Investment News

Read news from your Trinity Strategic Wealth™ Advisors and other Raymond James newsletters.
Trinity Strategic Wealth™ Current Newsletter

OCTOBER 2023


SEPTEMBER 2023 MARKET REVIEW

Throughout the run of the Federal Reserve’s (Fed) inflation-fighting, rate-raising program, the equity market has shown uncommon enthusiasm supported by a growing economy, a strong labor market and healthy consumer spending. Contrary to the expected way of these things, inflation continued to cool even as the economy and the markets remained hot.

However, in September, “We believe the economic cycle may be reaching an inflection point,” Raymond James Chief Investment Officer Larry Adam said. “The S&P 500 had its second-best start to a year since 1997, and we’ve warned that equity markets were due for a pullback. Our view is that the economy is slowing, not imploding.”

Inflation remains persistently higher than the Fed’s 2% target. And while the Fed declined to raise interest rates at its September meeting, it left the door open for another rate increase by the end of the year.

A potential government shutdown, softer consumer confidence, a slowdown in home sales and home starts, higher oil prices, persistent inflation and the Fed’s message that the fed fund’s rate will be higher for longer combined to bring the S&P 500 down 4.87% for the month.

Congress reaches last minute funding deal

By the end of the month, uncertainty about whether Congress would meet the October 1 deadline to fund the government for fiscal year 2024 without interruption faded into near certainty that a shutdown was imminent. However, a compromise deal approved in the final hours in the fiscal year created a 45-day stopgap. Significant challenges lie in the path of a longer-term funding bill, but this measure suggests they are not insurmountable.

Treasury yields surge on Fed’s words

The 10-year Treasury yield remained elevated through September and hit a 15-year high after the Fed’s steadfast language suggested it would keep interest rates higher for longer than investors have expected. Compared to August, rates for notes beyond seven years were up 40-49 basis points while two-year rates went up 19 basis points and five-year rates increased 34 basis points. “Higher for longer” interest rates are expected to weigh on the economy but have also created opportunities to lock in elevated yields.

Suppliers’ discipline pushes oil higher

Oil prices ended September above $90 a barrel, a 10-month high, demonstrating that the macroeconomic backdrop is not everything. While there is no escaping worldwide weak economic headlines creating headwinds for oil demand, the supply side of the equation is currently driving prices. The OPEC+ group, led by Saudi Arabia and Russia, is actively curtailing oil supply, and for longer than originally expected. OPEC+ has been disciplined with supply from the first days of the COVID-19 pandemic, and even with global demand having surpassed pre-COVID levels, that discipline remains visible.

Britain and EU reach potential interest rate plateaus

While avoiding being boxed in by statements claiming their aggressive interest rate raising strategies have reached a “keep high and hold” stage, the positions of both the Bank of England and European Central Bank were similarly hawkish as the U.S.’s Federal Reserve as they adopted no change to their current, heightened rate in the U.K., and a quarter-percentage point raise in a single currency area in the euro zone

Japanese markets suggest ending of “ultra-easy” money

Financial market pricing suggests the Bank of Japan may end its 16-year run of negative interest rates as part of its “ultra-easy” monetary policy stance.  If Japan is going to depart from its long-held policy position it seems unlikely before January, at the earliest. Given that local financial institutions are nursing losses on local sovereign bond holdings, any further adjustment in the country’s monetary policy position is thought more dependent on any offsetting moves in the stock market than on inflation’s future pathway.

The bottom line

September saw some investors’ hopes for a “soft landing” – a corrective to inflation without a recessionary side effect – challenged, pulling air out of the equity market. Though the economy and labor market remained strong in the third quarter, data continue to suggest a mild recession in the first half of 2024.

We expect volatile conditions to continue into the fourth quarter, but our overall outlook remains positive. As long-term investors, down markets present opportunities to acquire high-quality assets.

Additional Resources

Click the links below to get the latest Economic & Market commentary:

 

Raymond James – Point of View
Additional Raymond James Newsletters:

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. Past performance is not an indication of future results and there is no assurance that any of the forecasts mentioned will occur. The process of rebalancing may result in tax consequences. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing. An investment cannot be made in these indexes. Dividends are not guaranteed and will fluctuate.

International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small and mid-cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. The performance noted does not include fees or charges, which would reduce an investor’s returns. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Debt securities are subject to credit risk. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency. A downgrade in an issuer’s credit rating or other adverse news about an issuer can reduce the market value of that issuer’s securities. When interest rates rise, the market value of these bonds will decline, and vice versa. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. The yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Chris Bailey is with Raymond James Investment Services, an affiliate of Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. Material prepared by Raymond James for use by its advisors.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
© 2020 Raymond James Financial Services, Inc., member FINRA/SIPC. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.

Raymond James Financial Services does not accept orders and/or instructions regarding your account by email, voice mail, fax or any alternate method. Transactional details do not supersede normal trade confirmations or statements. Email sent through the internet is not secure or confidential. Raymond James Financial Services reserves the right to monitor all email. Any information provided in this email has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James Financial Services and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.