Fall 2023 Market Update

2023 has certainly been another up and down year for investors. After making encouraging progress through the summer, both stock and bond markets have been undergoing significant corrections since August. Investors have seen their positive returns for the year dwindle or even go negative and can be forgiven for being discouraged or worried about the outlook for their portfolios and how it will impact their long-range financial goals.

There have been many factors behind this latest correction, but the main worry has been stubborn inflation and concerns that interest rates will stay higher for longer. As a result, bond rates have moved to multi decade highs, with the US 10-year Treasury touching 5% for the first time since before the 2008 Financial Crisis. This in turn has triggered the sharp decline in stocks, particularly the large dividend payers in Canada.

Despite this, we feel there are some encouraging signs. More recent inflation data in the US and Canada has been positive and shown inflation pressures starting to gradually ease again. Our feeling is, if they haven’t already, interest rates are close to peaking. As Stephane Rochon, BMO Nesbitt Burns strategist points out in our October update, available in the publications section of our website (www.vogelbutler.com), markets have usually done well in the period after the end of interest rate increases.

Probably even more relevant at times of market corrections and increased future uncertainty such as now, is how investors behave. I recently had the chance to read Morgan Housel’s excellent and critically acclaimed book The Psychology of Money and his advice is particularly relevant in today’s difficult markets.

One of Housel’s key observations is what he refers to as the paradox of history; we try to learn from history and use it to make market predictions, but the one thing it teaches us is it’s full of surprises and unforeseeable events. As he points out, predicting what markets will do shorter term, therefore, is a high-risk bet. However, he notes markets have consistently done well over time and that the biggest risk to investors’ long-term goals is deviating from their strategies and risking missing out on the market’s best returns, which come suddenly and unexpectedly.

Housel stresses the importance of having a sensible investment strategy and emphasizes there’s no one size that fits all but urges investors to stick with their personal strategies and resist the urge to react to swings in the market. As tough as today’s markets make that, we couldn’t agree more.

Thank you for reading our commentary and please don’t hesitate to contact us if you would like to discuss your own longer term wealth strategy and investments.

Bob and Ian