Hold onto your hats, folks! The stock market this past week was as unpredictable as a cat on a hot tin roof. Let’s break down the numbers and see what the hullabaloo was about.
The Big Picture
The major stock indices didn’t just dip their toes—they took a full plunge. Those mega-caps, which usually lead the parade, seemed to have tripped and dragged the entire procession down.
By week’s end, every sector of the S&P 500 saw red. The consumer discretionary sector took the hardest hit, plummeting 6.4%. (Inflation is eating people’s savings) Real estate wasn’t far behind with a 5.4% drop, and materials trailed with a 3.7% decline. On the brighter side, the healthcare sector cushioned its fall, recording the least loss at 1.2%.
Treasury Yields: Climbing the Ladder
The main instigator behind the market’s jitters? A sharp spike in Treasury yields. The 2-yr note yield ascended to 5.12%, marking an eight basis point increase for the week.
Meanwhile, the 10-yr note yield wasn’t slacking off, reaching 4.44%—a rise of 12 basis points in just one week. And if you’ve been tracking, that’s a 35 basis point surge for the 10-yr note yield in September alone!
The Fed’s Dance
The Federal Reserve, always in the limelight, opted for the “steady as she goes” approach, anchoring the target range for the fed funds rate at 5.25-5.50%. But here’s where eyebrows were raised: their projections hinted at no rush to slash rates in 2024.
The median fed funds rate estimate for 2023 remained unchanged at 5.6%, but the 2024 projection was nudged up to 5.1% from June’s 4.6%. It’s like the Fed’s signaling an encore when everyone thought the show was over.
A Peek Around the Globe
The U.S. wasn’t the only one with central bank buzz. The Bank of England, for instance, had a close 5-4 vote to maintain its bank rate at 5.25%. Meanwhile, the Riksbank and the Norges Bank took bold steps, hiking their key rates by 25 basis points to 4.00% and 4.25%, respectively.
Instacart and Klaviyo stole the spotlight with their IPOs on the corporate front. Both had a promising debut but seemed to lose their mojo, aligning with the market’s overall mood. And in the auto world, the drama between the UAW, GM, and STLA continued to unfold. While Ford seems to be making headway in labor talks, GM and STLA might need a bit more coaxing.
The Week in a Nutshell
To wrap it up:
- Major indices took a hit, with the consumer discretionary sector declining at -6.4%.
- Treasury yields made notable leaps, with the 10-yr note yield surging 35 basis points in September.
- The Fed’s projections hinted at a prolonged higher rate environment.
- Global central bank decisions added to the mix, with some opting for rate hikes.
- Corporate events, from IPOs to labor talks, added layers to the week’s narrative.
As we brace for what’s next, one thing’s for sure: in the financial world, it’s always best to expect the unexpected!
CALENDAR & MOVERS
- Tuesday, September 26: New Home Sales (August)
- Thursday, September 28: GDP (QoQ) (Q2)
- Earnings (Look at Consumer Spending Trends)
A Global Gaze at Inflation
This week, the world’s investors are zooming in on inflation patterns, eagerly awaiting Friday’s Personal Consumption Expenditures (PCE) Price Index. The core PCE inflation metric, the Federal Reserve’s go-to gauge, is anticipated to continue its gentle decline, eyeing an annual growth of a mere 3.8%. This inflationary ebb mirrors the prevailing worldwide economic pulse. Across the pond, inflation stats from Germany and the encompassing eurozone will cast the European Central Bank’s (ECB) recent rate hike into starker relief.
Earnings on the Radar
A slew of earnings announcements from giants like Costco (COST), Nike (NKE), CarMax (KMX), and Carnival Cruise (CCL) this week promises to shed light on consumer spending patterns. A downturn from these behemoths might hint at consumers tightening their purse strings, possibly shying away from bulk purchases, high-end items, or holiday splurges. Forecasts for the next fiscal year might hold even more weight, offering a crystal ball into looming economic scenarios. Negative vibes from these firms could spell a potential consumer spending slump and wider economic deceleration.
