Dear Mr. Market,

The past two months in the stock market have been challenging for the average investor. With headlines, inflation, political division, and market volatility, many of us are becoming fed up. The Federal Reserve, or Fed, has consistently been wrong in their predictions. Let’s take a look at their timeline:

1. Mar 2020: Inflation won’t be a problem
2. Jan 2021: Inflation is “transitory”
3. Sept 2021: Interest rates won’t rise until 2024
4. Jan 2022: Recession is needed to lower inflation
5. Dec 2022: Disinflation has begun
6. Feb 2023: A “soft landing” is possible
7. Mar 2023: Banking system is “stable”
8. Sept 2023: Inflation won’t hit 2% until 2025

None of these statements have been correct. This raises the question of whether the Fed has lost credibility, is prone to mistakes, or purposely manages towards a desired outcome.

As we enter Q4, it’s worth noting the performance of the last four Septembers:

2020: -3.92%
2021: -4.76%
2022: -9.34%
2023: -4.90%

However, what follows is interesting:

2020 Q4: +11.69%
2021 Q4: +10.65%
2022 Q4: +7.08%
2023 Q4: ?

Before discussing what we expect in Q4 and the end of 2023, let’s address the latest headline—the looming government shutdown. We’ve seen this happen before, and while the fears are valid, it’s important to put them into context. The government has shut down numerous times before, and essential federal activities will continue without interruption. The actual impact of a shutdown is often less severe than presented by the media.

Looking ahead, once we get through the current market drawdowns, we can expect a positive finish to Q4 and 2023. Seasonality trends suggest this, and despite the negative outlook earlier this year, pre-election years tend to be strong. Although the third quarter historically doesn’t perform well in pre-election years, what follows is promising.

In summary, while there are concerning headlines, don’t rule out a better Q4 and finish to the year. It’s important to be patient, reallocate if necessary, and stick to your strategy. Pay less attention to the Fed’s predictions and focus on the bigger picture. Timing the market based on seasonality alone is not advisable, but when the trends align, it’s worth taking note.

“Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.” – Peter Lynch