OA On the Road Again as Summer Comes to a Close
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The Offit Family spent part of August with Mickey and the crew for an amazing Disney vacation, which included a day at Disney's Magic Kingdom and a wonderful Disney cruise.
Meanwhile, Laura checked off two destinations, enjoying time with friends in Puerto Rico, and visiting family in her native Germany. And Zach headed out west to spend some time with family in beautiful Montana.
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Good Grapes! OA's World of Wine Event Was a Smashing Success
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In September, we hosted a World of Wine tasting event in our office for a small group of clients. We had a masterful Sommelier experience with Jeff Jamieson who led us on a history of wines from around the world. It was an enjoyable evening with great clients and great conversation, and we look forward to more events like this. Please let us know if you would be interested in such an event in the future.
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Considering joint financial accounts with your partner? Ben Offit, principal at Offit Advisors, suggests finding “ways to come to an agreement about how you will manage together.”
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The amount held in money market mutual funds has recently hit a fresh record of $5.625 trillion.
MSN, September 15, 2023
Chinese goods made up 13.3% of U.S. imports during the first six months of this year- the lowest level since 2003. The peak was nearly 22% in 2017.
The Wall Street Journal, August 12, 2023
An average NFL broadcast lasts well over three hours, yet it delivers a total of only 18 minutes of football action.
FiveThirtyEight, January 31, 2020
Returns to online retailers are now averaging close to 20%, and returns of apparel are often double that. Winter holiday returns in the U.S. are now more than $300 billion dollars a year, or about one and a half percent of GDP- which would be bigger than the GDP of many countries worldwide.
The New Yorker, August 14, 2023
“Whatever you do, always give 100%. Unless you’re donating blood.”
Bill Murray
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Stocks End Summer on a Volatile Note; Bond Yields Surge Higher
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HIGHLIGHTS
- Stocks took a pause in August. After two months of market breadth improvement and a solid summer rally, equities slid lower for the month.
- The VIX Index, a measure of stock market volatility, rose to its highest level since late May as stocks struggled during August.
- Bond yields rose to their highest level in years in August, surpassing the recent highs from last October. The 10-year U.S. Treasury closed at a high of 4.34% during August – its highest level since 2007. However, the yield slid lower to close the month at 4.09%.
- The increase in yields during the month put pressure on bonds and fixed income returns were broadly lower in August outside of high yield.
- The economy remains resilient, but signs of slowing seem to be developing on the job front. The unemployment rate remains low, but job growth has slowed, and job openings have declined in recent months. This development is not that unexpected at the end of this aggressive rate-hike cycle.
- Corporate earnings are improving.
EQUITY MARKETS
Equities moved lower in August after what had been a very solid run for stocks in recent months. The not-too-unexpected decline hit those areas of recent strength particularly hard – small caps and value stocks. Large-cap growth, which has been the clear leader so far this year, saw more modest declines. International stocks also struggled in August. See Table 1 for equity results for August and year to date.
Table 1
| Index |
August 2023 |
YTD |
| S&P 500 |
-1.59% |
18.73% |
| S&P 500 Equal Weight |
-3.16% |
7.24% |
| DJIA |
-2.01% |
6.37% |
| Russell 3000 |
-1.93% |
18.01% |
| NASDAQ Comp. |
-2.05% |
34.88% |
| Russell 2000 |
-5.00% |
8.96% |
| MSCI ACWI ex U.S. |
-4.52% |
8.78% |
| MSCI Emerging Mkts Net |
-6.16% |
4.55% |
Source: Bloomberg For illustrative purposes only. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index.
The average stock encountered a more challenging environment in August. Recall, the equal-weighted S&P 500 Index (which can be thought of as representing what the average stock is doing) was negative through the first five months of the year and it dropped -3.16% in August compared to the better-known market-cap weighted S&P 500 Index, which slipped only -1.59%.
This disparity tells us that smaller companies struggled in general more than larger companies and we saw that with the Russell 2000 Index (a measure of small-cap stocks) down -5.00% for the month. By comparison, the larger company Russell 1000 Index was down -1.75%. Furthermore, the growth/value disparity is easy to see compared to the Russell 1000 Growth Index, which is off only -0.90% compared to the Russell 1000 Value Index, which declined -2.70%. So, August really epitomized the general action we have seen overall in 2023 – large-caps have outperformed small-caps and growth has outperformed value.
Broad international equities underperformed U.S. markets in August, as has been the case for most of 2023. The MSCI ACWI ex. U.S. Index was down -4.52% in August and the MSCI Emerging Market Index fell -6.16%. Both monthly declines put a large dent in year-to-date returns for these indices, which showed gains of 8.78% and 4.55%, respectively. We still see opportunities in international markets with valuations that are significantly lower than the U.S. Our expectation is that the U.S. dollar will largely weaken over the short to intermediate-term, but so far this year, U.S. stocks have outperformed international stocks.
FIXED INCOME
As rates rose, bond returns struggled during the month. The 10-year U.S. Treasury yield has been trending upwards since the late spring and closed July at 3.97%. This trend continued in August as the 10-year hit its highest level mid-month since the credit crisis before closing the month at 4.09%. That compares to the 2022 close on the 10-year of 3.88%. So, while rates have been volatile, they have moved higher in 2023. We can see that the 30-year U.S. Treasury Index is now negative year to date. High yield bonds were an outlier making gains during the month as there does not appear to be stress in the credit markets. See Table 2 for fixed income index returns for August and year to date.
Table 2
| Index |
August 2023 |
YTD |
| Bloomberg U.S. Agg |
-0.64% |
1.37% |
| Bloomberg U.S. Credit |
-0.72% |
2.70% |
| Bloomberg U.S. High Yld |
0.28% |
7.13% |
| Bloomberg Muni |
-1.44% |
1.59% |
| Bloomberg 30-year U.S. TSY |
-3.13% |
-2.25% |
| Bloomberg U.S. TSY |
-0.52% |
0.70% |
Source: Bloomberg. For illustrative purposes only. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index.
We expect the 10-year U.S. Treasury yield to move lower as we go through 2023 and into 2024, but we also anticipate volatility along the way. We believe the recent move higher in yields was driven by the large supply of government bonds coming to market and is not reflective of interest rate fundamentals. High yield bonds have been the winner so far in 2023, which is not that surprising given such solid stock market gains. Bonds have enjoyed a better environment in 2023 compared to a historically challenging period for fixed income in 2022; however, the last three months have been more challenging for bonds with rates rising.
We maintain our long-standing position favoring credit versus pure rate exposure in this interest rate environment. We also believe the role bonds play in a portfolio, to provide stable cash flows and to help offset the volatility of stocks in the long run, has not changed. In our view, bond yields are attractive, and are offering some of the highest yields we have seen in the last 15 years.
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S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.
Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.
NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index which includes the 3,000 largest companies in the U.S., based on market capitalization. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of 218.4 million.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Government bonds are guaranteed by the U. S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value.
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Securities offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Offit Advisors is not affiliated with Kestra IS or Kestra AS. Offit Advisory Services, LLC is a tax firm but neither Kestra IS nor Kestra AS provide legal or tax advice and are not Certified Public Accounting firms.For more information on the Five Star Wealth Manager and the research/selection methodology go to: www.fivestarprofessional.com. Investor Disclosures: https://bit.ly/KF-Disclosures
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