October Fall
November 2, 2023
Markets In Review
October2023 saw promising run-ups in the S&P 500 and NASDAQ indices for the first half of the month, but both major indexes finished down by month end. The S&P 500 reached its zenith on October 17 at $4,393, or 2.58%, from the beginning of month open before finishing down -2.07% for the month. The NASDAQ reached an apex of $13,710.28 on October 12th,an up-move of +3.38% from its beginning of month open before it too finished down -3.10%. Ten of the 11 sectors of the S&P 500 saw negative returns, with the lone positive sector comprised of defensive utility stocks (S&P Utilities Index +1.23%) and the worst performing being comprised of energy equities (S&P Energy Index -6.08%). However, end of month run-ups in the indices help to stem further losses. Year-to-date the S&P 500 and NASDAQ are up +9.67% & 23.72% respectively.
Economic Headlines
The early month nonfarm payroll jobs report, with employers adding 336,000 jobs in September1 up from a gain of 227,000 in August, and a late month strong Gross Domestic Product (GDP) figure – both beating estimates – were thought to be catalysts for a market run-up, but Federal Reserve indications of maintaining interest rates at higher levels, along with a selloff in the bond market, not seen in over a decade, pushed rates higher. Most economists expected the Federal Reserve to maintain the benchmark Federal Funds upper bound rate at5.50% when the Federal Open Market Committee (FOMC) met on November 1.2 The move in Treasury yields along with October’s upcoming jobs report, to be released early November ,in conjunction with a host of other economic data and global events have the FED pause in their pursuit of achieving 2% inflation while attempting to achieve the often-mentioned ‘soft-landing’ for the U.S. economy. Inflation at the end of this year’s third quarter came in at 3.5%. Fourth quarter inflation is forecasted to be 3.4%, a number the FED would like to see comedown further but is a vast improvement from 2022’s Q4 figure of 7.1%. Higher rates mean higher borrowing costs for businesses and consumers, which have the potential to depress stocks.
Looking Ahead
The S&P U.S. Aggregate Bond Index (U.S. AGG) was down -.79%by month end and the 10-year treasury yield hit 5%. The yield curve is inverted, and unemployment has ticked up slightly in the last few months. Economists predict a much lower payroll report in November – which could partly reflect the U.S. Auto Worker’s Strike that had lasted for roughly 7 weeks. The projected unemployment figure for Q4 2023is 3.9%, up from the 3.8% level from September’s reading. As unemployment approaches 4% along with the inverted yield curve, perhaps markets have already priced in the likelihood that a recession is on the horizon. Bloomberg economists place the possibility of recession at 55%. With mortgage rates hovering near 8%, credit card delinquency rates higher the last few months, and two proxy wars, how long can the US consumer continue to buoy positive economic reports?
Brandon Cooper
Portfolio Management Associate
1https://www.bls.gov/news.release/pdf/empsit.pdf(opens to PDF)
Published October 6, 2023; Accessed November 2, 2023
2https://www.federalreserve.gov/newsevents/pressreleases/monetary20231101a.htm
Published November 1, 2023; Accessed November 2, 2023
The Federal Open Market Committee is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and itis highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The S&P500 Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS utilities sector.
The S&P500 Energy comprises those companies included in the S&P 500 that are classified as members of the GICS energy sector.
The S&PU.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P Aggregate Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.
An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.
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