2023 Fall Market Overview & Economic Update

The third quarter of 2023 is a redo of the first and second quarter of 2023. The Federal Reserve Bank has continued raising rates to control inflation. Overall, the Fed has raised interest rates steadily over the past year and a half and has been successful in lowering inflation from 9% down to the current 3.2%. However, the target interest rate is 2% and we are not there yet. Not fully satisfied with the progress so far, the Fed governors have clearly spoken of additional rate increases if the economy remains hot and inflation doesn’t move closer to the target rate of 2%. I will address the good and bads later in this newsletter.

In addition to simply raising rates to control the overall inflation picture, there have been other issues that the Fed has needed to address in its battle to control inflation. Speaking of the current environment, the employment picture in the United States has remained healthy. Only 3.8% of the U.S. the working population is unemployed. Ideally, the Fed would like to see the unemployment rate closer to 4.5% which would signal that the economy has slowed to a more measured level. The economy has remained hot in part because of robust consumer spending driven by higher wages. This is one reason that the Fed is keeping options open for further rate increases. The Fed estimates that the higher rates will eventually slow the economy making borrowing more expensive.

A fair question to ask is “have the Fed’s actions to raise rates and slow inflation been productive?” The answer to the question is yes. The Fed has been raising rates for a year and a half. The higher rates have slowed the economy. The Fed has additional stated that rate hikes are still a possibility if the economy doesn’t slow further. The central bank’s actions have had numerous positive results. Wage increases are beginning to show signs of slowing because of higher rates. Mortgages have passed 8%. Existing home sales slowed last month by roughly 2%. 8% mortgage rates have dampened the appetite of potential homebuyers.

Employment is being impacted by slower corporate earnings. Although this has been a reasonably good earnings season for the S&P 500 companies. Earnings have risen, but have fallen short of analysts’ expectations. Even though corporations are making money, it’s just not as much money as what had been predicted by the analyst community. This slowing of earnings may in part lead to eventual layoffs which could well get unemployment closer to the 4.5% level that the Fed finds reasonable. This may well influence the Fed to not raise rates further. The bank did not raise rates in November allowing the economy to practice a little self-healing and slow down on its own. My sense is that the push to raise rates might well be coming to an end.

What is the outlook for the markets? The markets have taken a pounding this year, especially in September and October. Traditionally September and October are challenging months for the markets. However, a combination of current events causing distress around the world and conflicts within our own political landscape have added to the uneasiness of the markets. Unfortunately, we have too many elected officials that have forgotten that they are in office to act for the betterment of the country and our citizens, not their own political self-interest. November and December are generally good months for the markets. The mood changes for the better as we approach the holidays and traditional gift buying factors in along with spending time with family and friends. Earnings should remain positive with the economy likely settling into a more subtle growth pattern. My expectations are that the economy will exercise some self-healing and the Fed will restrain itself from raising rates further. I am encouraged that we are headed in the right direction and that we are seeing the light at the end of a long tunnel.

 

Please feel free to call me with any questions that you may have.

As November 4th, Guerra Investment Advisors moved offices from our downtown location to the westside of town off of Interstate 10 and Sunland Park Dr. We have enjoyed our 15 years in our downtown location. We do, however, look forward to our new office location. Our telephone number will remain the same. We look forward to welcoming you to our new offices. Our formal address is listed below:

5812 Cromo Dr., Suite 203

El Paso, Texas 79912

(915) 760-5551

 

Best regards,

Ruben E. Guerra

Guerra Investment Advisors

915-760-5551