812-853-0878  |  800-355-9624

October 1, 2023

Dear Client:

Returns for the major stock indexes in 2023 and the current bond and money market yields are as follows:

Index     YTD 2023
Dow Jones Industrial Average       1.09%
S&P 500     11.68%


Fixed Income Yields     1 year 2 year 5 year 10 year 30 year
Municipals 3.73% 3.65% 3.38% 3.44% 4.42%
US Treasuries 5.45% 5.04% 4.61% 4.57% 4.70%


Fidelity Government Cash Reserves Money Market Fund 5.11%
Fidelity Money Market Fund Class Premium 5.31%


Despite a solid first-half performance, the markets have recently stagnated.  Overall, the year-to-date performance of the S&P 500 has been respectable, but as highlighted in our 2nd quarter letter, its performance has been dominated by the outsized weightings of just a handful of the index’s largest companies.  The average stock, however, has not performed in 2023, as the equal-weighted S&P 500 index and Dow Jones Industrial Average are flat on the year.  The S&P 500 is trading in line with June of 2021, while the mid and small-cap indexes have traded sideways for nearly three years.  The value indexes have had the best relative performance since the last market high in December 2021 but are still flat after almost two years.  Clearly, the last few years have not been a rewarding time to be an equity investor.

The bond market has performed worse.  For the first time, the bond market is on pace to be down three years in a row and is currently in its largest drawdown in history.  The 40-year run of continually lowering interest rates is over, as the 10-year Treasury rate now sits at a 16-year high of 4.57%.  Over the last decade, we have repeatedly written about excessively high bond prices, regularly reciting the acronym TINA (There Is No Alternative) to equities.  The market is adjusting, prices are resetting, and interest rates are finally becoming more attractive.  For new bond investors, the sun is coming out.

As markets have stagnated and bond prices continue to fall, where does that naturally lead investors to park money?  Yes, money markets and their rising yields have attracted record amounts of cash.  Through September, money markets have risen to an all-time high of more than 5.6 trillion dollars, far surpassing prior highs.  The last two peaks were in late March of 2020 and March of 2009, the former being the depths of COVID, and the latter the market bottom of the Financial Crisis and one of the best buying opportunities in a generation.  Understandably, cash and money markets become a proxy during fear and uncertainty.  We concede there is much to be concerned about (and cash can reduce volatility), but we know wealth cannot be created by accepting yields that struggle to outpace inflation.  Moreover, a large percentage of investment returns come when the markets turn upward.  The six-month returns from the aforementioned market bottoms were 55% and 46%, respectively.  Hence, the best opportunities come when the market conditions feel the worst, also known as buy low, sell high.

Can the economy withstand the continued normalization of interest rates without causing a recession?  This is the soft-landing discussion that is the flavor of the day.  The Fed recently   stated that we may avert a recession (accomplish the soft landing) in keeping with their current projections for interest rate decreases in each of the next three years.  The Fed Funds futures market indicates an even more aggressive normalization.  Either way, the seemingly inevitable recession remains elusive and the Fed is determined to achieve its price stability objective (normalizing inflation).

Undoubtedly, there are many anomalies and concerns in today’s economy.  Housing payments, as   a percentage of income, are at all-time highs relative to incomes (43.8%).  Mortgage rates have rapidly risen while too many banks remain underwater in their securities portfolios.  Inflation (CPI) has moderated (3.7%), though oil prices are again soaring (+30% in 3 months).  Meanwhile, historically low unemployment rates (3.8%) continue to give consumers cover to spend as companies like Amazon are looking to hire a record 250,000 seasonal employees for the Christmas season.  In these uncertain times, we again remind ourselves that trying to sort out each abnormality in the economy can ultimately be a distraction for long-term investors.

At LYNCH & Associates, we continue to diversify even further.  We have added more names to our equity Growth and Dividend models.  Within our fund models, we continue to hold to our value bias.  Further, we continue to champion individual securities.  True to our firm’s founding principles, we hold and buy individual bonds, not bond ETFs or managed bond funds.  We not only find peace in knowing exactly what we own, but we rest assured knowing the bonds we buy will mature “100 cents on the dollar”.  Within bond funds, investors cannot easily know what they own and can be misled by the stated yield.  Notably, the recently misaligned performance between the CPI (inflation) and the TIPs (inflation-protected) ETF over the last few years perhaps best illustrates the problems of bond funds versus individual bonds.

We encourage our clients to remain focused on their long-term investment goals.  Our team is here to provide guidance and support as needed, and we remain committed to helping you achieve your investment objectives.  We thank you for your continued confidence in LYNCH & Associates.





Ryan T. Lynch, CFP® ChFC®




Form ADV Part II and III of the LYNCH & Associates Uniform Application for Investment Advisor Registration and the LYNCH & Associates Code of Ethics are available to all clients at any time.  If you would like to receive a copy, please contact Jennifer Farless at (812) 853-0878 or [email protected].

Office:  10644 Newburgh Road, Newburgh, IN 47630