Quarterly Review and Outlook - October 2023

Dear Clients and Friends,

Time and tide wait for no man.

– Geoffrey Chaucer

Chaucer’s “The Clerk’s Tale,” part of the broader Canterbury Tales collection and the source of our proverbial opening quote, can be interpreted as a tale of enduring patience, but also one of submission and passivity in the face of adversity. In the tale, we learn of young queen Griselda’s tolerance for her husband’s cruel tests of loyalty and faithfulness, and how, in time, she is rewarded for her perseverance. (Spoiler: they live happily ever after.) Now, when it comes to adverse financial market conditions, we at Evermay often tend toward a passive approach as well, knowing that most of the time, patience and a steady hand at the helm have been the keys to successfully navigating choppy fiscal waters. Once in a while, though, the economic tides change and financial currents become erratic, requiring a more hands-on course of action.

Notably, since our letter to you in early July, interest rates have moved meaningfully higher even as inflation expectations moderated and projections of US economic activity point to a probable deceleration in 2024. In fact, across all bond maturities, the US Treasury yield curve is now near or above the highest levels of the past 20 years, according to FactSet.[1] One might expect persistently high interest rates if the economy and inflation were poised to zoom higher. Wall Street consensus forecasts hint at a different story: Gross Domestic Product (GDP) is expected to decline from the current 2.0% annualized rate to a dawdling 0.7% pace next year, highlighting the possibility of at least a mild recession in the not-too-distant future. Similarly, the Consumer Price Index (CPI) is projected to show inflation dropping from the current year’s 4.1% rate to a more Fed-friendly 2.6% level in 2024.[2] If these forecasts prove accurate, or are even simply in the ballpark, the odds grow that the Federal Reserve might well consider a more dovish interest rate policy as soon as next year. And if that proves to be the case, then now might be the time to make modest changes to our clients’ bond positioning.

Time and tide wait for no man.  A pompous and self-satisfied proverb, and was true for a billion years: but in our day of electric wires and water-ballast we turn it around: Man waits not for time nor tide.

– Mark Twain

As we have noted in prior letters and conversations, we have been “short duration” in our fixed income exposure for the past few years, which in simple terms means we have held bonds and bond funds with very short average maturities relative to the widely used benchmarks.[3] We believe this strategy has worked favorably for Evermay clients, who have been able to take advantage of the steady rise in interest rates that began at the end of 2021 by reinvesting the proceeds of maturing short-term bonds at increasingly higher levels. Moreover, our view remains that our clients’ fixed income holdings should be viewed as ballast for the portfolio, and we do not want to take excessive credit or interest rate risk in that asset class. Shorter duration bonds, by their nature (and confirmed by mathematics), are less volatile than longer-duration bonds, and, thanks to the atypical, inverted shape of the Treasury yield curve over the past year and a half, our clients have actually earned higher yields owning those short-term, less risky securities than if they had held longer-term bonds.

The goal is not to sail the boat, but rather to help the boat sail herself.

– John Rousmaniere, author of technical handbooks on boating safety and sailing during storms.

Navigating change is rarely easy, and forecasts of significant moves in the financial markets often miss the boat. That said, we believe our clients’ patience in holding short-term fixed income securities has thus far been rewarded, but now may be the time to adjust the sails, just slightly, as we head into murkier economic waters.  By our estimations, an average bond duration slightly longer than the short-term fixed income benchmark should allow clients to lock in currently high interest rates for a longer period of time, even as we maintain a laddered approach to our individual bond holdings (where appropriate) and preserve portfolio liquidity via the use of short-term bond funds. We may be somewhat early in implementing this change, but a small dose of opportunism while interest rates are near two-decade peaks seems prudent to us.


In the last quarter, the stock market saw heightened volatility as the rise in interest rates gave a haircut to equity valuations. The S&P 500 lost 3.27% on a total return basis during the three-month period, but was still up more than 13% on the year through the end of last quarter.[4] Earnings expectations for S&P 500 companies rose slightly during the period, as many second quarter earnings reports (released during the third quarter) came in above forecasts. Though the financial press still pushes forth the idea that only a small handful of companies are driving index performance, we find it notable that, of the 500 companies in the large cap stock benchmark, 380, or 76%, reported earnings above expectations. And, at present, operating earnings for the S&P 500 are projected to grow another 12% in 2024, according to data from Standard and Poor’s.[5]   

We thus remain cautiously optimistic for the remainder of the year, though the uncertainty caused by higher interest rates could drive continued volatility for both stocks and bonds. As always, we remain vigilant to possible changes to economic and market prospects. We recognize there are uncertainties to any outlook and surprises may yet happen, in the markets and in our personal and professional lives. We encourage you to reach out at any time to discuss your portfolio to ensure your mix of assets is appropriate and aligned with your financial goals.

With best wishes for the last quarter of 2023,

Mitch Schlesinger

Chief Investment Strategist





[1] FactSet, US Treasury Yield Curve as of 10/2/2023

[2] FactSet Economics, US Country Summary as of 10/2/2023

[3] For comparison, our recent internal target duration for fixed income holdings has been approximately 0.8 years, compared with around 1.8 years for the Bloomberg US Treasury 1-3 Year Index, and just over 6 years for the Bloomberg US Aggregate Bond Index

[4] FactSet, S&P 500 total return 6/30/2023 to 9/29/2023 and 12/30/2022 to 9/29/2023

[5] Earnings beats and estimates: S&P Dow Jones Indices, via SPGlobal.com, as of 9/29/2023


Important Disclosure Information

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Evermay Wealth Management, LLC [“Evermay]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Evermay. No amount of prior experience or success should not be construed that a certain level of results or satisfaction if Evermay is engaged, or continues to be engaged, to provide investment advisory services. Evermay is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Evermay’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.evermaywealth.com.  Please Remember: If you are a Evermay client, please contact Evermay, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.