Model Portfolios | November Update

S&P 500 4193.80 :: 10-Year UST Yield 4.88% :: October 31, 2023

“The stock market is only distantly related to economics. It’s a function of greed, apprehension and panic, all superimposed on the business cycle.”

-Raymond F. DeVoe, Jr.

COMMENTARY

Since closing at a year-to-date high of 4,588.96 on July 31st, the S&P 500 experienced a -10.3% price correction when it reached its closing low of 4,117.37 on October 27th. Through October 31st, the S&P 500 is up 9.2% year-to-date.

In October, the NAHB/Wells Fargo Housing Market Index dropped four points to 40, marking its third consecutive monthly drop. A reading above 50 signals positive sentiment among single-family home builders. Mortgage rates at 23-year highs are taking a toll on builder confidence. All three index components fell: current sales conditions decreased by 4 points to 46, sales expectations for the next six months declined by 5 points to 44, and the traffic of prospective buyers dropped 4 points to 26.

The overall housing sector is experiencing a slowdown due to higher mortgage rates, which are having two impacts: 1) new buyers are finding it more difficult to afford to buy a home, and 2) existing homeowners are reluctant to sell their current homes and give up their attractive mortgage financing. As a result, existing home inventory remains depressed, and new home builders are using their ability to buydown mortgage financing to entice buyers to purchase at a more attractive mortgage rate. The limited inventory of existing homes for sale keeps home prices elevated and moves home buyers into new homes.

Money market fund assets have continued to climb all year as cash moves out of lower-yielding savings accounts into higher-yielding money market funds. The latest ICI.org data shows total assets held in money market funds eclipsed $5.7 trillion in October. The Vanguard Federal Money Market Fund (Symbol: VMFXX) offers a 5.3% 7-day yield and a 5.43% compound yield.

SERIES I SAVINGS BOND UPDATE

The U.S. Treasury announced the new Series I and Series EE Savings Bonds rates for purchases made from November 2023 through April 2024. As we wrote a few weeks ago, the updated Series I Bond rate increased with the semiannual inflation rate component rising to 1.97% (3.94% annualized) and the fixed rate component increasing to 1.3%. This brings the new composite I Bond rate up to 5.27%. We will have a longer post detailing the new Series I Bond next week, but the table below provides a breakdown of the new rate.

FEDERAL OPEN MARKET COMMITTEE

The Federal Open Market Committee (FOMC) held a two-day meeting on October 31st and November 1st. At the meeting, FOMC officials voted unanimously to keep the federal funds rate at the 5.25% to 5.5% target range. The Fed is also continuing to reduce its holdings of Treasury securities and agency mortgage-backed securities (MBS). In the post-meeting statement, FOMC members noted that “economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.”

The FOMC meeting was followed by a press conference hosted by Chair Powell. Here is the PDF transcript.

Below is the monthly update of the Marketimer Model Portfolios and the Brinker Fixed Income Advisor Model Portfolios through October 31, 2023.