Fall 2023 Investor Letter: A Pause
By: David I. Templeton, CFA, Principal & Chief Investment Officer
Author: David I. Templeton, CFA, Principal and Portfolio Manager
The third quarter market performance started strong as companies reported stronger second quarter earnings due to subsiding input costs. Year-over-year margin growth was above the 20-year average, making it the largest contributor to earnings growth. As the quarter progressed though, the market took a breather in August and September resulting in small declines across many indices in the quarter as discussed in the Investor Letter. Longer maturity bonds continued to show weakness, not unlike in 2022, partially in reaction to stronger economic data.
As we noted last quarter, many forecasters were calling for a recession by the middle of this year; however, now many strategists are moving away from the recession call. When everyone moves to one side of the boat, increased attention is necessary. With an improved earnings outlook, as noted earlier, and looking back historically, a negative 3rd quarter tends to lead to a positive comeback for the market as the year comes to an end as we highlight in our Investor Letter.
More of our thoughts on the quarter and expectations for the second half of the year are discussed in more detail in our Fall 2023 Investor Letter.
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