Almost Spooky October
Allocation Percentages for October 2023
F Fund
0%
C Fund
14%
S Fund
0%
I Fund
86%
Happy Halloween! This month could have been a lot spookier! I wouldn't call this month flat with returns of -2% to -6% for the stock funds, but it did look like the month was going to be much worse. Obviously, at the beginning of the month, on October 7th, we had the Hamas terrorist attack on Israel. This event seems to have thrown the world, and by extension, the financial markets into negative territory due to all the uncertainty and risk a larger war could bring. Mainly, the concern is around energy and oil prices, should the OPEC nations attempt to punish the US for supporting Israel, as it did in 1973. Keeping with the spooky theme, the parallels between the 70s and today are eerily familiar - high inflation, war in the Middle East, and a new Cold War. The only difference is the rise of China and its influence on global markets.
Since this is not a war blog, I won't get into the specifics of any of the conflicts, but it is worth noting the uncertainty they are causing. The US is facing a budgetary showdown with $4 trillion in US spending at stake in the middle of November, and it all seems to hinge on three things: (1) Funding the war in Ukraine, (2) Funding the defense of Israel, and (3) Funding a border wall to help mitigate illegal immigration. The uncertainty and volatility of all three topics have put a damper on the US and world economy.
This might be a good thing for stocks. Before the added uncertainty of Israel, the world seemed to have become used to the previous major crises. Still, with the real threat of energy spikes, the US economy will probably slow down enough to prevent the Federal Reserve from raising interest rates again. I have stated before that I thought the Federal Reserve was finished raising interest rates as they are already at a 22-year high, but there was talk that the US economy was still not cooling off. With the new added uncertainty, it looks like external pressure will keep a lid on any further interest rate hikes.
Although this sounds bullish on the C Fund, I do incorporate other metrics into my analysis that point toward weighting my allocation more towards the I Fund. With the uncertainty in the US economy and budget, the I Fund is taking a bigger share this month.
Keep investing!
