Market Update -September 30
by Justin J. Long CFP® on Sep 30, 2023 5:12:02 PM
Thanks to all our wonderful family, friends, and especially clients, Diazo Wealth was one of the top fundraising teams for the St Jude walk/run. Myself and the team here at Diazo appreicate everyone's support in our efforts to raise awareness throughout Childhood Cancer Awareness Month.
We are excited for our next community event, our "Movie Night at the Ballpark"- invites are going out to everyone and we look forward to seeing those that have RSVP'd so far. Checkout the event here: Movie Night at the Ballpark
And now onto the weekly recap:
The stock market settled the week mixed at the index level. Some rebound attempts throughout the week left the Nasdaq and Russell 2000 with slim gains while the Dow Jones Industrial Average and S&P 500 declined 1.3% and 0.7%, respectively. This is a growing belief that the stock market is due for a bounce after suffering steep losses in September, but rising long-term rates kept stocks in check.
The 10-yr note yield jumped 13 basis points this week, and 48 basis points this month, to 4.57%. The 2-yr note yield declined eight basis points this week, and rose 18 basis points this month, to 5.04%.
The concern for stock market participants is not necessarily the size of the rate increases, but rather the pace at which rates are moving. In addition, the jump in rates more recently doesn't appear to be tied to a fear of more rate hikes by the Fed.
The fed funds futures market sees only a 14.2% probability of a 25-basis points rate hike at the November FOMC meeting, versus 27.5% a week ago and 62.3% a month ago, according to the CME FedWatch Tool.
That understanding may create some angst about what else is driving the Treasury market. Some other factors include: the Fed having a long way to go still with its QT efforts, other central banks possibly selling Treasuries in a bid to support their currencies, and concerns about the budget deficit issue.
In addition to the move in interest rates, seasonality was cited as another potential factor weighing over the market. September, historically, has been the worst month of the year for the S&P 500.
Market participants received some economic data this week, including a weaker than expected August new home sales report, a low level of weekly jobless claims, and some pleasing inflation data in the form of the core-PCE Price Index for August.
WTI crude oil futures jumped more than $7.00/bbl this month, settling Friday's session at $90.78/bbl, which stoked lingering concerns about inflation expectations, rising gas prices, and a slowdown in consumer spending.
The rate-sensitive S&P 500 utilities sector saw the largest decline this week by a decent margin, falling 7.0%. The next worst performer was the consumer staples sector (-2.1%). Only the energy (+1.3%) and materials (+0.2%) sectors registered gains on the week.
|INDEX||STARTED WEEK||ENDED WEEK||CHANGE||% CHANGE||YTD %|
The major indices registered modest gains on Monday, but the complexion of things beneath the index surface showed an otherwise mixed market on a day when long-term rates continued to rise. The major indices nonetheless closed near their highs for the session.
The 10-yr note yield jumped ten basis points to 4.54%, which is its highest level in nearly 16 years. Equities took that move in stride, though, after an initial bout of selling.
Stocks moved somewhat lower at the open, pressured by the jump in rates and carryover downside momentum after last week's losses. Things turned around quickly, though, and the major indices bounced off their lows, helped by a reversal in the mega cap stocks. The index bounce also coincided with the S&P 500 slipping below an initial support level at 4,305, which attracted some overdue buying interest amid a sense that stocks were short term oversold.
There was no U.S. economic data of note on Monday.
The major indices all fell more than 1.0% on Tuesday, erasing Monday's modest rebound right out of the gate. The negative bias was due in part to ongoing worries about higher interest rates.
Concerns about higher rates were stoked by JPMorgan Chase CEO, Jamie Dimon, who told the Times of India that he is not sure the world is prepared for 7%, and Minneapolis Fed President Kashkari (FOMC voter), who said, according to Bloomberg, that he thinks another rate hike before year end would likely be needed if the economy is stronger than expected.
Seasonality was cited as another potential factor contributing to the negative price action. September, historically, has been the worst month of the year for the S&P 500.
Mega caps and semiconductor stocks paced broad based losses, but it was the rate-sensitive utilities sector (-3.1%) that saw the biggest decline.
Amazon.com (AMZN) was an individual standout of note to the downside following news that the FTC and 17 state attorneys general are suing the company for illegally maintaining monopoly power.
Reviewing Tuesday's economic data:
- July FHFA Housing Price Index 0.8%; Prior was revised to 0.4% from 0.3%
- July S&P Case-Shiller Home Price Index 0.1% (Briefing.com consensus 0.5%); Prior -1.2%
- September Consumer Confidence 103.0 (Briefing.com consensus 105.0); Prior was revised to 108.7 from 106.1
- The key takeaway from the report is that the drop in consumer confidence was driven by consumers' weakening expectations for future business conditions, job availability, and incomes, all of which has the potential to translate into softer spending activity.
- August New Home Sales 675K (Briefing.com consensus 695K); Prior was revised to 739K from 714K
Stocks were seemingly poised for a rebound in the early going following sharp losses on Tuesday and this month. Equities started to fade, however, as oil prices and market rates moved higher. The major indices ultimately settled off their lows thanks to a mega-cap powered climb in the afternoon trade.
Notably, the afternoon improvement happened despite yields and crude oil futures remaining elevated.
Despite the mixed index level performance, breadth was positive this session. Advancers had a roughly 11-to-10 lead over decliners at the NYSE and the Nasdaq.
Mega caps, semiconductor stocks, and growth stocks outperformed and helped support the broader market.
Reviewing Wednesday's economic data:
- The weekly MBA Mortgage Applications Index declined 1.3% with purchase applications falling 1% and refinance applications dropping 2%.
