September 6th, 2023
This month’s update comes a bit late as my family and I have been struggling with a windfall of Covid. No lengthy intro this month. I hope you’re well and ready for a wonderful fall season.
And now, your Monthly Market & Economic Update by the numbers.
Interested in learning more? Schedule a call with me HERE.
Warmly,
Mark S Sauer
Market Update
Global Equities: In the month of August markets fell sharply the first half of the month with the S&P down nearly 6% by mid-month. A general shift in sentiment, supported by economic data, led markets higher during the final week of August as investors grew more confident that the US economy may obviate a recession. The S&P 500 ended the month down -2.2%, the Nasdaq -2.01%, and the Dow Jones Industrial Average falling the most the US based indexes at -2.43%. Developed market stocks also fell sharply, down -3.13% while Emerging markets lost a whopping -5.9% to close out the month of August.
Economic Update
Powell Leans Hawkish but Fed May Pause on Unemployment Data: Chairman Powell’s brief comments at Jackson Hole in mid-August were essentially a reiteration of the speech from last year that sent markets into a freefall. Powell held firm to the 2% inflation target, as expected. The chairman also rejected the idea that rates have reached a “neutral” level, while simultaneously saying that the Fed has no way of knowing what that level is for certain. Overall, the speech put emphasis on incoming economic data, with Powell stating that, “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening policy.” However, in the final week of August data was released showing an uptick in unemployment. To most Americans this would sound like a bad thing. However, with the Fed trying to cool economic growth to tame inflation, the uptick in the unemployment rate from 3.5% to 3.8% may have provided cause to pause on rate hikes. Some of the job losses in August were directly attributable to the bankruptcy of trucking company Yellow (37k jobs) and the Hollywood writers’ strike (17k jobs). Overall, there was a lot for the Fed to like in the jobs report, with the participation rate rising to a post-pandemic high of 62.8%, and average hourly earnings cooling to 4.3% year over year. CME Group predicts the odds of an additional rate hike, most likely in November, stand at 42%.
Charts of the Month
PCE
Our first chart shows Core PCE inflation (black line) along with its subcomponents on a 3-month annualized basis. Fed Chair Jerome Powell frequently references the 3-month annualized measure as the best indicator of present inflation conditions, as it emphasizes recent trends. The data shows significant progress in Core Goods inflation, which was moving in the wrong direction but is now easing. Housing remains the biggest challenge due to supply constraints, but higher interest rates are gradually bringing that component down as well.
GDP
Our next chart shows US GDP relative to Personal Consumption. GDP holds strong in Q2 2023. As we know, the consumer is the largest driver of GDP growth. After three consecutive quarters of gradually shrinking GDP growth the market was pleased to see Q2 of 2023 up slightly.
Atlanta Fed’s GDPNow Model
The Chart of the Week is the Atlanta Fed’s GDPNow model, which is a real-time forecast of US Quarterly GDP growth. The model can fluctuate as additional data is released, so early quarter readings may be inaccurate. Despite these limitations, the model is showing an extremely resilient US economy that continues to defy expectations for a slowdown in the face of continued rate hikes. The model is currently projecting 5.9% GDP growth for Q3. Chairman Powell specifically mentioned economic growth continues to be stronger than expected and how if this trend persists, Fed rate hikes will be needed. Investors will be closely watching the upcoming Personal Consumption Expenditures (PCE) data release, which is a contributing component to the model.
