Quarterly Market Performance Commentary

The third quarter of 2023 saw a slow down from the market rally that we experienced in the first half of the year. Markets oscillated without a clear direction, ultimately with most equity and fixed income markets ending the quarter slightly down. The prominent S&P 500 index slipped 6.1% from its highs in July, marking a decline of –3.27% for the quarter. Still, it boasts an increase of 13.07% year-to-date. Similarly, the NASDAQ and Dow Jones ended the quarter down 5.8% and 3.4%, however, they are still up 27.1% and 2.7% year-to-date, respectively.

Figure 1: Morningstar Sector Index Performance

Earlier in the year, technology-oriented growth stocks, such as Apple, Nvidia, and Microsoft, sent the markets soaring. In contrast, these stocks weighed down gains in Q3 while energy stocks managed to limit broader market declines thanks to the rising prices of oil resulting from supply chain concerns (see Figure 1, left) (1). A significant force behind these market movements are the dynamics of bond yields and the Federal Reserve’s interest rate decisions. As uncertainty persists, many investors are eagerly awaiting the corporate earnings season in Q4, hoping it will provide clarity on corporate health and economic fundamentals (2).

Economic Fundamentals – Q3 2023

From an economic standpoint, several vital indicators suggest strength in the broader economy. We witnessed a surge in consumer spending over the summer, with many company leaders pointing to sustained demand and a strong labor market (3). Despite elevated inflation, high interest rates, and student loan payments resuming, the job market showcased its strongest growth since the year’s commencement (4). However, this news led the 10-year U.S. Treasury note, which affects borrowing costs for items like mortgages, to edge near 4.6% by the end of Q3 (see Figure 2, right).  Elevated yields impact consumer discretionary income and hamper company purchasing power.

Figure 2: Treasury Yield and Federal-Funds Rate

Furthermore, these positive economic signs have investors speculating that the Federal Reserve might maintain elevated interest rates for a prolonged period, inducing some waves of concern.

Despite some optimistic economic data points, not all indicators are trending upward. Household savings, which surged during the pandemic’s apex, have dwindled (5). The impending restart of student loan repayments also looms large, potentially further constraining consumer spending (6). A robust dollar challenges U.S. firms relying on overseas sales (2). Lastly, with bond yields on the rise, stocks have begun appearing considerably less enticing compared to the near risk-free returns.

In this complex economy, deciphering market cues continues to prove challenging. Education remains key during uncertainty and a bedrock of our counsel remains steadfast: diversification. By diversifying investments across various sectors and asset classes,  investors can better protect themselves against the whims of market volatility. Forest Capital Management (“FCM”) remain poised to assist plan sponsors and retirement plan participants with their inquiries.

Legislative Update – SECURE 2.0 in 2024

As was discussed in our Q4 2022 newsletter, the SECURE 2.0 Act, enacted on December 29, 2022, is a legislative advancement of the 2019 SECURE Act.  With 92 new regulatory provisions, SECURE 2.0 aims to bolster the retirement system, enhancing the benefits of retirement plans, and better positioning participants for retirement. The Act introduces a series of modifications to retirement plans which will be phased in over the course of the next several years and include provisions that are both mandatory and optional.

As 2024 nears, it’s crucial to be aware of the provisions that will either become obligatory or optional for your plan at the year’s onset. 2024 mandatory provisions for existing retirement plans address areas such as the exclusion of Roth contributions from required minimum distributions (“RMDs”) and RMD changes for surviving spouses (7).  Mandatory Catch-up deferrals into Roth for individuals who earn $145K or more (prior-year FICA compensation) was to be required in 2024, however, the effective date of this provision was postponed to 2026 to allow for proper implementation on the recordkeeping and payroll side.

2024 optional provisions encompass modifications to specific types of withdrawals relating to domestic abuse and emergency expenses, student loan matching, the formation of pension-linked emergency savings accounts (“PLESAs”), and an increase to the small balance rollover limit. With the exception of the Roth catch-up contributions, most mandatory provisions will be managed behind the scenes, minimizing the need for direct involvement from plan sponsors.  An overview of these provisions can be viewed in Figure 3, right.

As the provisions of The SECURE 2.0 Act roll out over the next several years, significant efforts will be directed towards updating plan provisions and recordkeeping platforms. FCM is committed to collaborating with recordkeepers, third-party administrators (“TPA”), and plan sponsors to ensure that plans remain current and compliant with the Act’s forthcoming mandatory provisions.  FCM is here to offer detailed information on available provisions and provide guidance tailored to the needs of both plan sponsors and participants. We will assist you in navigating the right channels to ascertain a provision’s applicability to your plan, support with plan document modifications, implementation, and any requisite notifications. However, as with all formal decisions regarding a qualified retirement plan, the final decision will ultimately be the responsibility of the plan sponsor to determine which are most suitable.

  1. King Jr., Neil. “Oil Tops $90 on Range of Worries.” The Wall Street Journal, 26 October 2023, https://www.wsj.com/articles/SB119335553706972227?mod=article_inline
  2. Miao, Hannah. “Investors Hope Earnings Season Will Revive Stocks.” The Wall Street Journal, 8 October 2023, https://www.wsj.com/finance/stocks/earnings-season-stock-rally-investors-3b166c2a?mod=djem10point
  3. Torry, Harriet. “Summer Spending Surge Shows Consumers Driving Economic Growth.” The Wall Street Journal, 31 August 2023, https://www.wsj.com/economy/consumer-spending-personal-income-inflation-july-2023-f9ca1e14?mod=article_inline
  4. Guilford, Gwynn; Timiraos, Nick; and Chaney Cambon, Sarah. “Surprisingly Strong Hiring Sends Bond Yields Higher.” The Wall Street Journal, 6 October 2023, https://www.wsj.com/economy/jobs/jobs-report-september-economy-unemployment-d9409b8b?mod=article_inline
  5. Lahart, Justin. “How Much Savings Do Americans Have Left, Anyway?” The Wall Street Journal, 26 September 2023, https://www.wsj.com/economy/central-banking/how-much-savings-do-americans-have-left-anyway-f1bac32e?mod=article_inline
  6. Rubin, Gabriel T.; Pinsker, Joe. “Student-Loan Restart Threatens to Pull $100 Billion Out of Consumers’ Pockets” The Wall Street Journal, 16 September 2023 https://www.wsj.com/personal-finance/student-loan-repayment-consumers-economy-2218ca25?mod=article_inline
  7. “SECURE 2.0: Rethinking retirement savings” Fidelity, 26 September, 2023 https://www.fidelity.com/learning-center/personal-finance/secure-act-2