Economic Pulse Points
Down on Main Street, the spotlight is on fresh economic markers from the Federal Reserve’s key banks this week. Data from the manufacturing and service realms, courtesy of the Chicago, Dallas, Richmond, and Kansas City Fed, will paint a picture of these sectors’ vitality. These metrics are crucial as barometers of business climates and potential economic tides. However, the week’s showstopper might be the final GDP tally for Q2. Any downward tweaks could suggest that the economy’s recent robustness was a fleeting phase.
A Dash of Everything Else
The housing market is set to spill some beans this week, with the S&P/Case-Shiller Home Price Index and August’s new home sales data both queued up for Tuesday. Also, on Tuesday’s docket are the latest consumer confidence numbers, which investors would do well to keep tabs on. Switching lanes, with gas prices on an upward trajectory, the energy sector demands keen scrutiny this week, potentially steering market dynamics. A series of talks by Federal Reserve bigwigs peppered throughout the week could offer a sneak peek into the monetary policy roadmap as we steer into 2024.
Last week, the 10-year yields reached their highest levels since 2007. Investors were busy bees, buzzing around the weekly jobless claims data, which, surprise, surprise, came in lower than expected. It was the lowest since January!
This caused the 10-year note yield to jump up by 10 basis points (that’s 0.10% for the math wizards out there) to 4.49%- as this morning. The 30-year bond yield wasn’t far behind, increasing by 14 basis points (0.14%) to 4.56%. However, the two-year note, being its sensitive soul, decreased by two basis points (0.02%) to 5.14%.
If you’re in the market for a new home, listen up! Mortgage rates have gone up a smidge… The average 30-year fixed mortgage rate has increased by one basis point (0.01%) to 7.19%. That’s a jump from 6.29% a year ago. The 15-year fixed rate mortgage has also risen by three basis points (0.03%) to 6.54%, compared to 5.44% last year.
Municipal Market Musings
Last but not least, the Bloomberg 30-day visible supply rose by a whopping $378 million to $9.173 billion on Thursday. That’s higher than the 12-month average of $8.220 billion.
Oil & Energy
Much like the unpredictable waves of the ocean, the energy and oil market has its highs and lows. I believe that the energy market has some great opportunities for investors, and will have a huge impact both on the market and the Fed.
A Glimpse into the Oil Landscape
- A Surge to Remember: Oil prices have been making headlines, with some experts suggesting that the momentum could push oil to a whopping $100 per barrel. However, the journey to that milestone is suspenseful, as others believe the price might not linger long.
- The Voice of Experts: RBC’s Helima Croft weighed in on the situation, hinting that while the momentum is strong, the future beyond the $100 mark remains uncertain.
- Bullish on Energy Stocks: JPMorgan has turned quite optimistic about energy stocks, suggesting that oil could spike to an eye-watering $150.
Data and Predictions
- The Demand-Supply Tango: One of the driving forces behind the oil market’s dynamics is the balance between demand and supply. Recent discussions have revolved around concerns related to oil demand, which seems to be influencing many supply policies.
- Russia’s Move: In a move that could shake the global market, Russia announced a ban on diesel exports. This decision threatens to exacerbate an already looming global shortage.
Gold & Precious Metals
Copper, unlike oil, is once again facing a decline. Recent figures from the London Metal Exchange added to the concerns, revealing an uptick in copper stockpiles, easing worries over supply issues. As for its value, copper dipped to $8,100 per tonne. Meanwhile, gold remained steady, hovering around $1925. Considering the surge in bond yields, gold’s stability is commendable.
Bitcoin has found a balance this week, settling near the $26,600 mark. On the other hand, Ether has faced a slightly tougher time, declining by 1.63% since Monday and slipping under the $1,600 threshold. With the U.S. Securities and Exchange Commission (SEC) intensifying its scrutiny on crypto regulations, the industry is searching for uplifting news to maintain hope. Currently, the crypto market struggles to reignite investor enthusiasm without a well-defined regulatory landscape and a challenging economic environment for high-risk assets.