as inflation numbers have come down significantly, providing evidence that the Fed’s rate increases are working and may be coming close to an end.
• Developments to monitor:
  • The Fed and Inflation – investors are closely monitoring the Fed for any signs that the rate hikes will end.  Current expectations for the Fed are for one more 0.25% rate hike before the end of this year, and then begin cutting rates in 2H24.
  • 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.
  • 3Q Earnings – 3rd quarter earnings just kicked off.  Most companies still must report, and we will be monitoring the resulting earnings to see if they can support a year-end rally and provide a continuation of YTD 2023’s market gains.
• Market Performance for 3Q23 / YTD23:
  • Equity Benchmarks 1
    • S&P 500 (US Large Caps): 3Q23 -3.3% / YTD 2023 +13.1%
    • Russell 2000 (US Small Caps): 3Q23 -5.1% / YTD 2023 +2.5%
    • MSCI EAFE (International Developed): 3Q23 -4.1% / YTD 2023 +7.1%
  • Fixed Income Benchmarks 1,2
    • ICE BofAML US Corp & Govt 1-10 Yr A-Rated (Bonds): 3Q23 -0.8% / YTD 2023 +0.5%
    • Barclays US Aggregate Bond Index (Bonds): 3Q23 -3.2% / YTD 2023 -1.2%
  • Alternative Investment Benchmark 3
    • HFRX Global Hedge Fund Index (Alternative Investments): 3Q23 +0.7% / YTD 2023 +1.4%

Despite the negative performance in 3Q23, we are encouraged to see mostly positive and broad-based returns YTD. 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