Weekly Client Letter – October 30, 2023

The first half of this year was a tale of upward momentum in risk assets. In fact, we witnessed a remarkable 28% surge from the low point in 2022, effectively marking the return of a bull market. However, the third quarter unfolded quite differently, primarily influenced by the Federal Reserve’s steadfast commitment to keeping interest rates “higher for longer.”

This recent bout of market volatility reminds us that the market rarely moves in a perpetual 45-degree upward angle. As of Friday, October 27th, the S&P 500 had dipped more than 10% from its recent peak, officially qualifying as a “correction.” This pullback has retraced a substantial portion of the gains achieved in the year’s first half, leaving the S&P 500 sitting 14% below its all-time high.

Is this a temporary setback on the road to a full recovery, or was the first-half rally merely a bear market rally, with the possibility of revisiting the lows of 2022? The honest answer is that no one holds a crystal ball. Attempting to predict market outcomes based on emotions can derail an investor’s financial journey.

This is precisely why, here at Redwood, we uphold the importance of a disciplined process. Such a process prevents investors from making impulsive decisions during market selloffs with the goal of keeping clients on course with their financial journey.

The Unpredictable Path Ahead

Weekly Client Letter October 30
Source: Bloomberg, Redwood. Data as of 10/27/2023. Date Range from 1/1/2022 – 10/27/2023. For illustration purposes only.
  • We believe the preservation of capital is key to consistent, long-term investment success.
  • Our investment approach is grounded in economic theory and backed by quantitative analysis.
  • Managing drawdown risk is a pillar from which we build our portfolios.

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