Q3 2023 Market Commentary

Global equities declined over the quarter despite strong gains in the first half of 2023. Government bonds also posted negative returns as the Fed’s “higher for longer” theme started to sink in.

At a glance

  • During the quarter, the S&P 500, Dow and Nasdaq declined 3.6%, 2.6% and 4.1%, respectively, in US dollar terms. Although economic growth remained robust, challenges were mounting, such as a potential government shutdown, rising energy costs, and the resumption of student loan repayments.
  • The S&P/TSX fell 3.0% during the quarter.
  • In the Eurozone, shares fell amid concerns about rising interest rates, while Asian equities declined due to concerns over the Chinese economy.
  • Emerging markets faced challenges from a strong U.S. economy and Chinese economic weakness.
  • The fixed income market struggled as interest rates rose, leading to the worst quarter for domestic bonds. Global government bond yields peaked before retreating, with the U.S. 10-year yield rising to 4.57%.
  • When long-term yields drop below short-term yields, it often signals an impending recession. As of July 2022, the yield curve inverted and has remained inverted for 14 consecutive months. So, why hasn’t a recession occurred yet? It’s crucial to remember that the yield curve isn’t the sole player in this scenario.
  • Tall Oak Capital Advisors’ investment approach benefited from the “risk-off” environment in the third quarter. We benefited from our defensive and diversified asset allocation to large-cap, high-quality companies. Higher energy prices also helped increase the value of our diversified basket of high-quality energy companies.
  • We remain cautious while looking for – and finding – investment opportunities. The yield curve inversion and recent changes have created opportunities in fixed income markets. We continue to hold underweight allocations to equities in the financials and utilities sectors and prefer to take advantage of the juicy yields being paid in these issuers through the corporate bond markets while avoiding the volatility of the equites in these industries.
  • Despite the higher interest rate environment putting pressure on equity valuations, we are seeing opportunities in thematic positioning, in energy and energy transition, health care, and in dividend-paying stocks.

The views expressed in this commentary are those of Tall Oak Capital Advisors as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Statistics, factual data and other information are from sources Tall Oak believes to be reliable but their accuracy cannot be guaranteed. This commentary is intended for distribution only in those jurisdictions where Tall Oak Capital Advisors are registered. Securities-related products and services are offered through Raymond James Correspondent Services Ltd., member Canadian Investor Protection Fund. Insurance products and services are offered through Gryphin Advantage Inc., which is not a member-Canadian Investor Protection Fund. This commentary may provide links to other Internet sites for the convenience of users. Tall Oak Capital Advisors is not responsible for the availability or content of these external sites, nor does Tall Oak Capital Advisors endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Tall Oak Capital Advisors adheres to.