RCG STABLE FUND 2023 FALL REVIEW

For nearly two years economists and market strategists have predicted the economy will slow and slip into a recession as the Federal Reserve tightened available credit by repeatedly raising interest rates. Despite these forecasts, the economy is continuing to show impressive growth with the gross domestic product (“GDP”) growing a surprising 4.9% in the 3rd quarter and the economy added 336,000 new jobs in September. Rapid economic growth tends to lead to widespread inflation, but recent data shows a slowdown in the rate at which prices are rising.

The cost of money continues to climb higher, and this is most evident in the steep rise in mortgage rates. The 30-year fixed rate is approaching 8.0%, more than one percent higher since June 30. These higher rates continue to dampen housing markets by reducing the affordability of new home purchases and limiting the number of existing homes being listed. Commercial real estate continues to deteriorate given the higher interest rates, remote work trends, and tight credit markets.

The adage to ‘not fight the Fed’ held true last quarter as both stocks and bonds lost ground. The S&P 500 Index fell 3.65% and the average intermediate bond fund lost 2.7% during the 3rd quarter. The RCG Stable Fund returned 2.58% for the quarter and its current annual yield is 10.75%.

While mortgage rates jumped significantly during the quarter, the Federal Reserve held its benchmark Fed Funds rate steady. Labor strikes at UPS and by the UAW labor union resulted in large wage concessions and improved benefits for workers, which may cause workers in other industries to take notice. Wage inflation due to tight labor markets is watched closely by the Fed, and an acceleration in the rate of wage growth will likely cause future rate hikes to ease tight labor markets.

Consumer spending remains surprisingly strong, but higher debt levels and lower savings rates indicate a likely slowdown in the months ahead. We see the economies of China and Germany slowing and anticipate these sluggish economies to soon impact U.S. growth rates. Recent data from American Express indicates corporate spending volume is slowing faster than expected. We have written before how a slowdown in economic activity may benefit the foundational footing of the global economy by recalibrating supply and demand imbalances and help keep inflation in check.