November 2nd, 2023
Sometimes it really does feel like we’re on a rollercoaster.
Just last week the markets were petrified by the stellar performance of the US economy as Gross Domestic Product (GDP) came in hotter than expected – consumer spending continued to drive economic growth in the third quarter of ‘23, pushing quarterly GDP up to 4.9%. That’s right. GDP was ‘too good’. The market’s fear was that the Fed would continue their hawkish stance and keep rates higher, longer, and potentially bump rates one more time this year. Last week alone the S&P 500 and Nasdaq fell 2.5% and 2.6% respectively.
With the effect of policy tightening – interest rate hikes – having yet to be fully felt the last thing the market wants is yet another rate hike… The pessimism among market pundits has been increasingly palpable over the last couple of months. However, during the Federal Open Market Committee (FOMC) meeting on Halloween Fed Chair, Jerome Powell, for the first time appeared to be leaning dovish. Acknowledging the economy’s strength while also conceding that tighter financial conditions are affecting businesses and households negatively. He noted that the risks are becoming increasingly balanced and reiterated that while the economy has proven resilient, there has also been progress made in the battle against inflation, stating “we are close to the end” of the rate hike cycle.
Wall Street seesawed after the Federal Reserve pressed the ‘pause’ button, leaving its key Fed funds target rate at 5.25%-5.50%. A relief for many. Resulting in the S&P 500 and Nasdaq up significantly over the first two days of November (+4.87% & 5.21%, respectively).
Regardless of economic cycles I believe that the companies who create true intrinsic value for society, and do so with integrity, will prevail. Despite the ups, and downs, the safest place for our investable capital is with those creating and serving what our society needs most.
Interested in learning more? Schedule a call with me HERE.
And now, your Monthly Market & Economic Update by the numbers.
Warmly,
Mark S Sauer
Market Update
Global Equities: Stocks remained under pressure through the final weeks of October as earnings and economic data were released. The S&P 500 fell -3.27%. The Dow Jones Industrial Average shed -1.38% and the Nasdaq finished -3.17% lower. Developed International stocks fell -2.78% while Emerging Markets finished down -3.24%.
Economic Update
GDP Strong: Consumer spending continued to drive economic growth in the third quarter of ‘23, pushing quarterly Gross Domestic Product (GDP) up to 4.9%. Some underlying data suggested Q3 will be a tough act to repeat, such as a decline in the savings rate to 3.8% and nearly flat business investment. Still, considering a year ago, Bloomberg projected a 100% probability of a recession, the GDP data is extremely impressive.
Charts of the Month
iShares 20+ Year Treasury Bond ETF
Our first Chart of the Month is the iShares 20+ Year Treasury Bond ETF (Ticker: TLT). Long-duration treasuries have been getting pummeled throughout the rate hike cycle – along with every other long-duration corporate or municipal bond issued prior to the Fed’s quantitative tightening regime. On November 1st, Treasury Secretary Janet Yellen unveiled that the US government planned to concentrate new debt sales in shorter-term notes rather than longer-term ones. This, combined with the Fed’s announcement that “we are close to the end” of the rate hike cycle suggest we may be seeing a ‘bottom’ for longer duration debt securities.
S&P 500
Our next chart is the S&P 500 Index plotted against its 50-day (blue line) and 200-day (red line) moving averages. Both support levels have been breached in October leading us to look for support in what was appearing to be a new downtrend. However, with positive news form the Fed to end the month, the S&P rebounded dramatically and now back above the 200-day.
