Third Quarter of 2023 Economic Summary and Market Outlook

November 9, 2023

The third quarter of 2023 brought notable developments in the global economy and financial markets. In this summary, we will explore key factors that influenced these changes and provide an outlook for the near future.

Economic Overview:

The global economy remained resilient in the third quarter of 2023, with notable variations in economic performance across different regions.

The U.S. economy continued to exhibit strength in Q3, driven by the drawdown of pent-up savings, robust private investment, and expansionary fiscal policies. However, these factors are expected to fade in the coming quarters, potentially impacting economic growth. Despite this, the outlook remains positive, and a hard landing is not anticipated.

Economic activity in the Eurozone slowed in the third quarter, but the region is expected to rebound more robustly in Q4 and strengthen further in 2024, outperforming the U.S. in the short term.

China’s economy faced ongoing challenges, but policymakers have room to stimulate growth without significant inflationary pressures, given excess capacity.

In the United States, inflation experienced a decline in the third quarter, with headline CPI at 3.7% and core CPI at 4.1%. This trend is expected to continue as inflationary components like shelter rollover. Tight labor markets could put upward pressure on inflation into 2024, but a potential U.S. growth slowdown may ease these pressures.

Central banks are cautiously transitioning from rate hikes to a more balanced approach. The Federal Reserve indicated the possibility of further rate hikes, but bond market pricing suggests that they may have reached their peak policy rate for this cycle, although rate cuts have been pushed further into the future. Most developed market central banks are in a similar position, except for the Bank of Japan, which maintains a stimulative policy.

Geopolitical risks have gained prominence due to the conflict in Israel, with potential impacts on oil markets. Additionally, the ongoing Ukraine conflict poses the risk of further escalation, which could impact oil markets as well.

Market Performance:

Global equity markets experienced a decline during the third quarter. This was largely driven by an increase in longer-term interest rates, leading to heightened market volatility.

  • Global Equities: The MSCI ACWI declined by 3.4% in Q3. However, the outlook for global equities has improved due to the recent pullback, negative investor sentiment, and the prospect of economic normalization.
  • US Equities: The S&P 500 fell 3.3% during the quarter, but it’s still up by 13.1% in 2023. High valuations in the U.S. equity market remain a concern.
  • International Developed Stocks: These stocks declined by 4.1% in Q3 but have gained 7.1% in 2023, with the dollar’s strength affecting returns.
  • Emerging Market Equities: Emerging market equities fell 2.9% in Q3, with Latin America being the best-performing region in this category in 2023.
  • Investment Factors: Quality outperformed during the quarter, while momentum, value, and low volatility lagged. Large-cap stocks outperformed small caps, and value stocks modestly outperformed growth stocks.
  • Sector Performance: Energy and communication services were the only sectors to deliver gains during Q3. Communication services, technology, and consumer discretionary have been the best-performing sectors in 2023, while utilities have lagged.

The Bloomberg Aggregate Bond Index fell by 3.2% in Q3, reflecting the increase in interest rates. Treasuries and corporate bonds both experienced losses. Credit spreads on investment-grade corporate bonds remained stable, while high yield bonds gained 0.5%.

Valuations improved during the quarter due to the general decrease in equity prices. The trailing P/E ratio on the MSCI US Index declined, and the equity risk premium over long-term Treasuries decreased.

Global Economic Outlook:

Looking forward, the global economic outlook remains positive, though several factors need to be monitored closely. The fading of pent-up savings and fiscal stimulus in the U.S., coupled with potential inflationary pressures, will be important indicators to watch. Geopolitical risks, especially those related to conflicts in Israel and Ukraine, could impact oil markets and pose additional uncertainties.

In conclusion, the third quarter of 2023 exhibited economic resilience, coupled with challenges in global equity markets. The prospect of economic normalization and a more balanced approach to monetary policy provide optimism for the near future. However, vigilance is required in monitoring inflation, geopolitical risks, and the potential impact of ongoing global conflicts on financial markets.


[1] The information found in this document was derived from Bloomberg, Bureau of Labor Statistics, Burgiss, Datastream, Federal Reserve, Hedge Fund Research, Mercer, MSCI, MSCI Barra, NAREIT, Refinitiv, Russell, Standard & Poor’s, St. Louis Fed, Thomson Reuters, and InvestorForce. While we believe these data sources and information to be reliable, its accuracy and completeness are not guaranteed. The views contained in this presentation represent the opinions of GYL Financial Synergies, LLC as of the date hereof unless otherwise indicated. This and/or the accompanying information was prepared by or obtained from sources GYL Financial Synergies, LLC believes to be reliable but does not guarantee its accuracy. The report herein is not a complete analysis of every material fact in respect to any security, mutual fund, company, industry, or market sector. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance does not guarantee future results.