The Ironwood Recap – Market Update – September 21, 2023 

The Fed had its September meeting yesterday and held rates
steady as expected.  What now seems to be par for the course is that
inflation is being more stubborn than expected.  This has been the
overriding theme since the Fed started contemplating rate hikes a couple of
years ago.  There is more inflation, and it is harder to stamp out than
expected.  The Fed is now mostly likely expecting one more rate hike in
2023 and is expecting fewer cuts in 2024.  On top of that, they are now
estimating that it will be 2026 before rates drop back down by about 3%.

 The key takeaway from this is that once again the Fed’s
forecast was inaccurate and changes.  So take all of this with a big grain
of salt.  That’s not to say they are doing a bad job.  In fact, the
economy is humming along nicely and the “hard landing” that worried many has
yet to show up.

 From a portfolio perspective, this just adds more time to
the “Are we there yet?” question that the market keeps asking.  On a
positive note, it means that we can lock in higher rate, longer term
bonds.  The yield curve is starting to catch on that the quick spike in
interest rates isn’t going to be as short-lived as expected.  For example,
about 6 months ago the ten year treasury was paying less than 3.5% while short
term yields were above 5%.  Now it’s up at about 4.5% and the short term
yields are still in the mid five percent range.  This allows us to go out
a bit further and receive higher rates on our bonds, many of which are paying
from 6% to 8.5% to maturity.

 From a stock market perspective, this new Fed forecast just
delays the rally.  Remember, so far in 2023, most of the stock market
rally has been in a few stocks, the mega-caps.  Much of the rest of the
market is still trading at a very depressed level when considering PE
ratios.  We still expect those stocks to recover significantly when the
Fed signals that the next step for rates is downward.  In the meantime, we
did a  small rebalance when the S+P was above 4550 and if it strays too
far from that level in either direction, we will rebalance again.  If the
market continues its current downturn, we will buy stocks and if returns to
rallying, then we will sell some.

 As always if you have any questions or concerns, please
don’t hesitate to reach out to us.

Enjoy the end of the 100 degree days for 2023!