Our View of 2023: August Update

Sep 12, 2023

Notes on Increasingly Optimistic > Labor Market & Consumer Sentiment

Our assessment on consumer consumption, the labor market, and overall consumer sentiment proved largely accurate and may continue to play out through the rest of 2023. Insight on consumer consumption patterns can be taken from major retailers like Walmart, Target, and Home Depot. All three retailers beat profit estimates for 2Q 2023 but noted a steady decline in foot traffic in their stores. As inflationary pressures have decreased throughout the year, consumer sentiment has seen a rebound since June 2022’s release at the lowest level ever recorded.

As well as having a positive impact on consumer sentiment, the Federal Reserve’s fight against inflation has started to show its impact in the labor market through job openings and employment costs. While the number of job openings has decreased year to date, there are still 1.6 job openings per unemployed person. The Employment Cost Index, which is one of the stickiest components of inflation, peaked in the beginning of 2023 and has been on a steady decline since then. Overall, the labor market is resilient but is showing signs of a cool down. These points showcase that the Fed’s effort to fight inflation may be materializing, and the Investment Policy Committee believes the likelihood of a deflationary environment or even disinflation in some areas of the economy may be possible in the coming quarters.

Notes on Increasingly Optimistic > Fiscal Policy

As of August 2023, the impact of fiscal policy on the economy has been limited. The lack of economic headwinds can partially be attributed to the looming recession that continues to be pushed further down the road with each positive economic data release as well as a labor market that maintains a fully employed status. Our belief that the current administration would avoid causing any capital market worries tied to new policies proved to be true. The Investment Policy Committee expects the current administration to focus on maintaining course up to the next presidential election in 2024.

Notes on Neutral > Capital Markets

The stock market’s performance so far in 2023 has aligned with our belief of a period of normal historical volatility. While the Investment Policy Committee was upfront in our communication on the potential for volatility, we also emphasized that this doesn’t equate to an expectation of negative market returns. We maintain a strong conviction that a focus on fundamental analysis and effective risk management will be rewarded.

Our belief that dividend and value weighted portfolios, supported by active management through our fundamental analysis and risk management processes, will provide positive relative returns was validated to an extent. Credent’s Global Core allocations, which are broadly diversified across geographical regions, market caps, and equity styles, have closely tracked and/or beat the benchmarks net of the maximum potential fee of 2.00%. The Investment Policy Committee was accurate in our expectations that fundamental analysis and risk management can lead to positive relative performance yet imprecise in that there wasn’t an expectation that the Global Core allocations would depend on our selection process to overcome a benchmark performance profile so heavily dependent on the top 10 equities. The allocation and selection processes built into our model management system allowed us to keep pace or outperform a benchmark that’s constructed with the highest weighted equities returning anywhere up to 220% year to date.

Notes on Risk and Uncertainty > Recessionary Pressures

The expectations of a mild‐to‐normal recession have been continuously pushed back throughout 2023 as positive economic data is released. Despite meeting the technical definition for a recession at the end of 2022, inherent in economic data is a lagged effect that further separates the current economic environment and any announcement of a recession. The Federal Reserve’s policy decisions have aided in the declining inflation rate, and the Investment Policy Committee believes their actions have increased the likelihood of a soft landing with the effects of a recession being felt across the economy at different periods. The possibility of a soft landing into a rolling recession appears likely as the labor market maintains more openings than workers and there is increasing consumer sentiment that’s tied to a declining inflation rate.

Notes on Risk and Uncertainty > Geopolitical Risk

Our assessment of geopolitical risks through 2023 has proven accurate thus far. The ongoing Russia‐ Ukraine crisis has received less attention, as expected, while the risk of a Chinese invasion of Taiwan still exists. The uncertainty regarding a potential China‐Taiwan conflict has lead policymakers and business leaders from semiconductor manufacturers to work together to move some production to the United States. While it may be up to a decade before any output is seen from those investments, it will be a positive for the domestic economy due to the sheer size of startup costs.


Investment advice offered through CX Institutional, a registered investment advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in the presentation may not develop as predicted.

All data is sourced from Bloomberg, through the release of monthly figures from the U.S. Bureau of Labor Statistics or from the Federal Reserve and any of its affiliated regional location.



By Investment Policy Committee

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