October Market View

By Argent Wealth Management, LLC on October 9, 2023

Conclusions

• Uncertainty over the future of inflation and Fed policy may keep investors on edge, and markets volatile.
• Inflation could continue to trend down while the economy stays strong. 
• The consumer is strong and can handle higher rates.  The odds of a recession are low.
• For the above reasons, it is unlikely we are headed for another bear market.  It is more likely the uptrend that started in October 2022 resumes.

Employment Situation

• There remains ~1.5x the amount of job openings per unemployed in the U.S., suggesting there remains more demand than supply for labor.
• Despite a tight labor market, the Atlanta Fed Wage Growth Tracker continues to decline, which helps reduce inflation pressures.

Credit Conditions

• The availability of credit to consumers and businesses is improving. 
• If a recession was imminent, credit conditions would be worsening.
• The credit conditions index is comprised of spread, delinquency, debt service, debt capacity, and lending standards indices.

The Consumer and the Economy

• Consumption is about 70% of GDP in the U.S.  The U.S. consumer has had higher than normal excess savings.  ‘
• A major reason for this was extraordinary stimulus during the COVID-19 pandemic. 
• After tax disposable income remains robust.

Balance Sheets

• Confirming consumer strength, financial obligations ratio and debt service ratio remains low relative to history.
• Consumers remain in good shape.

Recession Odds

• Overall, the odds of a recession have declined throughout the year.
• And stocks tend do well when the odds of a recession are low.

Yield Curve

• The yield curve has steepened, becoming less inverted.
• An inverted yield curve has often portended a recession.  A steeper yield curve reflects lower odds of a recession.
• The yield curve also reflects inflation expectations.  A less inverted yield curve with higher rates may be reflecting investors expectations that a robust economy is the very thing that could keep inflation higher for longer.
• Higher inflation for longer would keep the Federal Funds Rate (FFR) higher for longer as well.

The Federal Reserve

• Since it is uncertain how fast inflation will continue to decline, and the economy remains strong despite the fastest tightening cycle in history, investors have priced in greater odds the Fed raises the FFR again and keeps it higher for longer.
• If the Fed raises the FFR one more time, it will at its highest point since 2001.

Inflation Model

• Inflation is on a downward trajectory.
• NDR’s inflation model is in the moderate disinflation zone.  In this zone, the Consumer Price Index goes down by .99 percentage points per annum. 

Inflation

• Inflation dropping ~1 percentage point would bring it to a healthy level.
• Even if the Fed does raise rates to lower inflation faster, the economy is in good enough shape to withstand the increase.

Bull Market?

• IMV, the Russell 3000 ETF, represents the total U.S. stock market.
• It has been in a bull market since October 2022, but it failed to reach all time highs set at the end of 2021. 
• It has been in a downtrend for the last three months, which has a lot to do with the uncertainty around inflation and Fed policy.

Sentiment

• Sentiment went from optimistic to pessimistic as the market declined.
• Stocks tend to do better over time when there is fear and uncertainty (pessimism) as bad news is already priced in. 
• Therefore, any incremental good news as more positive impact than incremental bad news.
• Since 12/30/1994, stocks are up 26.57% per annum when this indicator is below 41.5, as it is now.

History of Bull Markets

• The odds of a recession are low, and inflation is on a downward trajectory, so it is unlikely we are headed for another bear market.
• The bull that started in October of 2022 is likely to resume at some point.
• The mean for all bull markets is an 85.9% gain over 576 market days. 
• The Dow Jones is up less than 20% over about 250 market days.

Appendix

Bitcoin, Cryptocurrency, and Blockchain Technology

• Bitcoin as a monetary good.
• Money is durable, divisible, fungible, portable, verifiable, and scarce. 
• Bitcoin possesses the scarcity and durability of gold, with the ease of use, storage, and transportability of fiat (even improving on it). 
• Only 21 million bitcoins will ever be created.  Inflation rate is set, as opposed to Fiat, where no one knows the inflation rate.
• It allows the oppressed, underbanked, and those around the world living in unstable currency or political regimes (over 80% of the world) to have more control of their life.
• ESG:  For review on the case that BTC is an ESG asset, see articles by Daniel Batten and his team: https://bitcoinmagazine.com/authors/daniel-batten

• It is a decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.
  • Triple entry bookkeeping system.  http://financialcryptography.com/mt/archives/001325.html

• Users have full control over their money with no government or central authority.
• Transactions are secure, irreversible, and do not contain any personal information. 

Argent Investment Strategies

www.argentwm.com/investment-strategies.html

• Macro Asset Allocation (for over 25 years).
  • ETF & Mutual Fund versions
    • Tactical Macro Strategy

• Argent Stock Strategies – Focused on long-term societal and macro trends (since 2012).
  • High Dividend
  • Value
  • Growth
  • Long/Short

• Private Equity and Real Estate (since 2006)

For fact sheets and performance, please reach out to acook@argentwm.com

Biography

Matt Sapir Ristuccia, MBA, CFA
Chief Investment Officer

Matt is Argent’s Chief Investment Officer (CIO).  Matt joined Argent in 2011 as an Analyst.  In 2013 Matt was named Director of Investment Research, and in 2017 Matt was named Co-CIO before being named CIO in 2019.

 As the CIO, Matt leads all aspects of Argent’s investment programs and processes.  This includes setting the direction and oversight of internal and external asset allocation strategies, equity strategies, fixed income strategies, and private equity and private real estate investments. 

Matt joined Argent in 2011 after graduating summa cum laude (top 5% of class) from Olin Graduate School of Business at Babson College where he also received The Student Leadership Award.  Matt completed all three levels of the CFA program in 2011 as well.  The CFA Designation is globally recognized as the highest set of credentials in the investment management industry.  In 2017 Matt completed the Investment Management Workshop at Harvard Business School (HBS).  Started in 1968, this selective executive education program brings together leading HBS faculty with leading investment executives from around the world and focuses on investment and business strategy. 

At Babson Matt was selected to help manage Babson’s Endowment specializing in healthcare stocks.  During this time Matt worked closely with the head of this program who was the former Head of U.S. Equity Research at Fidelity.  Matt received his B.A. from Wheaton College where he was a First Team All-New England soccer player and helped lead the team to a final four appearance in 2003.  Before attending Olin and after graduating in 2005, Matt worked with his grandfather, Louis Sapir, an esteemed disciple of Benjamin Graham, “the father of value investing.”

Email: mristuccia@argentwm.com

Disclosures

IMPORTANT DISCLOSURE INFORMATION

Argent Wealth Management is a group of investment professionals registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

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