November 2023

November 2023

by Clare Market Investments on Nov 6, 2023

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Monthly Market Summary

The S&P 500 Index declined -2.2% in October but outperformed the Russell 2000 Index’s -6.9% decline. The Utility sector was the top-performing S&P 500 sector, while Energy and Consumer Discretionary led to the downside. 

Corporate investment-grade bonds produced a -2.4% total return in October, underperforming corporate high-yield bonds’ -1.0% total return. 

International stocks underperformed U.S. stocks. The MSCI EAFE Index of developed market stocks declined -2.9% and slightly outperformed the MSCI Emerging Market Index’s -3.3% return.

Stocks Decline for a Third Month as Rates Reach Highest Levels Since 2007

The S&P 500 gained more than 20% through the end of July but has since declined 8.3% over the past three months, bringing its year-to-date gain to 10.6%. A significant factor behind the recent equity market sell-off has been the sharp rise in interest rates, with the 10-year U.S. Treasury yield climbing +1.25% from mid-July through mid-October and rising above 5% for the first time since 2007. This surge in Treasury yields continues to weigh on both stocks and bonds as valuations adjust to a world of higher interest rates. Small-cap stocks underperformed large-cap stocks by over -4.5% in October, and defensive sectors outperformed cyclical sectors. In the credit market, bonds posted another month of negative returns. The following paragraphs discuss why stocks and bonds tend to experience pressure during rising rate periods.

Why Rising Interest Rates Cause Bonds & Stocks to Trade Lower

Consider two bonds: Bond A was issued one year ago and pays a fixed 2% interest rate, and Bond B was issued one month ago and pays a fixed 2.5% interest rate. On an annual basis, Bond A yields $2 per $100 of principal, while Bond B yields $2.50 per $100 of principal. Assuming all else is equal, a rational investor would choose Bond B because of its higher yield. To attract investors to buy Bond A and align its yield with Bond B’s 2.5% yield, the market will adjust the price of Bond A lower. In our example, the price of Bond A will decline so that its fixed $2 interest payment corresponds to a 2.5% yield. At this adjusted price, investors would earn a 2.5% yield with Bond A, making them indifferent to choosing between Bond A and Bond B.

Rising interest rates also cause stocks to trade lower. As interest rates climb, bonds offer a higher expected return, which makes bonds more competitive with stocks. The higher expected return on bonds can prompt investors to sell stocks and buy bonds, causing stock prices to decline. Higher interest rates also increase borrowing costs, which can slow economic growth and reduce corporate profits. If investors expect slower earnings growth, stock prices may decline as investors seek lower valuations to offset the heightened earnings risk.




Clare Market Investments, LLC is a Registered Investment Advisor. This material is for informational purposes only. It is not intended as and should not be used to provide investment advice and is not an offer to sell a security or a recommendation to buy a security. The information is derived from sources believed to be reliable and accurate as of the date of this report, but Clare Market has not audited this information to validate accuracy. Further, information may be at a point in time and subject to change. This summary is based exclusively on an analysis of general market conditions and does not speak to the suitability of any specific proposed securities transaction or investment strategy. Judgement or recommendations found in this report may differ materially from what may be presented in a long-term investment plan and are subject to change at any time. This report’s authors will not advise you as to any changes in figures or views found in this report. Investors should consult with their investment advisor to determine the appropriate investment strategy and investment vehicle. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. Except for the historical information contained in this report, certain matters are forward-looking statements or projections that are dependent upon risks and uncertainties, including but not limited to such factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle. See for additional information and disclosures. © 2023 Clare Market Investments, LLC. All Rights Reserved.


At all times, in all markets, in all parts of the world, the tiniest change in rates changes the value of every financial asset.”


- Warren Buffett