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Capital Market Review

  • Capital Market Review
  • October 2023
  • Iron Capital Advisors

Third Quarter 2023

Aristotle vs. Galileo

Which will you believe, your sense of reason or your sense of sight? Galileo took two balls, one heavy and one light, and dropped them simultaneously to see which would hit the ground first. Before Galileo and his fellow pioneers of observational science the leading theory belonged to Aristotle who simply used reason to suggest that a heavier object will fall faster than a lighter object. That makes sense, but that isn’t what happened…and the science of Physics was born.

We continue to hear that higher interest rates are going to slow down our economy. It makes sense: higher rates make home mortgages and car loans more expensive. Rates on credit cards will be higher. It must have an impact, right? Logic may say yes, but observation says no. In the 3rd quarter, the economy grew at 4.9 percent, which is far and away the best growth we have seen since the first quarter of 2021. The same pundits who have been predicting recession for what now seems like forever are still at it, and everything is selling off. Rates are up, which means bond prices are down, and stock prices are dropping with them. Will this continue, or will we get a rally until year-end? It depends on the market siding with Aristotle or Galileo – because reason may say that high interest rates equal bad economy, but in reality, it just isn’t working out that way.

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