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Q4 2023 Capital Markets Perspective 


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Where are the U.S. investment markets heading? Our chief investment strategist offers his outlook on rates, equities, and credit markets.

Podcast transcript

Where are the capital markets heading for the end of the year and beyond? Coming up, Thrivent’s chief investment strategist offers his fourth quarter outlook on rates, equities, credit markets and more.


From Thrivent Asset Management, welcome to Advisor’s Market360™. A podcast for you, the driven financial advisor.

We’ve rounded the corner toward the end of 2023. With year-end client meetings coming up, now is a good a time to reflect on what has already happened in the markets and economy and look ahead to the rest of the year and beyond.

Markets in the first half of the year were strong, particularly for equities. But, so far, the latter half of the year has given way to volatility, as higher rates and a hawkish Federal Reserve, or Fed, have caused some struggle in both equity and credit markets. In many ways, this year has taken an unpredictable path. The recession that economists expected hasn’t arrived – in fact, the economy has been quite resilient.

Conflicting signals abound in our current economic backdrop. On one hand, the labor market has been strong, corporate and household balance sheets have held up well… but on the other hand, inflation has continued to squeeze consumers and small businesses. How do the experts at Thrivent Asset Management make sense of it all?

As we often do, we asked Steve Lowe, Thrivent’s Chief Investment Strategist, to share his insights about the final quarter of the year. The first thing we asked Lowe about was moves from the Fed and how they impact equities.

“Equities typically rally with the Fed pausing, or expectations that it will. We had a strong start to the third quarter. As we’ve talked about, markets struggled with higher rates, but they’re still up very solidly on the year.”

Continuing with equities, we wanted to get – in broad terms – what Lowe has seen as highlights up to this point in the year. We started with earnings.

“Earnings have beat expectations – that’s part of it. Earnings expectations have been very low, so it’s been a little easier to eat them, then. Margins have held up a lot better than people expected. I think people were expecting margin compression with inflation coming down. Also, a part of it was investors who are very pessimistic in their underweight. We had a lot of people covering their shorts which drove the market up.”

Next, Lowe drilled into the segments of the equity market. As we’ve covered on the podcast recently, a handful of large and mega cap names have had an outsized influence on equity indexes, as he describes here:

“You continue to have this very narrow breadth where the mega cap tech names are leading the market. The market cap indices have outperformed equal-weighted indices – if you equal weighted every stock in the S&P 500, that’s underperforming market cap weight pretty significantly.

“Large caps have been driven by support for quality – so, that’s stronger balance sheets and stronger cash flows, and you kind of see that when people get more concerned about the future. And the mega caps are very, very profitable. They kick off a lot of cash.

“Growth stocks have been outperforming. Small caps have lagged pretty significantly. Valuations are better than they were – they had been pulled down by rates in 2022. Nasdaq is a little rich right now. I think the S&P 500 is higher than its long-term median average, but not incredibly so. And small caps are cheap.”

(Music transition)

When it comes to actual positioning in portfolios, we wanted to get Lowe’s insights on what metrics he’s currently considering to make decisions.

“It’s always about earnings in the long run, and those have held up well. If you look at expectations, they’re about flat, or are expecting to be flat this year – maybe up by a percent or two. Expectations are for about a 12 percent increase next year, so that should help markets. The key issue is how the economy holds up, and therefore how earnings hold up.”

With the current volatile market backdrop, we want to hear how Thrivent is broadly positioning relative to their long-term strategic allocations for the months ahead.

“If you look at our own positioning, we’ve been neutral to our long-term strategy which is to be overweight equities, and we've had a bias toward quality and growth, which has worked well this year. So, we expect to maintain a small overweight now. But we expect to get more cautious heading into 2024 with a slower economy and, eventually, weaker earnings.

“Long term, we’re very positive on the markets – in particular, the U.S. market. So, if we do see a significant correction next year, we would look to add significantly, particularly if there are signs that the economy has bottomed and is starting to turn up.”

(Music transition)

Lowe’s outlook on the broad equity market, as we just heard, is positive but cautious. But, as we open the equity style box, Lowe had more thoughts to share on the underlying segments of the equity market. First, we wanted his take on growth versus value.

“Growth has outperformed versus value very significantly this year, and we expect that to continue. Particularly, quality and growth are supportive. People are looking for companies that can survive in a slowing economy – strong cash flows and strong balance sheets. Value and cyclicals really need a clear path to an upturn before you’d really want to get in.”

On the other hand, Lowe is less enthusiastic about the small cap segment of the market…

“Small caps have trailed. That segment looks inexpensive, but it also tends to be cyclical – it’s best to buy in front of a cyclical upturn. What’s interesting about small caps is, as a long-term trend, the privatization of companies. Private equity companies have bought up a lot of small-cap companies. That reduces the pool within the public markets. Considering how they exit – are they small caps? Are they IPO, or are they just traded to another firm? That’s had an impact on the quality, I think, of the small-cap segment. And there’s also a growing advantage of scale that hurts small cap companies over time. Depending on where we are in the cycle, a large percentage of them have no earnings because they’re losing money, typically.”

We also wanted to hear Lowe’s opinion on domestic versus international equities.

“Yeah, we've been overweight domestic, and domestic weights have outperformed over the long run very significantly. International looks cheap – it always does.

“Europe and EM – China in particular – have trailed this year, partly because global growth and trade have slowed, and they’re very tied to that – manufacturing, in particular. Europe still has ECB, still raising rates. They’ll probably stop soon, but inflation is very, very sticky there. Also, both of these areas have long-term demographic trends.

“And when you look at why the U.S. has outperformed, it’s because the markets are more innovative; we have more tech here.”

F.Y.I.: Lowe mentioned EM, which is short for emerging markets. He also mentioned ECB, which is short for European Central Bank.

(Music transition)

Equity dominated the conversation, but we wanted to briefly touch on the fixed-income piece of the portfolio equation. So, the final area we wanted to cover with Lowe was his views on credit markets and which income vehicles he’s focused on. Here’s his quick overview.

“So, when we talk about credit, we’re talking about high-yield bonds and investment-grade corporates. We favor high quality. Spreads are tight – versus that’s the risk compensation you get for owning credit with default risk and volatility. You’re really not paid at the current levels, I think, for the deterioration in credit quality. Companies are more leveraged, and we expect defaults to rise over time.

“We like higher-quality investment-grade corporates. High yield looks good, but you have to be able to withstand market volatility.”


We hope you found this capital markets outlook to be informative and helpful. A special thanks to Steve Lowe for his insights. More episodes of Advisor’s Market360™ are available wherever you get your podcasts. Email us at with your feedback, questions and topic suggestions for future episodes. And as always, you can learn more about us at and find other insights of interest to you, the driven financial advisor. Bye for now.


All information and representations herein are as of October 24, 2023, unless otherwise noted.

Past performance is not necessarily indicative of future results.

Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Thrivent Asset Management, a division of Thrivent, offers financial professionals a variety of investment products to help meet their clients’ needs. Thrivent Distributors, LLC is a member of FINRA and SIPC and a subsidiary of Thrivent, the marketing name for Thrivent Financial for Lutherans.

Steve Lowe, CFA
Chief Investment Strategist