Patient Capital Management is a Baltimore asset manager founded in 2020 by Samantha McLemore, CFA — Bill Miller's long-time co-manager (working together since 2002, running the flagship Opportunity Equity strategy since 2014). Continuing the Miller-school contrarian tradition, it practices "time arbitrage": exploiting behavioral mispricing to concentrate in controversial growth names (tech, healthcare, Bitcoin-related) at deep discounts to intrinsic value. Its site preserves Bill Miller's complete 1995-2022 market letters, alongside ongoing quarterly letters and webinars.
This report reviews the US market in Q3 2023 – stocks rose then fell, while the Fed kept interest rates high (borrowing costs high). Inflation (pace of price increases) actually slowed, but the market stayed cautious. Energy was the only winning sector (+12.2%) thanks to OPEC (oil producers) cutting supply, while long-term government bonds lost 13.0% as rates spiked. For ordinary investors: consider energy exposure, avoid interest-sensitive assets (like long bonds, real estate), and stick with large-cap stocks over small ones. A note on China: manufacturing is improving but property developers face default risks. Worth reading because it shows why markets behaved counter-intuitively.
This report discusses market performance in Q3 2023, with the core view that markets initially rose before declining. The energy sector led gains due to OPEC production cuts, with WTI crude rising from $70 to over $90, a gain of 28.5%. The Federal Reserve raised rates by 25 bps in July but paused in
This chapter reviews U.S. market performance in the third quarter of 2023 (July–September), focusing on the market's initial rise followed by a decline, the Federal Reserve's policy path, inflation data, the interest rate environment, and asset class rotation. The core backdrop is the Fed's "higher for longer" rate stance, while inflation indicators continue to decline. Meanwhile, China's manufacturing sector shows signs of recovery, but real estate risks have intensified.
The author argues that the market exhibited a clear defensive rotation and large-cap dominance in the third quarter. The energy sector was the only industry to post significant gains, driven by OPEC production cuts, while the bond market suffered severe losses due to surging interest rates. A counterintuitive observation is that despite the Fed signaling only two rate cuts in 2024 (down from four expected in June), inflationary pressures have actually eased substantially (core CPI excluding shelter stands at just 2.3%). Nevertheless, the market remains pessimistic toward interest-rate-sensitive assets.
Quarterly Asset Performance Comparison Table:
| Asset Class | 2023 Q3 Return | Notes |
|---|---|---|
| WTI Crude Oil | +28.5% | Driven by OPEC production cuts |
| Energy Sector (S&P 500) | +12.2% | Reversed first-half decline |
| Telecom Sector | +3.1% | Only sector with positive returns every quarter in 2023 |
| S&P 500 | -3.3% | 9 out of 11 sectors posted negative returns |
| Nasdaq Composite | -3.9% | Large-cap tech stocks corrected |
| Russell 2000 (Small-Cap) | -5.1% | Underperformed large caps |
| Long-Term U.S. Treasuries | -13.0% | Impacted by surging interest rates |
| Gold | -5.2% | Suppressed by a strong U.S. dollar |
| Bitcoin | -11.5% | Risk asset sell-off |
1. Short-Term Defensive Priority: The energy sector holds a relative advantage in an environment of falling inflation but high interest rates. Consider crude oil-related ETFs or energy stocks.
2. Avoid Interest-Rate-Sensitive Assets: Long-term Treasuries, utilities, and real estate still face downside risks under a "higher for longer" rate environment, especially longer-duration bonds.
3. Large Caps Over Small/Mid Caps: The weight of the top 10 S&P 500 companies hit a record high, with large caps outperforming the Russell 2000 by approximately 1.9 percentage points. Maintain a large-cap allocation.
4. Beware of China Risk Exposure: China's manufacturing PMI is recovering, but real estate defaults are spreading. Remain cautious on Chinese USD bonds and real estate-related assets.