Investor Insights -September 2023

By Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA

Bobby Moyer, CFA, CFP®, CAIA Chief Investment Officer

See our recap of August's key statistics and market commentary below. 

Noteworthy Numbers

8.8 The Job Openings and Labor Turnover Survey showed that the number of job openings in the US fell to 8.8 million, the lowest number since March of 2021.

237 Nvidia was one of our noteworthy numbers back in June when it was up 159% year-to-date. It has continued to push higher and is up a whopping 237% year-to-date after reporting its sales doubled from this time last year. 

5.40 The 1-month treasury rate rose to 5.40% which is more than double where it was one year ago when it was at 2.34% at the end of August of 2022.

Our Take

In August, The S&P 500 had its first negative month since February. The reason for the August decline can be attributable to a number of factors. The markets were overbought entering August with the S&P 500 hitting 2023 highs on July 31. There were some positive economic reports that implied a stronger economy than many economists expected which seemed to be giving the Fed the latitude to continue to hike rates until inflation was closer to their target. This was classic good news (for the economy) is bad news (for the markets.) During the second half of the month, some retailers reported that consumers were changing spending patterns implying a weakening consumer. There were also some reports released showing that the labor conditions were softening. The markets ended up rallying over the last week of the month on this more negative economic news. This market rally was based on bad news for the economy, the opposite of the first three weeks of August.

The negativity in August spread across the board as the major indexes we track for this newsletter were all negative, including stocks and bonds. International markets led the decline as the MSCI Emerging Markets Index was negative by 6.13% and the MSCI EAFE International Index was negative by 3.82%. Domestically, mid and small caps were the hardest hit with S&P 600 Small Cap Index negative by 4.14% and the S&P 400 Mid Cap Index was down by 2.89%. The S&P 500 was negative by 1.59% but still remains positive 18.73% year-to-date. The Nasdaq was also down 2.05% but remains up a healthy 34.88% year-to-date. Bonds were slightly negative at -0.64% and remain positive 1.37% year-to-date.

When looking at the S&P sector performance Energy was the only sector that ended the month positive, up 1.81%. Communication Services was only slightly negative at -0.37%. The worst-performing sector was Utilities, which was down 6.16%. Year-to-date Communication Services and Information Technology continue to lead the way with both sectors up over 44% so far in 2023.

As already mentioned, long-term interest rates rose during the first half of the month with the 10-year treasury peaking at 4.35% on August 21. After the weak labor numbers were released, long-term rates declined with the 10-year finishing the month at 4.09%.

The Conference Board's Consumer Confidence Index came in at a reading of 106.1, down from 114 in July and below the 116 expected by economists. On top of the decline in consumer confidence, retailers are expecting a worsening retail sales picture for the rest of the year as they are forecasting weaker demand which could then lead to retail profits coming under pressure and being revised downwards.

The labor market also showed weakness in August. The Job Openings and Labor Turnover Survey (JOLTS) shows that the number of available jobs in the US dropped to 8.8 million, its lowest reading since March of 2021. Furthermore, ADP reported that the economy only added 177,000 jobs in August down from the 371,000 jobs added in July and less than the 200,000 expected additional jobs. In July, the quits rate fell to 2.3%, the lowest since January 2021. The JOLTS report also showed 5.8 million hires were made in the month, also the lowest total since January 2021.

However, the market reacted positively to the soft labor market data and rallied into the end of the month in hopes that a worsening jobs picture could mean an end to interest rate hikes this year. At the Federal Reserve’s annual symposium, Chairman Jerome Powell reinforced that the FOMC remains data-dependent when it comes to assessing the need for ongoing rate hikes. With their dual mandate being stable prices and full employment, any cracks in the economy’s employment armor could lead to leaving rates at their current level if not eventually lowering rates. Any hint of incoming rate cuts would be a boon for the already hot equity market, unless, of course, the cuts are a result of a recession. But Powell reiterated that "We expect this labor market rebalancing to continue," while speaking at the Jackson Hole Economic Symposium. "Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response." So, the Fed has been expecting this weakening of the labor market and they believe it is needed to bring inflation down to their 2% target. Near the end of the speech, he noted that the Federal Reserve is “navigating by the stars under cloudy skies” and that there is a lot of uncertainty about how much longer they need to use restrictive monetary policy to finish the job of bringing down inflation.

In order to avoid navigating your retirement by the stars under cloudy skies it is important to create a unique personalized investment portfolio and retirement plan that considers your goals and needs. Then use your plan as your guide when working towards retirement and beyond.

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