The October Effect

TLDR: Equity markets were down for the third month in a row but there may be reason to be optimistic as we head into year-end.

The October Effect describes a perceived market anomaly that the month of October brings financial declines and market crashes. This October was no different, as equity markets for the third month in a row fell across the board. Our actively managed strategies performed about in line with their benchmarks driven by:

Here’s some quick context on what happened and why, what we did about it, and our outlook ahead:

1/ What Happened and Why

The S&P 500 and Nasdaq suffered their third straight monthly declines, as both indexes were down 2.2% and 2.8%, respectively. The indexes finished the month around where they were trading in May of 2023 so we’ve essentially round tripped the summer rally.

October saw a flurry of data signaling the resilience of the US economy, including a blockbuster jobs report, strong retail sales data and a blowout GDP print of 4.9% annualized for the third quarter. Ironically, the strong economic data was bad for markets as a resilient economy suggests that the Fed may have to hold interest rates at current levels longer than investors were expecting (something we talked about at length in our recent Investment Committee). 

Q3 earnings were in full swing during the month as ~56% of the S&P 500 reported results as of this writing. The preliminary data can be characterized as a “mixed bag.” Companies were rewarded for prioritizing profitable growth while others were penalized for missing expectations. Beta, or market exposure, is often sufficient when a rising tide lifts all boats (in a zero interest rate environment, for example). However, in the more tenuous market landscape we’re now seeing, alpha - or uncorrelated outperformance from active management - is increasingly important.

2/ What We Did About It

We sat tight in October as the data rolled in. We were busy prepping our quarterly earnings previews, revising our estimates, and discussing internal recommendations on any action items that might be required moving forward. Most of the time ‘no action’ can be considered an action, but you should expect us to make some updates around the edges following the recent reports.

3/ The Path Forward

As an aside, Treasuries continue to yield their highest rates in decades and the “T-Bill and Chill” strategy we referenced last month continues to be attractive. Smart Cash is currently yielding up to 5.36%* and serves as an excellent place to earn extra yield on your cash. 

If you have any questions for me or the team, just reply to this email and we’ll get back to you as soon as we can.

Best,

Clay

Co-CEO and Chief Investment Officer

Disclosures:

*Yield is as of 11/6/23. This represents the highest 7-Day Yield currently available among our options. Certain funds have specific investment minimums, which can be up to $3,000. Investors who invest amounts below these minimums may experience lower yields than those advertised. Yields will fluctuate over time, and are not a forecast or guarantee of future earnings.

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Performance results for any Titan strategies as compared against the performance of Illustrative Benchmarks are also for informational purposes only. “Illustrative Benchmarks” include the Standard & Poor’s 500 Index (the “S&P 500”), the Russell 2000 Index (the "Russell 2000"), and the MSCI ACWI ex US ETF ("MSCI World ex-US"). Titan’s investment program and strategies do not mirror that of the Illustrative Benchmarks, and volatility may be materially different from the volatility included in any Illustrative Benchmarks. The Illustrative Benchmarks are calculated and distributed exclusively by third parties, and not by Titan, and thus Titan cannot guarantee the accuracy or completeness of the data. Reference or comparison to an Illustrative Benchmark does not imply that Titan’s portfolio or strategies will be constructed in the same way as the Illustrative Benchmark or achieve returns, volatility, or other results similar to those of the Illustrative Benchmark.

The S&P 500, the Russell 2000, and the MSCI World ex-US are unmanaged market capitalization-weighted indices of common stocks chosen for market size, liquidity, and industry group representation to represent U.S. large cap, U.S. small/mid cap, and international equity performance, respectively. The S&P 500 and the Russell 2000 results include the reinvestment of dividends and do not reflect transaction costs. The MSCI World ex-US results reflect the expense ratio associated with the ETF, but do not reflect other transaction costs.

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