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Market Currents – 9/19/23

  • August Recap. Following a steady rally through the year’s first half and into July, stocks consolidated during the back half of the summer season.  August’s trading was characterized by choppy swings in both directions among equities, driven by rising bond yields and worsening economic developments from China. A slightly better-than-expected earnings season helped to cap downside.  The S&P 500 experienced a modest dip of 1.6%, marking only its second negative month of the year, and the first since February.


  • Q2 Earnings. The second quarter earnings season concluded in August, producing results that modestly exceeded investor expectations.  The S&P 500 registered a 4.1% drop in earnings, the third consecutive quarter of lower profits.  Despite lower profits, 79% of the S&P 500 companies surpassed their earnings expectations (i.e., investors were expecting worse).  Earnings growth varied across sectors; the Consumer Discretionary sector posted robust results, while the Energy sector lagged on lower prices.  Earnings are forecasted to turn slightly higher in Q3, with a more convincing upturn expected in Q4.


  • Global Yields Spiked. Treasury yields reached 15-year peaks across a significant portion of the yield curve, creating challenges for borrowers and presenting headwinds to the stock market.  The US 10-year Treasury climbed as high as 4.34%, nearly 55 basis points higher from levels at the start of the year.  Concurrently, the UK’s comparable yield also touched its highest in 15 years, while Germany’s approached levels not seen since 2011.  Multiple elements have fueled this shift.  Another US debt downgrade (this time by Fitch) highlighted concerns about the nation’s fiscal health and mounting debt servicing expenses.  Furthermore, expectations of the Federal maintaining higher rates for longer, and unexpectedly robust US economic conditions, also played a role.


  • Inflation Update. Crude oil prices have experienced a steady uptrend since early summer, exceeding $90 a barrel for the first time in 10 months.  Oil’s rise comes as price increases have been generally moderating through 2023, and carries broader economic ramifications, of course, putting pressure on consumers and businesses.  The nation’s Strategic Petroleum Reserve is currently at 40-year lows, and will not be a great factor in helping to cushion supply availability. Notably, despite these pressures, the national average for gas prices remains fairly stable at $3.88 per gallon, as quoted by AAA, reflecting only a slight increment from the previous year.  On a brighter note, the tight job market of the last several years appears to be normalizing, without a corresponding rise in unemployment.  Housing prices remain elevated, although rents are cooling in a handful of metros, and in some cases falling outright in areas with ample supply.


  • Market Outlook. Rising bond yields and perceived full valuations are foremost concerns among many investors.  Yet, the robustness of the US economy and corporate profitability, even amidst rising interest rates, underscores the resiliency of the current cycle.  Enthusiasm surrounding the AI revolution has energized share prices of a handful of market leaders, in turn helping to drive the broader index higher.  For the rest of the year, inflation trends and the accompanying Fed’s monetary policy will remain a primary focus.  We will continue to monitor market conditions on behalf of our clients.