October 17, 2023

Q3 2023 Market Insights

As investors attempt to interpret the volatility of the past few years, the future path of markets remains uncertain. Despite the economy’s surprising resilience this year, factors including geopolitics and monetary policy are creating an increasingly complex outlook for 2024.

Since the onset of the COVID-19 pandemic, markets have exhibited significant volatility. Although assets fell quickly during the early stages of the pandemic, strong fiscal support from governments helped economies and markets recover. The COVID-19 bear market was the shortest on record, lasting just 33 days.[1]

While the quick reaction of governments helped avert a deeper downturn, in retrospect, that reaction may have been an overreaction. Increased domestic spending helped drive M2, a broad measure of the nation’s money supply, to record levels in 2022.[2] In turn, inflation started to accelerate, eventually climbing above 9%.[3]

As a result, the Federal Reserve decided to treat the economy with aggressive interest rate increases, the same medicine that worked when inflation soared in the 1980s. Over the course of a year and a half, the Fed’s policy rate climbed more than five percentage points, the quickest tightening cycle on record.[4] Although those rate increases have since driven down inflation, they’ve also contributed to a mixed economic picture.

Conflicting Data and an Uncertain Future

Today, inflation has fallen to just 3.7%,[5] even as the nation’s economy continues to grow.[6] Still, the complexity of the current data, combined with additional sources of uncertainty, makes it increasingly difficult to determine exactly where we are in the economic cycle.

It’s possible that we went through a recession that simply wasn’t labeled as one and are now in a period of recovery. It’s also possible that government support helped delay a downturn that may still loom on the horizon.

Currently, key data points are telling conflicting stories. Unemployment is historically low at just 3.8%, in line with qualitative evidence pointing to a tight labor market.[7] However, the number of year-to-date corporate bankruptcies is higher than at any time since 2010,[8] as firms struggle to keep up with record-high interest payments.[9]

Compounding this uncertainty are domestic and international political factors. As the United States heads into another contentious election year, it’s not yet clear how future monetary and fiscal policies will play out. The Russo-Ukrainian war continues with no clear end in sight. And China, so influential to the global economy, appears to be struggling; its youth unemployment rate exceeded 20% earlier this year.[10]

Despite these challenges, markets appear cautiously optimistic. Valuation metrics, like the S&P 500’s price-earnings ratio[11] (as well as its cyclically-adjusted counterpart[12]), remain historically elevated. Similarly, the interest rate spread between corporate debt and government debt has fallen over the past year, indicating the market thinks firms are less risky to lend to.[13]

While the stock market has climbed year-to-date, the last few months have been particularly choppy. Looking to the end of 2023 and into 2024, it’s difficult to make any definite prediction for the economy. We believe the best outlook is to expect more volatility.

The Value of a Plan

During volatile times, it’s important to remember the value of a sound financial plan. This isn’t the first complicated market environment we’ve been through.

At Sound View, we proactively focus on what we can control. Our resilient plans are prepared to weather short-term volatility while remaining on track toward your individual needs and long-term goals.

Diversification is the key to a resilient investment plan, as it ensures that a portfolio is spread across various asset classes or sectors, reducing the impact of any single risk factor.

In the past, a 60/40 split between stocks and bonds was considered to provide sufficient diversifying power. As stocks and bonds have become more correlated in the past few years, though, a 60/40 portfolio may not be enough.

In our view, an allocation closer to 50/30/20, with the final 20% representing alternative assets, is better. Alternative assets are not tied as closely to the performance of broader markets, but can still provide strong earnings potential. Examples of alternatives that might suit an investor’s portfolio include private market investments and hedged equity strategies.

In any market environment, understanding your liquidity needs and remembering the value of diversification is critical. Both of these concepts are intertwined, as diversification can help “smooth the ride” during periods of volatility, and a good understanding of your liquidity needs can help you remain invested through difficult times.

In volatile markets, selling long-term assets (like stocks) to cover short-term liabilities (like cash flow needs) should be avoided. At Sound View, our job is to help you build a diversified portfolio that is customized to your unique goals, tolerance for risk, and liquidity needs.

A dynamically adjusted, diversified portfolio based on your financial situation and stage of life can help create more consistent returns over a long time horizon, even if the short-term is volatile. This means you can have confidence and peace of mind through the uncertainty and lean on the firm foundation of your financial plan.

Tuning Out the Noise

We know it’s challenging not to let the noise of the news cycle increase anxiety and fear. Over the next year, given everything we’ve discussed and the upcoming Presidential election, we expect that noise to get louder.

By remaining proactive and focused on what we can control, together we can tune out the noise and prepare for any volatility on the horizon. The Sound View team is here to serve the best interest of your financial life and deliver the peace of mind that you and your family deserve.


Eddie co-founded Sound View Wealth Advisors with the goal of operating as a fiduciary, where he is able to put clients’ interests first and foremost. Eddie develops and implements tailored financial plans that encompass estate planning, investment management and overall risk mitigation for families.

Prior to Sound View Wealth Advisors, Eddie was a Senior Financial Advisor with the Bouchillon, Ham & Dekle Group at Merrill Lynch, which he joined in 2011. Previously, he served 10 years as a financial services policy advisor to members of the United States Congress, as well as several major investment banks, private equity groups and private investment funds. He earned an M.B.A. in finance from the Robert Smith School of Business at the University of Maryland.

Eddie serves on the board of directors for the Humane Society of Greater

Disclaimer: The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this commentary is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Information obtained from third party sources are believed to be reliable but not guaranteed. Sound View Wealth Advisors Group, LLC makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

[1] Reuters, Say goodbye to the shortest bear market in S&P 500 history Link

[2] St. Louis Fed, M2 Link

[3] Bureau of Labor Statistics, Consumer Price Index – June 2022 Link

[4] St. Louis Fed, Federal Funds Target Range – Lower Limit Link

[5] Bureau of Labor Statistics, Consumer Price Index – August 2022 Link

[6] Bureau of Economic Analysis, Gross Domestic Product Link

[7] St. Louis Fed, Unemployment Rate Link

[8] S&P Global, August adds 57 more US corporate bankruptcies; 2023 total tops prior 2 years Link

[9] St. Louis Fed, Quarterly Financial Report: U.S. Corporations: All Information: Interest Expense Link

[10] Bloomberg, China’s Record-High Youth Unemployment Rate Likely to Worsen Link

[11] Multpl, S&P 500 PE Ratio Link

[12] Multpl, Shiller PE Ratio Link

[13] St. Louis Fed, ICE BofA US Corporate Index Option-Adjusted Spread Link