News & Our Thinking

Ward Brown with a bull and bear image

Market Rates, Risks, and Twists | Bear vs. Bull Edition

03 October 2023

Interest rates, recession risks, inflation, and ever-present plot twists are the key trends to keep top of mind as we move into the fourth quarter. Ward Brown breaks down how bear and bull investors have been reacting to these trends and gives his take on a messy third quarter.


Hello, I’m Ward Brown. In football, the two-minute drill is a strategy used to move the ball down the field when there is a limited amount of time on the clock. With the football season in full swing and the fourth quarter rapidly approaching, we thought it was the right way to break down the current contest between the bulls and the bears. Let’s take a look.

So, what are the keys to the game right now? Top of mind for investors are interest rates, recession risk, inflation, and the ever-present plot twists.

Interest rates keep ticking higher, with the 10-year yield hitting the highest levels since 2007. Chairman Powell made it clear at the latest Fed meeting that economic strength and sticky prices mean rates are not coming down anytime soon. The bears believe that higher for longer interest rates will eventually prove too burdensome for economic activity, and the slowdown will transition to a recession. The bulls counter that so many companies and individuals took out or refinanced their loans when rates were a lot lower that it mutes the impact, and the economy is proving more resilient to higher rates than expected.

That brings us to the yield curve. The bears will point to the ongoing inversion of the yield curve for about a year and counting now as a still valid signal that a recession is looming. In the past, the curve has been inverted for longer than it is now prior to a recession, but there are also examples of getting through a tightening cycle without crushing the economy. Players on both sides are watching for the curve to steepen and then eventually turn positive because, historically, that’s when we get the final answer.

So, how about inflation? Several of the Federal Reserve’s preferred gauges have improved and are trending towards their objective. It is important to remember that does not mean prices are falling, but rather that prices are increasing, but more slowly. Most consumers will probably tell you that the cost of pretty much everything they do or buy is significantly more expensive than it was. Fortunately, to this point, while showing some cracks, consumer spending and credit trends are holding up pretty well.

Then, of course, there are the plot twists. The resumption of student loan payments and the government shutdown amongst them. The impacts of those are yet to be determined.

Another is the resurgence of labor stoppages, including the United Auto Workers Strike. When researching a company, we spend a lot of time getting comfortable with the management team and what we believe is the right way to run a durable business. It’s really unbelievable that the executives of the Big Three automakers jacked up their own pay like they did heading into the union negotiations. It’s pretty reckless, and it is irresponsible to shareholders. It’s been a while since labor had much leverage at all, but they do now, and that’s a different landscape than we’ve had.

Indisputably, nonetheless, there are pockets of strength in the stock market and good, solid, well-run companies capitalizing on those opportunities. Contra to expectations, earnings estimates for the companies making up the S&P 500 have been trending higher ahead of the Q3 earnings season.

So, in spite of all the above and a somewhat messy third quarter, the market has been holding on to pretty decent gains year to date, and we’re pretty proud that all Argent strategies are outperforming their respective benchmarks year to date.

Thanks very much for watching.


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