Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

Regular AAC (Asset Allocation Composite), SAA, and TAA portfolios are always rebalanced on the first trading day of a month. the next re-balance will be on Wednesday, November 1, 2023. 

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Market and Economy Review

As the fall season arrives, market instability has become evident. Interestingly, the economy appears to withstand the impact of high interest rates. The present economic and market conditions present a formidable challenge, even for the Federal Reserve Bank, an institution known for its extensive and in-depth data analysis.

In this newsletter, we delve into the current state of financial markets and assess the condition of the US economy and their impact on financial markets.

Current asset trends

The following are some of the very notable developments in financial markets:

  • Other than gold, all other major assets including US stocks have lower trend scores than cash. In addition, US REITs has been a disaster, ranking the lowest in the trend table:

Major Asset Classes Trend (as of 10/20/2023)

Description Symbol 4 Weeks 26 Weeks 52 Weeks Trend Score
Gold GLD 2.78% -0.36% 19.1% 4.99%
Treasury Bills SHV 0.83% 5.03% 9.12% 3.54%
Commodities DBC -0.55% 5.5% 2.19% 2.52%
US Stocks VTI -2.42% 3.24% 14.9% 1.3%
International Developed Stks VEA -5.05% -6.16% 19.18% -0.86%
Total US Bonds BND -2.56% -4.09% 4.27% -1.69%
Emerging Market Stks VWO -4.41% -3.83% 6.32% -2.48%
US Equity REITs VNQ -4.67% -8.34% 1.36% -6.02%

Notice that although all assets in the above table have had positive returns for the past 52 weeks, they managed to do so because of the comparison with the market lows last October!

  • Bonds are again not ‘safe’ anymore. In fact, BND, the broad base bond index ETF, is now losing money year to date. This comes in addition to its -11% loss in 2022. 
Fixed income bonds return (as of 10/20/2023)
Ticker/Portfolio Name YTD
2022 3Yr AR 5Yr AR 10Yr AR
BND (Vanguard Total Bond Market ETF) -0.1% -11.1% -4.0% 1.0% 1.5%
IGIB (iShares Intermediate-Term Corp) 1.6% -11.5% -3.0% 2.1% 2.1%
IEF (iShares 7-10 Year Treasury Bond) -2.6% -13.4% -6.6% 0.4% 1.0%
MBB (iShares MBS) -2.4% -9.7% -4.5% -0.2% 0.7%
MUB (iShares National AMT-Free Muni Bond) -0.0% -6.1% -1.1% 1.8% 2.5%
TIP (iShares TIPS Bond) 0.7% -7.2% 0.5% 3.8% 2.3%
TLT (iShares 20+ Year Treasury Bond) -12.2% -29.6% -16.2% -3.0% 0.4%
JNK (SPDR Barclays High Yield Bond ETF) 8.0% -6.5% 3.7% 4.2% 3.7%

Looking at the above table, we see that other than high-yield (junk) bonds and credit bonds, virtually everything else is losing ground year to date. This is again coming on top of negative losses in 2022 for all of the above bond segments. 

Also, other than TIP and JNK, most bonds delivered dismal returns for the past 5 and 10 years. 

  • Let’s look more closely at US stocks

US Equity Style Trend (10/20/2023)

Description Symbol 4 Weeks 26 Weeks 52 Weeks Trend Score
Russell Largecap Growth IWF -0.62% 9.12% 22.95% 4.73%
Russell Largecap Index IWB -1.77% 3.62% 15.15% 1.64%
Russell Midcap Growth IWP -2.11% -1.62% 11.38% -0.99%
Russell Largecap Value IWD -3.18% -2.32% 6.94% -1.7%
Russell Midcap Indedx IWR -3.42% -3.09% 6.63% -2.67%
Russell Midcap Value IWS -3.9% -4.04% 3.85% -3.59%
Russell Smallcap Value IWN -4.11% -2.79% -1.99% -4.55%
Russell Smallcap Index IWM -4.9% -4.85% -0.91% -5.3%
Russell Smallcap Growth IWO -5.53% -7.03% -0.26% -6.1%

US Sectors Trend (10/20/2023)

Description Symbol 4 Weeks 26 Weeks 52 Weeks Trend Score
Technology XLK -0.29% 11.89% 34.05% 7.27%
Energy XLE 1.06% 9.73% 10.65% 6.17%
Industries XLI -3.04% -0.29% 14.67% -0.16%
Healthcare XLV -1.61% -3.07% 4.14% -1.48%
Financial XLF -4.34% 0.54% 5.58% -1.56%
Consumer Discretionary XLY -5.74% 3.72% 8.27% -1.86%
Telecom IYZ -3.38% -2.79% 1.87% -2.14%
Materials XLB -3.92% -4.85% 8.04% -2.59%
Consumer Staples XLP -4.09% -9.65% 2.32% -4.11%
Utilities XLU -8.31% -13.9% -3.05% -8.25%

So even the strongest stock asset — US stocks are now showing a lot of cracks. In fact, the equal-weight S&P 500 stocks index fund RSP has had a negative -1.8% year-to-date return, compared with 12% return of SPY that’s heavily influenced by the so-called magnificent seven tech stocks including Apple (AAPL), Microsoft (MSFT), Google (Alphabet, GOOGL), Amazon (AMZN), Nvidia (NVDA), Tesla (TSLA) and Meta (META). 