- Total durable goods orders increased 0.2% month-over-month in August (Briefing.com consensus -0.2%) following a downwardly revised 5.6% decline (from -5.2%) in July. Excluding transportation, durable goods orders were up 0.4% (Briefing.com consensus 0.3%) following a downwardly revised 0.1% increase (from 0.5%) in July.
- The key takeaway from the report is that orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- were up a robust 0.9% month-over-month, rebounding from a 0.4% decline in July.
The stock market experienced some choppiness in the early going, but quickly found some upside momentum following Wednesday's afternoon bounce. The positive bias stemmed from a belief that the stock market is due for a bounce after suffering steep losses in September. The major indices all registered gains, but closed off their highs of the day. The S&P 500 finished just a whisker shy of 4,300.
True to September form, the price action in the Treasury market was a big directional driver for stocks.
Even when market rates hit their highs of the session, stocks were holding up fairly well. Presumably, that was viewed as a positive development that invited additional rebound interest.
Some mega caps had been trading down in the early going, limiting index performance. Apple (AAPL) and Microsoft (MSFT) were among the influential laggards, down 1.7% and 1.1%, respectively, at their lows of the day. They would rebound as would other mega cap stocks.
Reviewing Thursday's economic data:
- Initial claims for the week ending September 23 increased just 2,000 to 204,000 (Briefing.com consensus 215,000). Continuing jobless claims for the week ending September 16 increased by 12,000 to 1.670 million.
- The key takeaway from the report is that the low level of initial claims -- a leading indicator -- continues to fit the framework of a tight labor market.
- The third estimate for Q2 GDP was unchanged from the second estimate at 2.1%, as expected. The GDP Deflator, though, saw a friendly downward revision to 1.7% (Briefing.com consensus 2.0%) from 2.0%. Benchmark revisions showed real GDP increased at an annual rate of 5.6% from the second quarter of 2020 through the first quarter of 2023, 0.2 percentage point lower than previously indicated.
- The key takeaway from the report was the improved deflator reading. The 1.7% increase was the lowest since the second quarter of 2020.
Stocks were showing some strength in the early going, building on the rebound that started Wednesday afternoon. The S&P 500, Nasdaq, and Dow Jones Industrial Average were up 0.8%, 1.4%%, and 0.7%, respectively, at their highs of the morning. The major indices rolled over, though, and closed near their worst levels of the session.
The Nasdaq eked out a small gain, thanks to relative strength in the mega caps, while the other major indices closed in the red. Market breadth was also mixed.
A drop in market rates was a positive development and helped drive the initial upside moves. Yields climbed off their lows of the day, though, which coincided with stocks deteriorating.
Friday morning's pleasing economic data acted as another tailwind for stocks in the early going.
In other news, the UAW called on an additional 7,000 workers at Ford (F) and General Motors (GM) to strike at noon ET, but it did not organize additional strikes at Stellantis (STLA).
Reviewing Friday's economic data:
- Personal Income increased 0.4% month-over-month in August (Briefing.com consensus 0.5%) after increasing 0.2% in July. Personal spending was up 0.4% month-over-month (Briefing.com consensus 0.5%) after increasing an upwardly revised 0.9% (from 0.8%) in July. The PCE Price Index was up 0.4% (Briefing.com consensus 0.4%) while the core PCE Price Index rose 0.1% (Briefing.com consensus 0.4%).
- On a year-over-year basis, the headline PCE Price Index was up 3.5% versus an upwardly revised 3.4% in July (from 3.3%). However, the core PCE Price Index decelerated to 3.9% yr/yr from an upwardly revised 4.3% (from 4.2%) in July.
- The key takeaway from the report is that core price growth was a bit cooler than expected, though the overall report wasn't weak enough to cause a sudden shift in the market's fed funds rate range expectations.
- The Adv. Trade in Goods deficit narrowed to $84.3 billion from $90.9 billion (from -$92.2 billion) in August. Wholesale inventories declined 0.1% in August from a revised 0.2% decline (from -0.1%). Retail inventories jumped 1.1% in August from a revised 0.5% increase (from 0.3%).
- Chicago PMI fell to 44.1 in September (Briefing.com consensus 48.3) from 48.7 in August.
- The final reading of the University of Michigan Consumer Sentiment Index for September came in at 68.1 (Briefing.com consensus 67.7) versus the preliminary reading of 67.7. The final reading for August was 69.5 and one year ago in September, the reading was at 58.6.
- The key takeaway from the report is that inflation expectations were revised up from their preliminary readings for the month, but they reflected some moderation in expectations when compared to final readings for August.
The data provided is for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. The information contained here is not guaranteed as to accuracy or completeness. All economic and performance information is historical and does not guarantee future results.
The Dow Jones Industrial Average is a price-weighted index comprising 30 widely traded blue chip U.S. common stocks. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the NASDAQ stock exchange. The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The MSCI Europe, Australasia, and Far East (EAFE) Index tracks the performance of publicly traded large- and mid-cap stocks of companies in those regions. The Cboe Volatility Index (VIX) shows the market’s expectation of 30-day volatility and is constructed using the implied volatilities of a wide range of S&P 500 Index options. Weekly and year-to-date figures for the VIX show percentage changes, not investment returns. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.
The Treasury yield curve is derived from available U.S. Treasury securities trading in the market and is provided directly by the U.S. Federal Reserve. The spread measures the difference in yield between two government securities. A normal (positive) yield curve occurs when longer-term rates are higher than shorter-term rates. The opposite holds true for an inverted yield curve. Year-to-date changes in U.S. Treasury bond yields are shown in basis points (bps). One hundred basis points equals one percent.
Oil prices are represented by West Texas Intermediate (WTI) crude oil.
The G20 countries comprise a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85% of global gross domestic product, and over 75% of global trade.
We strive to provide relevant and value-added content to help our current and future clients stay updated on news that impacts markets.