Market Update 9/25/23

Headwinds

The third quarter tends to be challenging for the stock market and 2023 is proving no different. A bevy of headwinds lurk and investors are nervous. Among them are the resumption of student loan payments, the burden of credit card debt which now totals $1 trillion, oil prices touching $100 per barrel, and the looming commercial mortgage crisis which is infecting the regional banking market. But one of the most overwhelming is the recent abrupt rise in long-dated interest rates.

Today the 10-year treasury sits at 4.52%, the highest level in 16 years. Two years ago the 10-year was just 1.4%. For the last six months, short-term notes paid 5.5% interest while long rates were well below 3%. That inversion has ceased as the long rates have been on a tear. The market has come to accept that the economy has been much stronger than expected and the recession, which is often preceded by an inverted curve, hasn’t materialized. Higher rates for longer should be expected. High treasury rates drag down the prices of all assets and lower valuations should be projected. But there is a flip side.

For the first time in nearly 20 years, we’ve been buying short-term treasury notes on behalf of our clients. Parking cash for 3 to 6 months at 5.5% interest is an obvious solution for a portion of a portfolio and we continue to reinvest in that area. At some point, long-term rates will reach a pinnacle, and locking in longer-term debt would be ideal. While the headwinds of today may seem more acute than in the past, there is always an opportunity to invest somewhere. Our job here at Warcap is to take advantage of that opportunity.

As always, I appreciate your continued trust and confidence.