2023 Third Quarter Commentary: Economic Recap & Market Summary

Several economic data points and policy news may have spooked investors into pausing their bid for risk during the third quarter, as risk assets seemed to reverse their strong positive performance trend. This past quarter also reminded investors of the unique challenges posed by persistent inflation and rising interest rates. It is becoming clear that the Fed’s hawkish stance has altered the traditional correlation between stock prices and bond yields. This is a significant shift from the historical success of 60/40 portfolios. However, while stocks and bonds posted negative returns for the quarter, alternative asset classes and strategies experienced gains.

As we head deeper into a new market environment, please read our latest quarterly commentary for perspectives on various asset classes and the direction we anticipate the economy and markets may take in the final quarter of 2023.


  • Economic growth remains decent, with both private and public spending rebounding and fiscal spending continuing rapidly. However, the overall economic mosaic reaffirms the Fed’s “higher for longer” stance and keeps pressure on asset prices.
  • The bond market experienced negative performance for the quarter and, if rates rise further, will potentially experience its third consecutive year of negative returns. In contrast, credit markets have fared better overall thanks to higher yields and lower defaults.
  • The budget deficit has reached 7.5% of GDP, which could be problematic, as it signifies unsustainable spending and risks crowding out private investment, potentially impacting the U.S. dollar’s durability. However, despite headwinds, there is still a plethora of attractive opportunities in fixed income markets.
  • The AI-driven enthusiasm that boosted stock valuations in the first half of 2023 has diminished, with rising real rates and capital costs raising concerns about the future. We maintain a cautious view on equities, as higher interest rates continue to impact consumer spending and corporate profits.
  • Alternative investments and strategies generally performed well throughout the quarter, providing a ballast against the losses incurred by equity and fixed income holdings. Our long-short equity manager, multi-strategy hedge funds and structured credit hedge fund manager all were able to post positive returns.
  • The investment landscape has significantly changed since 2020 due to rising interest rates, and the challenge is reconciling the economic outlook with current market risk pricing, which was previously influenced by near-zero cash yields. Diversification and breadth in portfolio allocations are essential in navigating this new environment.


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