Clarity in the Market

FOR THE WEEK OF SEPTEMBER 22ND, 2023

Markets were focused last week on several central bank meetings including the FOMC meeting, alongside U.S. auto industry work stoppages, a looming government shutdown, and a fair amount of global economic data. The primary driver last week was a ‘higher for longer’ policy narrative from the FOMC pulling both equity and bond markets lower. Equity markets were down globally with U.S. (-3%), developed international (- 2%), and emerging markets (-1.7%) all in the red. Interest rates drifted higher for a third consecutive week, taking 10yr yields to a 2023 high of 4.44%. The USD strengthened versus most major currencies while commodity markets traded lower overall with energy, metals, and grains losing ground on the week.

Market Anecdotes

• The FOMC held rates steady last week and made no material changes to the formal statement but did make notable changes to their Summary of Economic Projections including forecasting higher GDP growth (‘23 and ‘24) and Fed Funds along with lower unemployment, and inflation.
• New SEP policy implications suggest bond yields will remain range bound until either a second wave/stubborn inflation necessitates additional hikes or a breakdown in the labor market/economic growth necessitates a shift to easing.
• Friendly inflation data from the U.K. and Germany this month is providing support to the idea that the ECB may have concluded its rate hiking cycle. The BoJ maintained their current monetary easing policy but the U.K. delivered a dovish surprise by holding rates steady.
• It seems that rising oil prices, a strong USD, and rising bond yields have begun to weigh on equities with rates marking new cycle highs last week. The 10yr yield surpassed the 4.5% mark for the first time since 2007 and the 2yr yield hit its highest level since 2006.
• Bespoke noted September, historically the worst month of the year, is holding true to form thus far with the S&P 500 down over 4% (after a 1.8% August). However, investors should note around the corner is Oct/Nov/Dec - historically the best three months of the year.
• The UAW ramped up its strike from 12,700 to over 18,000 workers, primarily at Stellantis and GM parts distribution plants.
• A 10/1 deadline for a potential government shutdown has begun garnering a fair amount of attention with lawmakers unable to agree on a path forward.
• Individual investor bullish sentiment has waned, falling from a peak 51.4% two months ago to 31.3% in the most recent release - now back below its long-term average of 37.5%.

Economic Release Highlights

• The September flash U.S. PMI reported Manufacturing (48.9a vs 47.8e), Services (50.2a vs 50.2e), and a Composite of 50.1.
• Eurozone and U.K. flash PMIs (C, M, S) registered (47.1, 43.4, 48.4) and (46.8, 44.2, 47.2).
• Export data from Taiwan and Singapore indicated renewed manufacturing sector weakness in Asia, posting tangible declines.
• The U.S. Conference Board LEI fell 0.4% in August while the CEI rose 0.2%.
• Weekly jobless claims came in notably below consensus (201k vs 225k), pulling the four-week average down to 217k from 224k. Continuing Claims of 1.66mm fell unexpectedly to their lowest point since January.
• Housing Market Index for September declined from 50 to 45, well below consensus estimate of 50 and the forecast range of 49-52.
• August Housing Starts (1.283m vs 1.435m) and Permits (1.543m vs 1.440m) missed and beat consensus expectations respectively with strong permits and weak starts data on the month.
• August Existing Home Sales registered 4.040mm, slightly under consensus forecast for 4.100mm but within the forecast range.

The Numbers