Presented by The PensionmarkMeridien Team, September 2023
MAJOR U.S. STOCK INDEXES
After a strong July, major U.S. equity indexes retreated slightly yet remained resilient in August. Treasury yields captured the market’s attention for much of the month.
Here is the tale of the tape for the month of August: The S&P 500 ($SPX) declined by 1.77%1, the Nasdaq 100 fell by 1.62% 2 ($NDX), and the Dow Jones Industrial Average ($DJI) declined by 2.36% 3.
S&P 500 MAKES IT 5 FOR 6
U.S. stock indexes have been good to investors in 2023, even with several headwinds in play. So, major averages taking a mild breather in August is OK, with the S&P 500 breaking a five-monthwinning streak4. Markets don’t go up or down in a straight line!
ENERGY STRENGTH
Looking at stock sectors, energy5 was the one gainer of the eleven S&P Dow Jones Indices in August, as declining crude oil inventories translated to higher crude oil prices.
America’s SPR (Strategic Petroleum Reserve) is still near a 40-year low6, with no signs of replenishment anytime soon. As of September 5, the national average gasoline price was $3.812 per gallon for regular, according to data from AAA.
JOBS PICTURE: FED DELIGHT?
The employment situation was mixed in August. The month brought a jobs gain of 187,000 reported versus estimates for 170,000, according to the Sep 1st data release. Unemployment, however, rose to 3.8% 7, the highest level since February of 2022.
The “real” unemployment rate (also known as the U-6 unemployment rate) rose to 7.1% 8 in August, the highest since May 2022. The U-6 rate includes people who want to work but have given up searching and part-time workers who cannot find full-time work.
So, with the unemployment rate ticking higher, have the aggressive rate hikes by the Fed served their purpose yet? Let’s measure inflation next to add to the picture.
INFLATION DATA MIXED
The most recent Inflation data (July) implied a mixed picture. Here’s the latest:
Consumer Price Index (CPI) – July CPI rose less than expected, showing a rise of 3.2% year-over-year versus 3.3% expectations. This, of course, is a good sign for the inflation battle. However, the 3.2% annual number marked an increase from the 3.0% rise in June, the first such rise9 in 13 months.
Market reaction to the data was initially positive, but the overall daily gains in major equity indexes were mostly given back by the market close on the day of the data release.
Producer Price Index (PPI) – After markets digested the mixed reading on CPI, Producer Price Index (wholesale inflation) was in focus.
The wholesale pricing metric rose 0.3% in July10 on a monthly basis, higher than the estimates of 0.2%. The rise was the biggest monthly gain since January and a jump from an unchanged reading in June.
The wholesale pricing data could be viewed11 as a precursor to higher consumer prices.
TREASURIES
Credit rating agency Fitch downgraded the U.S. government’s credit rating from AAA to AA+ at the beginning of August. The downgrade was due in part to the high/growing debt burden.
Rising Treasury yields were a prevailing theme for most of August, with higher yields noted across the curve. 2-year yields crossed the 5% level but finished the month near 4.85%.12
10-year notes fared similarly, closing the month of August near 4.094%,13 also off its highs set earlier in the month. A rising yield typically means14 investors are gravitating toward higher-risk investments that can produce higher rewards–an indication of investor confidence (as opposed to a falling yield, which signals investor caution).
Interestingly, yields did not move much initially on the Fitch downgrade but moved higher mid-month on strong economic data. They ultimately cooled down some towards the end of the month, perhaps in anticipation of tame labor data.
THE TAKEAWAY
With the next Fed meeting right around the corner on September 20th, the chances of a rate hike at the meeting seemed slim to start the month. Perhaps the August labor data showing higher unemployment helped to cement these probabilities, indicating the Fed’s hikes have cooled the economy.
You can check out current probabilities via the CME FedWatch Tool15.
Ultimately, keeping you informed of key economic news is a top priority. As more developments occur, We will keep you apprised of them.
In the meantime, if you would like to talk about the current market outlook and explore investment strategies based on your objectives, please don’t hesitate to contact us.
We are always here when you need us!
The PensionmarkMeridien Team may be reached at 866-871-9963 or
https://pensionmarkmeridien.com/
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This content is developed from sources believed to be providing accurate information. 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. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1) Trading View, August 31, 2023
2) Trading View, August 31, 2023
3) Trading View, August 31, 2023
4) Yahoo Finance View, August 31, 2023
5) Axios, September 1, 2023
6) Oil Price, August 15, 2023
7) Forbes, September 1, 2023
8) Trading Economics, August 2023
9) CNN, August 10, 2023
10) CNBC, August 11, 2023
11) Investopedia News, August 11, 2023
12) YCharts, September 1, 2023
13) Trading View, August 31, 2023
14) Investopedia, May 24, 2023
15) CME Group, August 30, 2023
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