Insights

Third Quarter, 2023 Market Review

October 17, 2023

Dear Clients,

As the autumn leaves fall and the aroma of pumpkin spice perfumes the air, we find ourselves in the heart of October 2023. This season not only heralds nature’s beautiful transformation but also the excitement of football season, marked by electrifying energy and enthusiastic crowds. It’s a time of year that stirs up nostalgia, which prompted us to revisit one of the most beloved movies of all time, Forrest Gump.

In this cinematic masterpiece, we follow the extraordinary journey of Forrest Gump, a simple man with a heart of gold, who unwittingly finds the course of his life shaped by historical events. Forrest’s story imparts many valuable life lessons that are intriguingly applicable to a successful long-term investing experience.

Much like Forrest’s life, which was punctuated by unexpected twists and turns, the world of investing is susceptible to unforeseen events and market fluctuations. We witnessed this recently in the past quarter when a complex interplay of optimism and fear influenced financial markets.

The first seven months of 2023 saw a strong market rally, supported by favorable economic data, propelling the S&P 500 to surge more than 20%². Consequently, the index recovered nearly all of the 25.4%² it had lost from January to early October 2022. Market sentiment remained relatively optimistic despite the Federal Reserve’s decision to initiate the 11th rate hike in July. However, the landscape shifted dramatically in August when Fitch unexpectedly downgraded the United States’ credit rating from AAA to AA+, injecting additional turbulence into the market. September brought some clarity as the Federal Open Market Committee (FOMC) decided to maintain policy rates within the range of 5.3% to 5.5%. Nevertheless, the hawkish messaging from Fed Chair Jerome Powell cast a shadow over the widely anticipated decision to keep rates stable. Ultimately, the S&P 500 declined 6.3%² since the start of August, resulting in a -3.3%² quarterly loss.

Amid these market fluctuations, it becomes evident how emotions sway investor sentiment and spark impulsive decisions, causing opportunity to be overlooked. To better understand and navigate these challenges, let’s turn our attention to the wisdom gleaned from Forrest’s life lessons and explore how they can empower us as investors.

Confront Fear With Resilience

Forrest Gump’s early life was marked by physical limitations and a below-average intellectual assessment. Nevertheless, his mother installed in him a powerful lesson that would steer his life: “Stupid is as stupid does,” emphasizing that it’s a person’s actions, not their inherent intelligence, that defines them. This mantra propelled him to confront childhood bullies with unwavering determination, and his unexpected athleticism opened doors to a football scholarship at the University of Alabama, where he excelled remarkably on the field.

In the realm of investing, fear often arises during volatile or unpredictable market conditions; however, accomplished investors are not deterred. Instead, they empower themselves by acquiring knowledge, comprehending the risks, and persevering through turbulence.

Champion the Long Run

Forrest’s legendary cross-country run serves as a testament to the value of a long-term perspective. Investing, much like Forrest’s marathon endeavor, is not a sprint but a journey. His years of running epitomize the patience and endurance essential for financial prosperity.

Likewise, investors who remain committed to their investment strategies, even during challenging times, stand a better chance of realizing their long-term financial objectives.

The chart below underscores the historical performance of investing in the stock market, using the S&P 500 as a benchmark. Even over the shortest investment horizon, such as one day, there is a 52% chance of achieving positive returns. As the investment horizon lengthens, the likelihood of experiencing positive market outcomes
significantly increases.

Embrace the Unknown

Financial markets present investors with a multitude of opportunities and risks. Just like an assortment of flavors in a box of chocolates, you won’t know what you’ll encounter next in terms of market conditions and asset class performance. Some chocolates are sweet and enjoyable, akin to remarkable returns, while others may taste bitter and sour, like downturns or unexpected losses. Investors cannot predict nor control the short-term direction of markets and are therefore better off embracing the journey and making the most of opportunities along the way. A diversified portfolio constructed with your needs in mind can offer the smoothest ride through the ups and downs.

Turn Adversity Into Success

Following the war, Forrest’s odyssey as a shrimping boat captain exemplifies tenacity in the presence of adversity. His ability to transform a hurricane’s chaos into a pathway to success demonstrates the power of adaptability and determination.

In the realm of investing, adaptability is a fundamental pillar of success. Financial markets are renowned for their inherent unpredictability, yet systematic portfolio management offers a means to harness opportunities that arise, even amidst daunting conditions. Whether through judicious portfolio rebalancing, injecting additional capital, or skillful tax-loss harvesting, investors can follow Forrest’s example and not merely endure but prosper.

Control What You Can Control

As Forrest returns to the present, reflecting on his life’s journey, he ponders the concepts of fate and destiny. His conclusion that perhaps both coexist offers a profound insight into the complexity of life.

Similarly, in investing, there’s a balance between our capacity to make decisions and the sway of external forces. Forrest’s musings teach us that while we can make informed choices, we must also accept that some elements are beyond our control.

As we move forward into the remainder of 2023, let us remember the wisdom of Forrest Gump. Just as he faced unexpected challenges with strength of will and turned adversity into opportunity, so too must investors approach their investment plan with persistence and flexibility. While investors cannot control every twist and turn in the markets, they can retain control over their responses and decisions. By championing a long-term perspective, staying diversified, and arming themselves with knowledge, investors can confront fear with resilience and continue their journey towards financial prosperity.Thank you for your continued trust and partnership.

THE LOURDMURRAY TEAM

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² Source: Morningstar Direct.