Sector-wise, only technology and energy stocks still have positive trend scores, all are negative. What’s more alarming: the ‘safe’ sectors like utilities and consumer staples have the worst trend scores!

Another important observation: small-cap stock index fund IWM (Russell 2000) is now back to the level seen in May 2018!

In summary, it appears that the last remaining strongholds in the stock market are the large tech stocks. If these tech giants decline, it could lead to a broader market downturn since other stock segments are already in the negative territory, with some experiencing significant losses.

The current economy and inflation picture

The recent reacceleration of the US economy has created a perplexing scenario. Earlier this year, numerous experts had proclaimed the Federal Reserve’s success in combating inflation by swiftly increasing interest rates and implementing quantitative tightening. For instance, former US Treasury Secretary Larry Summers, known for his criticisms of the central bank’s delayed interest rate hikes, stated that the Federal Reserve’s battle against inflation is now “much, much closer to completion.” This statement reflects the complexity of comprehending the current inflation situation rather than serving as a critique of Larry Summers.

Let’s first look at several economic indicators:

  • The unemployment rate stays low at 3.8%, but it’s a bit higher than 3.5% a year ago, indicating a trend of labor market tightening, although not at a pace the Federal Reserve likes:

  • Consumers are still spending, and retail sales started to grow again. It is now slightly above its level a year ago:

  • Industrial output re-accelerated lately, again above its level a year ago:

  • Housing starts rose again in September, defying many’s expectations. However, we note that it’s actually lower than a year ago:

What the above tells us is that the US economy is still going too strong to quickly tame inflation. This is confirmed by the latest (September) inflation numbers; 

In the above, the CORE CPI, or the CPI minus energy and food rose again since its June low. CPI is more subdue. Both have declined from a year ago. 

Meanwhile, as we all know, long-term bond interest rates surged: the 10-year Treasury note’s rate was almost at 5%, the highest since 2007. This will definitely increase (or has increased) borrowing costs for many capital-sensitive industries. For example, the 30-year mortgage rate is now at 8%. If these rates stay at current high levels for long, they will for sure cause trouble for these sectors. 

The other immediate concern is for small-size companies’ debt situation as most of them have many debts that mature within the following 2-5 years and need to refinance the debts very soon. So higher interest rates will make a much bigger impact on them than their large-size peers. The following chart from Bank of America shows the maturities of long term debts for both S&P 500 (large-cap) and Russell 2000 (small-cap) companies:

The above also explains the weakness of the Russell 2000 index. 


Based on the provided data, it is evident that the economy is once again at a critical crossroads. If financial conditions, primarily indicated by borrowing costs, remain too restrictive, there is a significant risk of the economy sliding into a recession in the near future. On the other hand, if the central bank prematurely eases these conditions, it could trigger another wave of inflation, leading to hardships for both consumers and businesses. This situation represents one of those rare moments where patience is required to observe the unfolding events, as it takes time for higher interest rates to influence and slow down the economy. The key is to hope that the subsequent response, whether to tighten or loosen financial conditions, is not too late to achieve a soft landing—a scenario where the economy avoids a recession while maintaining acceptable inflation levels.

Market Overview

17% of S&P 500 companies have reported earnings for Q3 2023. So far, it’s a bit discouraging as the blended earnings (i.e. the actual and the rest expected results together) for the S&P 500 declined -0.4% year over year, worse than -0.3% expected on September 30, 2023. See Factset for details. 

At the moment, the S&P 500 index is sitting near its 200-day moving average, a significant level that represents up or down trends. As observed in the above, other sectors are already (deeply) in the red. So it’s crucial to watch this earnings period. 

As always, we claim no crystal ball and we call for staying the course which is guided by the well defined and sound strategic and tactical strategies:

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as we have emphasized numerous times when you choose and commit to a strategic portfolio, you essentially know and commit that your investment horizon (or the time you need to utilize this capital) is 20 years, preferably much longer, given the current high valuation. As we pointed out, if your investments are those diversified (index) funds such as an S&P 500 index fund (VFINX, for example), you know your money is in some solid ‘business’ that eventually (20 years later and preferably many more years later) will deliver some reasonable returns. As long as you are comfortable with this thesis, you should sit tight and forget about the current gyration.
  • For tactical investors, again, you have to ignore the current market noise. Furthermore, you should follow your strategy rigorously, especially during this time. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This is true time and time again.

Stock valuation has dropped, and now valuation is becoming less hostile. However, it is still not cheap by historical standards. For the moment, we believe it’s prudent to be extra cautious. However, how serious a correction might be, we have confidence in the US economy in the long term and thus in the stocks in aggregate. We just need to manage through interim losses carefully.

We again would like to emphasize that for any new investor and new money, the best way to step into this kind of market is through dollar cost average (DCA), i.e., invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot.

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