During times of uncertainty, we often look for structure, reason, patterns – things that make us feel like we can find safety and security in the unknown. We have been through many market cycles and know that each one looks and feels different. This market cycle has also been unique but has a certain complexity that is rooted in broad and lingering factors. This complexity has kept everyone searching for answers and guessing where we might be headed next.
The quarter was off to an optimistic start, driven by interest in AI technology. News of chatbots, companies incorporating AI, and the increased demand for semiconductors lead us out of the last quarter and through the month of July. August and September brought some challenges. The Federal Reserve raised rates another 0.25% in July and indicated the potential for one more increase before the end of the year. Though we know we are nearing the end of the tightening cycle, investors have been eager to declare a definitive end and seem to be processing the idea of higher rates for longer. The S&P 500 was down 3.6% for the quarter, but still up 11.6% year to date.
We are still faced with many unknowns that may continue to create headwinds in the upcoming months. Relations between China, Russia and the US are prompting companies to consider their geopolitical risk exposure. An upcoming election and potential government shutdown could create some uncertainty. Consumer spending has continued to be strong, but household savings are declining, and the resumption of student loan payments could start having an impact on this. Every economy, country, and company will go through times of volatility, whether it is caused by geopolitical, political, regulatory, market factors, or some combination.
The nature of a cycle is to expand and contract, then repeat itself again over time just with different cause and effect. This is the high-level pattern we must keep in mind when faced with the complex details that can cause confusion and misdirection. The details matter as we navigate the course of these volatile times, but it is important to keep in mind that we are long-term investors. As such, we understand that our portfolios will be subjected to volatility several times throughout our time horizon, but these unpredictable times are part of the nature of the cycle and there will be better times ahead. Complexity and uncertainty can create opportunities that will lead the way into the next phase of the cycle.
As always, we appreciate your ongoing commitment to our philosophy and welcome your questions. We will look forward to meeting with you in the upcoming months.Thomas L. Menzel, CFP® Laura Biermann, CFP®President Vice President