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The Bull Takes a Breather Thumbnail

The Bull Takes a Breather

Doug Johnson CFA, Senior Investment Strategist

After a blistering start to 2023, the market appears to be catching its breath. Going into the Fed’s July 26th meeting, the Dow had been on a run of 13-consecutive up days, its longest winning streak since 1987. The Fed decision came and went with little fanfare, as the expected .25% rate hike was confirmed. However, the momentum finally ran out for the Dow as it narrowly missed reaching a 14-day win streak, an achievement not seen since 1897! 

Since early August, stocks have struggled to match their torrid pace from the first half of 2023. This is not surprising given the combination of overbought conditions on a short-term basis along with seasonality. According to Ned Davis Research, September has historically been the worst month for stocks, with the average gain -1%. Some may be quick to point out that we have not reached September yet and even quicker to point out that August has historically been a fairly good month, returning 0.9% on average. However, when we overlay that data over an additional timeframe, an interesting pattern emerges. 

A graph showing the fall of the presidential election 
Description automatically generated

The chart above illustrates the S&P 500 as it relates to the 4-Year Presidential Election Cycle. The blue line is the aggregate average of all cycles based on these periods, while the red line represents the current cycle, starting January 2021 through July 28, 2023. The red dashed box represents the timeframe of early August through mid-November. As you can see, we have just entered a “Seasonally Weak Period” based on this view. 

Why Do We Care? 

In addition to seasonality, economic data remains a mixed bag. Inflation has continued to cool on an annual basis, with the latest CPI reading coming in at 3%. While that number remains well below the cycle peak of 9% in June 2022, some are worried about the possibility of snap back inflation, as wages continue to remain sticky while energy prices have rebounded strongly. The biggest concern would be a repeat of the 70’s style inflation, where the initial peak in early 1975 was followed by a trough in 1977, only to rebound to a higher peak in early 1980.   

For now, there is no concrete evidence that we are about to embark on that path, and even so, the timeline from peak to trough to peak was about 6 years. Renewed inflation would certainly not be a welcomed development, but it would not be something that happened overnight either.   

Both employment and corporate earnings have remained sufficient. According to FactSet Earnings Insight, 2023 full year earnings are expected to come in at 0.8%, with 2024 projected to see growth of 12.2%. While the 2023 number does not jump out, it certainly is not in recession territory. Meanwhile, non-farm payroll data continues to show consistent growth in the labor market. As projections for a possible recession continue to get pushed out further and further, rates have responded by moving higher, with 10-year yields hitting cycle highs at 4.29% as of August 17th. 

The question remains if and when the lagged effects of the Fed’s aggressive rate hiking campaign will finally emerge. Outside of significant deterioration in earnings or economic data, which we are not seeing right now, we would view any short-term market volatility as a rebalancing opportunity, with the potential to tactically add to our equity positions. We also continue to see opportunities emerging in the fixed income market, as yield levels move higher. This, combined with inflation levels moving lower, has raised real (inflation adjusted) yield levels to 14-year highs.   

Think about it... 

“A lie can travel halfway around the world while the truth is putting on its shoes.” 
-Charles Spurgeon 

Performance Data 

  • IWV: -0.51% 
  • EFA: -0.04% 
  • EEM: -2.42% 
  • AGG: -0.63% 


  • CPI (Consumer Price Index) was largely in line, coming in at an annual rate of 3.2% vs. Expectations of 3.3%. This was a slight increase from last month’s 3.0% due to higher energy prices. 
  • FOMC minutes showed some Fed officials wanted to remain steady on rates, while others still fear an inflation comeback and left the door open for further rate hikes. 
  • Retail sales increased 0.7% in July, better than expected as consumer spending is holding up. 

If you have questions about the recent market conditions, please contact a member of HCM’s Wealth Advisory Team:


 Any tax or other advice contained in this document, including any attachments, is not intended and cannot be used for the purpose of avoiding penalties under Internal Revenue Code. No action should be taken on any information contained in this message without first consulting with your tax/legal advisors regarding the tax/legal consequences for your particular circumstances.

 Additional Notes:

  • The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in genera
  • Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance
  • Past performance does not guarantee future results
  • You cannot invest directly in an index
  • Consult your financial professional before making any investment decisions

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Doug Johnson CFA, Senior Investment Strategist  Doug Johnson CFA
Doug is the Senior Investment Strategist in the Investment & Research Department.  He guides the Investment Committee in developing and implementing HCM’s investment strategies. Doug and his wife Cindy live in West Chester with their two sons. In his free time, Doug enjoys family time, golf, playing and watching hockey, and travel.

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