Q3 2023 Quarterly Commentary: Bench the Drama: A Level-Headed Look at Today’s Financial Climate

You've seen the headlines: "Interest Rates Skyrocketing!" "Inflation Through the Roof!" "Market Apocalypse: Get Your Bunkers Ready!" Yeah, I've read 'em too.

But are we in a financial episode of "Stranger Things," or is this just history donning a new disguise?

The answer, as I often say is, “It depends.” Some of what we're seeing aligns with historical trends, some is unique, but all need to be tackled with a knowledgeable unemotional path to seek the light through the constant headlines of darkness. So, let's unpack this and figure out how we can tackle this path forward. 


Market Overview

Global markets started to cool in Q3, finishing down 3.3% in Q3, and have continued to fall further entering correction territory (down >10%) as we enter Q4 after a strong run to start the year.


In the jobs arena, unemployment ticked up only slightly to 3.8%, putting the number of unemployed Americans at roughly 6.4 million. Inflation has also been falling, down to 3.7% in September from 8.2% a year earlier.  This has propelled the Fed to decide to keep its hands off further increasing short-term interest rates.  However, the Fed only controls the short end of the yield curve, and we have recently seen the 10-year yield rise to close to 5%.  This is up ~1% from the start of the year, and even as close as the beginning of September.  Levels we haven’t seen since about 2006, almost 17 years ago.  Back then MySpace was one of the most popular Social Media companies…


And, I can't ignore the geopolitical turbulence, such as the Israel-Palestine conflict, and the Ukraine War, which have been dominating headlines.


So, What’s the Game Plan?

Like any great athlete or investor, it’s not just knowing what you are up against, it’s about developing a game plan to help win.  Often the best athletes, like the best investors, understand the current landscape, but they do not take their eyes off the long-term goal.  As I work with clients, I often underscore the importance of setting long-term strategic goals, though as life unfolds, it could make sense to tweak tactically according to the information presented. 

With this said, I would like to tactically dive into 3 areas of opportunity that I believe are being presented.  Small Cap Equities, Real Estate, and Market Sentiment.

Small Cap Equities

The chatter about recession tends to make investors shy away from small-cap companies, much like how a quarterback might avoid a receiver who's dropped a few passes. This is because these businesses are seen as less profitable, with less ability to access public markets for financing, and more susceptible to one country and/or product line.

While some of this may be true, its also about understanding if much of these fears are priced into the value of a company.  This can be seen in a simple way by looking at how companies are being valued, both in a relative and absolute sense.  From a relative point of view, last quarter we touched upon how a single company, Apple, was being valued greater than all the US Small Cap companies combined. Which is mind-blowing to think about.  In addition, in an absolute sense, Global Small Cap companies are trading towards the bottom end of their 10 and 20-year valuation ranges.


Valuations oftentimes revert to the mean, and, if you focus on owning the most profitable businesses you oftentimes have even more of a margin of safety to allow this to unfold.  To use a sports analogy, as I usually love doing, it’s like buying Michael Jordan post his retirement in 1993-1994.  People were shocked, angry, and wrote him off.  However, he came back in 1995, and won 3 more championships.

Real Estate

On the flip side, we have the double-edged sword of real estate.  Real estate tends to be an interest rate-sensitive sector, and, in my opinion, a sector that has benefitted tremendously from the zero-interest rate policy of the Fed post The Financial Crisis.  However, as witnessed by the above chart, that low-interest rate environment is unraveling, and so too should real estate. 

As the below chart demonstrates, since 2006 commercial and residential real estate loans have ballooned, and so too have prices. Like a self-fulfilling cycle: the cheaper the debt, the more the demand, and the more it pushes up prices.  Wash, rinse, and repeat.

In the above chart, as witnessed by IYR, an ETF that tracks publicly traded real estate investment trusts (REITs), prices have started to correct themselves.  However, this has not made itself into private markets yet.  The uglier side of investing in an illiquid asset class is the lack of pricing transparency and efficiency.

I’ve always been amazed at how inefficient the US housing market is, mainly due, in my opinion, to the lack of knowledge and a misalignment of interests of players in the market.  Americans have been brainwashed to believe that you must own your home, and rarely run an analysis to see if this makes financial sense.  As I touched on in my latest commentary, home affordability hasn’t been this bad since 2006.  It now appears that more people are waking up to this as the Wall Street Journal recently published an article about how buying is now 52% more expensive than renting. Something I have been pointing out to clients when it comes to helping them make a housing decision.  Also, according to Redfin, 51% of Americans have a mortgage rate below 4%.1  Which further locks the market, as current owners should be reluctant to lose their rate.

So, do you play it by ear or stick to the old wisdom that buying real estate and/or a home is a safe bet? This is where strategy and understanding nuances come into play. While given better underwriting standards and net equity people have in real estate, I do not think the current set-up is like the bubble we saw during The Financial Crisis.  I do however think it will be difficult to see solid returns (if any) in real estate for the foreseeable future.

Market Sentiment

This leads us to sentiment, which is another word for emotions.  At Julius Wealth Advisors, we’re like the coaches reviewing game tape. We don't let emotions drive our game plan. Rather, we seek to focus on letting numbers drive our decisions while focusing on quality at fair prices. Sort of like how a well-balanced team has both a strong offense and defense (like my Miami Dolphins this year!). We feel this balanced, unemotional approach is essential for navigating markets.  Our innate ancestral emotional brains may have saved us from tigers hiding in bushes but usually work against us when it comes to our wealth.  Especially when it comes to making predictions of the future.

In the world of sports, we can see this at play in the current World Series matchup of the Texas Rangers and Arizona Diamondbacks.  At the beginning of the season, the odds of this matchup were 1,750-to-1, or 0.06%.  Which is the second lowest probability in history behind the 1991 matchup of the Twins and Braves2.

This lack of humans' ability to make predictions and letting emotions get in the way is evidenced in capital markets as well.  If we examine some of the biggest events and downturns in recent history including market crashes, recessions, pandemics, etc you see this at play. Post peak bearish moments, as measured by AAII Market Sentiment, 12 months later, you see markets rebound handsomely.  And, people are currently feeling bearish…


A View Ahead

Q4 is upon us, almost the end of another year. Like the final quarter of a tight game, whether you’re leading or trailing, the only thing you can do is control what you can control. This means understanding factors in small caps, real estate, and market sentiment as discussed earlier.  Also, tax-planning initiatives like charitable donations and tax loss harvesting to get the most out of your financial game plan. Remember, the fourth quarter is where games are won or lost, so let's not take our eyes off the long-term prize.


Wrapping Up

Q4 2023 also marks Julius Wealth Advisors' 2-year Anniversary, and during this time one can easily argue that markets have been a roller-coaster.  That hasn’t stopped us from bringing on over 40 clients, who appear to be happy given the influx of referrals we have been receiving as well. 

As I have experienced since a very young age, life always appears to be a roller-coaster.  However, if you keep to the simple basics of treating everyone with integrity, obtaining a deep level of knowledge, and passionately living your life, the whole of the journey appears smooth looking back.

This is my commitment to all clients for the challenges and opportunities that will inevitably lie ahead.

So, what's your next move? Whether you're looking to turn things around, build on your success, or prep for the future, we're here, playbook in hand, ready to help you make your next winning play. Reach out. Your financial touchdown could be just a call or email away.

All the best, 

Jason Blumstein, CFA®

CEO & Founder

Julius Wealth Advisors, LLC


This piece contains general information that is not suitable for everyone and was prepared for informational purposes only.  Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. Past performance does not guarantee any future results. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit adviserinfo.sec.gov.


  1. Redfin Reports Nearly One-Third of Homeowners Have a Mortgage Rate Far Below Today’s Level, Prompting Some to Stay Put - Redfin.com

  2. Arizona Diamondbacks, Texas Rangers Overcome 1750/1 World Series Odds - Casino.org